FSS Begins Inspection of Korea Exchange Following 'KOSPI 7-Minute Outage'

The financial authorities have recently launched an inspection related to the Korea Exchange's (KRX) system failure that caused a trading blackout in the Korea Composite Stock Price Index (KOSPI) market.

According to the financial sector on the 25th, the Financial Supervisory Service (FSS) sent an official letter to the Korea Exchange this morning, notifying them of the inspection regarding the recent system failure. A KRX official confirmed, "We received the inspection letter from the FSS this morning," adding, "While the scope of the inspection may be expanded later, we were initially informed that the inspection will be limited to the system failure incident that occurred this time."

Yonhap News

Previously, on the 18th, a system error at the Korea Exchange caused the suspension of KOSPI stock trading execution for about seven minutes. At that time, the exchange explained the system failure was due to "a conflict between the newly introduced 'mid-price quotes' implemented alongside the launch of the alternative trading platform NextTrade and the existing logic," further stating, "During the calculation of the trading execution quantity for the self-trading prevention condition quotes of Dongyang Steel Pipe stock, the mid-price quote quantity was omitted, causing the delay in trade execution."

While there have been instances of trading halts for some stocks before and after market opening due to system failures, this is the first time since the integrated launch of the Korea Exchange in 2005 that trading for all KOSPI stocks stopped during regular trading hours.

The FSS is expected to review the trading systems of both the KOSPI and KOSDAQ markets and comprehensively examine system safety following the launch of NextTrade. The Korea Exchange is also likely to be required to submit measures to prevent recurrence.

Although the inspection of the Korea Exchange is generally conducted by the FSS under the delegation of the Financial Services Commission, the Electronic Financial Transactions Act stipulates that the FSS can inspect the electronic financial business and related financial status of financial companies or electronic financial service providers.

The FSS previously conducted an inspection of the exchange's trading system in 2014 and carried out a comprehensive inspection covering major business areas in 2021.