？ Korean Stock Exchange has established a continuous auction trading system for its listed stocks since December 2012. The system is designed to enhance the liquidity and transparency of the stock market.
Under the continuous auction trading system, large orders are broken down into small sizes and priced sequentially until the order is filled in its entirety. Buyers and sellers are always able to view the best available bid and ask prices on the trading system, as well as the size and the time of the transaction.
The continuous auction system is based on the limit-order type of order - a system in which investors list a price at which they are willing to take or make an offer, as well as a maximum quantity they are willing to buy or sell. This allows investors to partially or completely fill an order at any time.
At the start of the trading day, buy and sell orders that were pending at the end of the previous day are executed. These orders are matched up, and no changes can be made to the order prices. Subsequently all the orders are priced sequentially, and orders can be placed and modified all throughout the day, until the close of business.
When an investor places a new order, the order is added to the book and immediately traded, if possible. If the order cannot be filled immediately at the limit price, then the limit order is added to the book and can be modified or removed at any time. All orders accepted into the book are visible to the market and are executed sequentially, according to their position in the book.
The continuous auction trading system limits short sales of stocks, which prevents speculators from driving down the price of a particular stock. Shorting is when an investor borrows a stock from another party and sells it, with the intention of repurchasing it at a lower price and making a profit in the process. Short selling was made illegal by the Korean Stock Exchange in July 2012 in response to the market volatility that resulted from speculative activities.
The continuous auction trading system also helps reduce price manipulation. Transactions are moderated by a market-making agency, which helps provide a more consistent market price by executing transactions at the best possible prices for buyers and sellers. Additionally, if large and immediate orders are placed, the order will be automatically divided into smaller sizes, which ensures that large orders do not have an excessive impact on the price of a stock.
Overall, the continuous auction trading system helps to provide a more liquid and transparent market which better facilitates the matching of buyers and sellers. The system also introduces new measures that serve to protect and stabilize the market, including the protection against short selling and price manipulation.
