On Sept. 12, the Financial Services Commission announced that it would allow trading of domestic and overseas stocks in decimal places. Until now, only Korea Investment & Securities and Shinhan Investment Corp served trading in decimal places, and decimal trading has been limited to overseas stocks. From the third quarter of 2022, securities firms will launch decimal trading services for domestic stocks. Decimal trading on overseas stocks will be expanded to other securities firms within this year.
Unlike the conventional method of trading in which whole numbers of stocks must be sold, decimal trading is made on a smaller scale in units of 0.01 shares, such as 0.14 and 0.5 shares. For example, conventionally, an investor needed about $1,130 to invest in LG Household & Health Care, whereas in decimal trading, one can participate in the investment with only $11.3.
In the case of domestic stocks, securities firms and the Korea Securities Depository will divide and issue one complete stock into multiple certificates of revenue. In the case of overseas stocks, investors will deliver the amount of investment to the securities firm, and the securities firm will execute trading by combining the investors’ orders in decimal places into complete stocks.
The biggest advantage of stock decimal trading is the expanded accessibility to stocks. Retail investors with small capital, so-called “ant investors”, will be able to invest in stocks with high prices. As a large number of ant investors is expected to flow into the stock market, stock investment will be revitalized. In addition, split investment in various items will become more convenient, helping investors to form a more diverse investment portfolio.
Meanwhile, decimal trading may threaten the stability of the stock market by raising the number of investors seeking short-term investments instead of long-term investments. In addition, since it takes time for the orders from investors to go through the internal orders of securities firms, market price and weighted average trading prices are highly likely to be used instead of prices designated by investors. Sales at the price the investor wants is not guaranteed, and the fluctuation of the stock price will not be reflected in the transaction.
Although decimal trading presents a new paradigm to overcome the limitations of the previous stock trading, it will take time and effort to overhaul relevant laws and systems for decimal trading to be settled.