SK hynix again hit the lower price limit on the alternative trading venue NEXTRADE (NXT) premarket with just 11 shares traded. The structure of the premarket, where orders are executed immediately before sufficient quotes build up right after the open, is cited as the cause. NXT plans to introduce a static volatility interruption (VI) starting next month to block the immediate execution of orders that deviate significantly from the previous day's closing price.
According to the securities industry on the 6th, SK hynix saw 11 shares executed at 1,168,000 won, down 29.97% from the previous trading day, right after the premarket opened at 8 a.m. Afterward, a VI was triggered and trading shifted to call auction for two minutes, and the drop narrowed to the 3%–4% range immediately after trading resumed.
Behind the distorted prices formed by tiny transactions that fail to reflect real supply and demand are thin liquidity and differences in execution methods. In the Korea Exchange (KRX) regular session, orders before the open are pooled to determine the opening price at the level that maximizes transactions. In contrast, the alternative trading venue (NXT) premarket uses a continuous matching method where orders are executed immediately when bid and ask quotes match. As a result, around 8 a.m., when institutional participation is low and the order book is thin, even a market order or a simple input error can cause large price swings.
Kim Jun-young, a researcher at iM Securities, said, "The premarket has a higher share of individual investors than the regular session, and institutions do not respond much, so liquidity is thin," and added, "If a market order comes in, such executions can occur even due to an order error."
The dynamic VI currently applied to NXT activates when there is a rapid change beyond a certain level from the last execution price. If the first trade right after the open is executed at the upper or lower limit, the price is established once and only then shifts to call auction. This means it is hard to preemptively filter out the initial aberrant execution.
◇ Shock from tiny executions spreads to overseas-linked products
The problem is that this keeps happening. SK hynix also had 1 share trade at the lower limit right after the premarket opened on the 28th. At the time, this price was reflected in the reference price for SK hynix perpetual futures on an overseas crypto derivatives exchange, leading to the forced liquidation of long positions worth $57.4 million, about 81.5 billion won at the exchange rate then.
Samsung Electro-Mechanics and Alteogen also hit the upper limit in the premarket on the 5th on 1-share executions and then immediately returned to normal price levels. While such swings have limited direct impact on the regular market, in overseas-linked products that use instantaneous execution prices as indicators, they can trigger unexpected margin calls or forced liquidations.
Lee Hyo-seop, a senior research fellow at the Korea Capital Market Institute, said, "If you do not batch orders at the start, a tilt in supply and demand in one direction can produce a lower limit," and added, "Products based on this price can see margin calls, and if large volatility keeps appearing, market participants' confidence can also fall."
◇ Putting the brakes on from the "first trade"… the remaining task is liquidity
NXT plans to additionally introduce a static volatility interruption (VI) starting Sept. 14. If an order deviates by 10% or more from the previous close or the reference price, immediate execution will be halted and trading will shift to a two-minute call auction to determine an equilibrium price. Because it assesses price deviation from the very first execution, it is expected to reduce a significant portion of extreme executions like this time.
An NXT official explained, "Most overseas alternative venues' premkarkets operate on a continuous matching basis, and there had been debate over whether a static VI is necessary in markets with price limits," adding, "Initially, we judged that a dynamic VI, which can respond even to small price moves, would be more effective."
However, as price distortions stemming from tiny transactions continue in the NXT premarket, calls are growing to reinforce safeguards in line with trading size. NXT maintains that, unlike a regular exchange, it is an order-execution provider rather than a place responsible for price discovery, but critics say the gap has widened between that framework and the reality that investors perceive it as a major market.
An NXT official said, "As the market grows and is perceived like a main market, we believe opinions are emerging about differences from existing systems," and added, "Because the static VI applies from the first execution, it is expected to prevent cases like this one."
But even with the introduction of a static VI, the premarket's lack of volume will not be resolved. Orders that deviate by 10% or more from the reference price can be shifted to call auctions, but if there are few trading participants, pooling orders may still fall short of forming an appropriate market price.
Kim Sang-bong, an economics professor at Hansung University, said, "Applying a static VI or a volume-weighted average price (VWAP) can reduce price distortions to some extent," but added, "If volume is too low, there is no price to average, so it is hard to be a fundamental solution." He added, "As premarket participation increases and the market matures, price stability can also improve."