Korea Exchange Launches High-Frequency Trading Study, Eyes Tighter Regulation
Alina Collins
Korea Exchange has opened a formal research tender on high-frequency trading's market impact. KOSPI plunged 23% in 13 sessions then surged 3.6% in a single day — volatility severe enough to force regulators to re-examine automated trading.
What happened — and why now?
Korea Exchange (KRX) has launched a dedicated research tender on high-frequency trading (HFT). Applications close on the 27th; the study is due in the second half of this year.
The trigger: KOSPI's extreme swings — down 23% over 13 sessions, then up 3.6% in one day — pushed regulators to act.
On that day Samsung Electronics rose 6%, its rally tripped the Sidecar circuit breaker, and the exchange halted programme-driven buy orders on KOSPI.
What is HFT — and why has it grown so fast?
High-frequency trading — algorithm-driven orders fired in under a second with no human intervention — differs from ordinary programme trading in one key way: faster speed, fully unmanned.
This means → it can capture price gaps in milliseconds, but it can also amplify volatility during extreme moves.
After Korea cut its securities transaction tax in 2019, HFT profit margins widened and volumes kept climbing. Recent spikes in market turnover and index swings gave HFT even more room to operate.
How deep does the review go?
The scope extends well beyond single stocks. It covers derivatives and cross-market arbitrage — including HFT strategies that pair leveraged ETFs or derivatives with underlying positions.
A key focus: the scale of high-frequency arbitrage between KRX and NEXTRADE (NXT), a newer trading venue, and its effect on the stock market.
In plain terms = regulators want to know not just "who runs HFT" but "which channels the money flows through and how much."
Are existing safeguards enough?
Korea already has some controls: a registration system for high-speed algorithmic traders introduced in 2023, plus a "kill switch" — a mass order-cancellation system.
Yet an exchange official acknowledged broad concern that HFT can backfire in bad markets — much like the "flash crashes" the U.S. has experienced, where stocks plunge sharply with no obvious cause.
This reflects a deeper gap: current tools are more "fire-fighting after the fact." The review aims to establish HFT's actual impact on Korea's market and lay the groundwork for a stronger regulatory framework.
Where should the regulatory line be drawn?
Kang So-hyun, a senior researcher at the Capital Market Research Institute, notes that HFT participants also serve as market makers — when bid-ask spreads widen, they effectively supply liquidity.
This means → a blanket crackdown on HFT could reduce market liquidity, raising trading costs for ordinary investors.
In plain terms = HFT is both a "volatility amplifier" and a "liquidity pipeline." Where exactly to draw the tighter line is the real debate once the review's findings land.
Content is for reference only, not financial advice.