The electronic display board shows the Kospi at the trading room of Hana Bank's headquarters in central Seoul, on July 27.NEWS1
Is it time to curb the trading curb? A temporary trading curb known locally as a "sidecar" has been activated on the Kospi or Kosdaq market in each of the past 10 trading sessions as of Tuesday.
Whether the Korea-specific market safeguard has actually safely guarded the market, however, has come under scrutiny.
On the Kospi, a sidecar is triggered when futures prices rise or fall by at least 5 percent for one minute, after which program trading orders in that direction are suspended for five minutes.
On the tech-heavy index, Kosdaq, it is activated when futures prices move at least 6 percent, and the spot index moves at least 3 percent in the same direction.
Sidecars have been activated 42times on the Kospi this year, the highest annual total on record, according to the Korea Exchange on Monday. The figure far exceeds the previous record of 26 set during the 2008 global financial crisis.
In particular, a sidecar was triggered every trading day on either the Kospi or Kosdaq from July 10 through Friday.
Some point to an intrinsic flaw in the sidecar: It does not halt overall market trading.
Regular orders from retail investors continue to be accepted, and some automated orders that are not classified as program trading continue to be executed. Futures trading also remains open. Program orders suspended during the five-minute pause may be resubmitted once the sidecar is lifted.
Stocks are shown on a screen at the Korea Exchange's public relations center in Yeouido, Yeongdeungpo District, western Seoul, on Sept. 15, 2025.YONHAP
The curb can slow the transmission of sharp futures-market moves into the cash market. When futures prices plunge, program trading can simultaneously sell Kospi 200 component stocks that have become relatively expensive, which can accelerate the declines in the benchmark index. A sidecar temporarily severs that link by suspending program trading for five minutes — or at least, that's the intention.
"Orders often pile up during the five-minute suspension and then flood the market once trading resumes, which can actually amplify volatility," an unnamed source from the asset management industry said.
The sidecar mechanism was first introduced in the United States in 1988 following the 1987 Black Monday crash. After the Dow Jones Industrial Average plunged more than 22 percent in a single day, program trading that automatically sold stock index futures was blamed for creating such a sharp drop.
Korea introduced sidecars to its Kospi market in 1996. The United States, however, abolished sidecars in 1999, about a decade after introducing them.
The New York Stock Exchange in New YorkREUTERS/YONHAP
The U.S. Securities and Exchange Commission concluded that sidecars did not effectively reduce market volatility after analyzing market activity during sharp declines. Regulators also determined that restricting only certain types of program trading could interfere with the normal convergence of spot and futures prices while increasing transaction costs.
LEE JEONG-MIN
The United States now relies on market-wide circuit breakers during broad market sell-offs and the Limit Up-Limit Down mechanism to curb excessive price swings in individual stocks. Under the system, price bands are set based on the average price over the previous five minutes, and trades are executed only within those limits. Hong Kong operates a similar Volatility Control Mechanism.
Japan suspends trading in Nikkei 225 futures for at least 10 minutes when prices hit their upper or lower limits under its circuit breaker system, then gradually expands the allowable trading range.
China introduced an index-level circuit breaker in 2016 but suspended it after just four trading days because it reportedly intensified selling pressure. The country now manages volatility by applying different daily price limits to different categories of stocks, such as main-board and technology shares.
"While sidecars do have a calming effect on the market, it is questionable whether they actually reduce volatility," said Ahn Dong-hyun, a professor at the Department of Economics at Seoul National University. “But efforts to fundamentally improve the market structure that fuels volatility, such as the heavy concentration in semiconductor stocks, the expansion of leveraged exchange-traded funds and the high proportion of retail investors, should go hand in hand.”
Update, July 28: Numbers updated to reflect July 28's sidecar.
BY JANG SEO-YUN [lee.jiwon10@joongang.co.kr]
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
