The Korea Exchange (KRX) has evaluated the effects of market reforms implemented in 2014 that were intended to revitalise the stock market.
They included the expansion of price limits in off-hours markets, the introduction of volatility interruption to individual issues and the reduction of trading unit to a single share in the KOSPI market.
exchange observed effects for three months before and after the reforms were
Their conclusions were that the reforms did contribute to the recovery of the stock market and helped to improve liquidity.
There was an increase in off-hours trading volume, and the expansion of price limits in off-hours markets in both KOSPI and KOSDAQ markets allowed the stock market to better reflect information that affected price, concentrated liquidity efficiently and improved price discovery.
The volatility interruption in KOSPI and KOSDAQ markets reduced the volatility of low liquidity issues and mitigated abnormal changes of stock prices. Most of the volatility interruption cases in both markets occurred in low liquidity stocks, and the trading methods were changed into single price auctions for two minutes.
The number of individual investors’ accounts in Korea increased 10.4% in 2014 and KRX attributed this to the reduction of trading unit to a single share. This led to an increase in the number of individual investors who tend to hold a quantity of low price shares.
The number of bids/asks and the trading volume of stocks priced below
KRW 50,000 increased. The number of trading orders of low price issues in the
regular market increased as by 53%, and the number of trading orders for a
single share rose by 63%.