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Cyber Stock Exchange to be Established in Korea

The Korean Ministry of Finance & Economy announced that it is studying ways to establish an Internet-based stock exchange.

The ministry might revise the existing securities transaction law before the end of the year to pave the way for the establishment of cyber stock exchange.

"The idea is designed to help listed companies improve their financial structures through funding from the stock market as well as to cope with the informationalization of businesses," a ministry official said.

In doing so, the government will develop regulations for security of damages that could occur in the process of cyber stock trading so that the operating company of the Internet stock exchange could compensate for such losses.

It also will create a so-called Internet stock exchange fund, in which participating companies will jointly accumulate a certain portion of turnover as reserve.

"By allowing an Internet stock exchange, brokerages involved will compete so that their stock trading service will improve and relevant costs will be lowered," the official said.

At present, investors in Korea can place orders for stock trading through online networks provided by securities firms. But these online stock trades have to go through the Korea Stock Exchange for settlement, although KOSDAQ, the Korean version of NASDAQ, is an exception.

Industry analysts point out that the key to success in the cyber stock exchange will largely depend on how many orders it could receive from investors. If the trading volume is smaller than the commercially viable level required for a normal operation, it could cause problems as stock trading would not be processed in proper time.

"Stock investors, in the long run, will benefit from the cyber stock exchange. However, prior to the introduction of the cyber stock exchange, a series of problems related to system security and safety in stock transactions have to be solved," said an official of the Korea Securities Dealers Association.

Korea's online securities trading began in June 1997 when Chohung Securities launched Korea's first online service. Since then, the nation's online securities trading market has grown substantially. Now, the market is valued at some 25 trillion won (US$20.8 billion).

With its convenience, Internet stock trading even lures those Internet users who have never had an interest in stock investment into the securities market. It is believed that the relatively cheap trading commission is one of the biggest merits of online trading.

Prompted by the nation's online trading boom, coupled with the bullish mood of the Korean stock market, local securities firms are now considering to introduce an Internet stock plaza, a room equipped with PCs and other relevant facilities where investors can easily trade stocks through the Internet.

This new location for online stock trading is quite like the Internet Game Arcade which is gaining popularity throughout the nation. Tongyang Securities Co. is preparing to introduce such stock trading rooms and is now collecting relevant information from the U.S.

"We believe the Internet stock trading room will become a profitable business in Korea as demand for online stock trading grows rapidly," said an official at Tongyang Securities.

Industry analysts predict that smaller securities firms would be hard hit by the advent of new stock trading operations, which are expected to offer online brokerage services at a cheaper price than the existing securities firms.



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