‘The biggest risk is low liquidity’: South Korea tests global demand for after-hours stock trading

South Korea’s main stock exchange, Korea Exchange, is extending trading hours into the evening, aiming to attract global investors and tap into what it hopes will be sustained demand. This move, which will begin on September 14, allows for trading of nearly all local stocks until 8 pm, replacing the regular close at 3:30 pm. This shift marks a significant step toward the exchange's goal of 24-hour trading, following the lead of global leaders like Nasdaq and the New York Stock Exchange.

The primary motivation behind this expansion is to cater to traders who prefer extended hours, thereby increasing market efficiency and flexibility. Lee Young Jae, a senior investment manager at Pictet Asset Management in London, notes that longer trading windows generally provide investors with more opportunities and contribute to market efficiency.

However, the success of this initiative hinges on whether it can draw sufficient volume, given concerns over insufficient liquidity, especially after a sharp decline in turnover following a currency-market extended hours session in July.

Korea Exchange aims to provide a test of its ability to maintain adequate liquidity during extended trading hours, a crucial factor for institutional investors like hedge funds and those who frequently trade. Despite after-hours trading being available through an alternative trading system, Nextrade, for about 600 stocks since March 2025, attracting nearly a third of activity in a short period, the Korea Exchange's move is more extensive, offering evening trading for around 2,400 stocks, including short-selling.

Nevertheless, industry experts caution that initial interest is expected to be modest. Dave Mazza, the CEO of Roundhill Financial, points out that extending trading hours does not inherently create liquidity; instead, it redistributes it. The potential for erratic price swings and the challenge of hedging currency risks are also highlighted as significant hurdles.

Park Sanghyun, founder of Clepsydra Capital, emphasizes that the biggest risk lies in low liquidity, which could lead to paying more or receiving less for large trades.

Despite these challenges, market watchers broadly support the extension, citing its potential to enhance market fairness by allowing investors to react more quickly to post-close news and events. The recent introduction of American depositary receipts for SK Hynix, a major semiconductor company, further underscores South Korea's efforts to attract foreign investment, although the current evening trading session primarily benefits chip stocks.

In summary, while South Korea's expanded trading hours present both opportunities and challenges, the primary concern remains adequate liquidity to ensure a smooth and efficient market.