South Korea will double the daily price band for stocks listed on its two main exchanges to allow them to trade 30 percent higher or lower, a move aimed at boosting transactions and reducing the risk of markets being driven by speculative trades.
Under the current system, it is relatively easy for speculators to push a stock to its upper limit by the end of a session while spreading expectations for another rally the next day when they would take profits, Korea Exchange, the market operator, said in a statement. It said doubling the band, which will go into effect from June 15, would make it riskier for speculators to employ this practice, a view that market experts agreed to.
"Having a higher limit in price will absolutely help reduce chances for speculation and will somehow contribute to increasing transactions, although any immediate impact will likely be limited," said Bryan Song, head of Korea research at Bank of America Merrill Lynch in Seoul. Stocks on Korea's two exchanges have a combined market capitalisation of 1,506 trillion won ($1.4 trillion), with 762 companies trading on the main board and 1,069 companies on the junior board.
The main KOSPI rose 0.4 percent while the junior KOSDAQ index gained 0.5 percent as of 0507 GMT, little changed from levels earlier in the day. The Korea Exchange said the average daily trading volume has increased to 239.8 million for six months after the price limit was lifted to 15 percent in December 1998 from 12 percent, compared with 100.7 million for the preceding six months.
President Park Geun-hye's government has pushed for the expansion of the price band, part of measures aimed at boosting household income and the stock market by encouraging more South Koreans to invest in shares. The Korea Financial Investment Association, which represents brokerages and asset management companies, has said it welcomes the move as a step to increasing volumes although it believes it will have a limited effect on lifting prices.