(Aug 6): Chip giant SK Hynix Inc suffered its second short-lived share plunge in about a week, raising fresh questions about trading volatility on South Korea’s alternative stock exchange.

At 8am local time, 11 shares of SK Hynix changed hands at 1,168,000 won (RM3,365) apiece, falling by the daily limit of 30%, according to Nextrade, a new bourse launched last year to also handle transactions before and after regular trading hours. The stock ended the 50-minute pre-market session down about 2%.

The chipmaker’s shares closed 10% down at the end of Thursday’s regular trading hours on the Korea Exchange, the country’s main bourse, tracking the sector’s broader weakness following losses on Wall Street.   

The roller-coaster ride on Nextrade bore a striking resemblance to the stock’s performance last Tuesday, when it also plunged by 30% in pre-market trading before subsequently paring losses. The incident led to the closure of nearly US$60 million (RM245.26 million) in long positions within two minutes by holders of a derivative contract tied to SK Hynix that trades on a crypto exchange.

Nextrade has been quickly expanding its market share in Korea after its launch last year, given its offer of longer trading hours and cheaper fees. However, unusual episodes such as the SK Hynix flash crash have increased scrutiny of the alternative bourse, due to concerns that such trades undermine proper price discovery.

Unlike most stock exchanges that use multiple pricing sources, Nextrade said it uses a single source only, a practice that it said is shared by most global alternative exchanges. 

“Unlike primary exchanges, where the price discovery function — such as establishing the opening and closing prices — is of paramount importance, an alternative stock exchange places greater emphasis on trade execution,” Nextrade said in response to questions from Bloomberg News. “Accordingly, like leading global alternative trading systems, Nextrade begins and operates its market using a continuous trading session,” it added in a statement. 

Nextrade plans to introduce a static volatility interruption mechanism starting Sept 14, which should prevent such incidents from recurring, according to a spokesperson of the bourse. If there are bids at least 10% above or below the previous closing price, the mechanism will be triggered to start a two-minute auction to select a price that most trades can be executed at, he added. 

Thursday’s pre-market flash crash in SK Hynix’s shares had a smaller impact on the crypto trading world.  

Liquidation of a derivative contract linked to the chipmaker’s stock that trades on the Hyperliquid blockchain platform totalled just US$230,132, according to Allium, a crypto analytics firm.

“For crypto traders, SK Hynix perpetuals liquidations on Hyperliquid were small this morning because prior wipeouts had already cleared most leverage,” said Elton Shehdula, head of research at Allium. 

“Nextrade expands access and competition, but it also introduces new market-structure risks,” Shehdula said. “The consequences now extend beyond Korean equities because these prices can anchor offshore derivatives that operate under different rules and may not reverse losses caused by an erroneous print,” Shehdula added.

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