Lee Bok-hyun, left, governor of the Financial Supervisory Service, and Jeong Eun-bo, CEO of Korea Exchange, observe a demonstration of the illegal short selling detection system during a showcase event at the exchange in Seoul, Wednesday. Yonhap

The Financial Supervisory Service (FSS), the country's financial watchdog, is looking into the Korea Exchange's (KRX) system failure that caused a KOSPI trading halt last week, evaluating whether a formal inspection is necessary, officials said Sunday.

A system error at the exchange disrupted KOSPI stock trading for about seven minutes last Tuesday. While previous system failures have occasionally halted trading of specific stocks before or after market hours, this was the first full-scale trading halt during regular market hours since the KRX was established in 2005.

"The trading halt in the stock market is a significant event that warrants regulatory review," an FSS official said. "We are assessing the situation through the exchange and considering whether a formal inspection is necessary and, if so, the appropriate timing."

According to the exchange, the home trading systems of all securities firms froze for seven minutes from 11:37 a.m. to 11:44 a.m. last Tuesday, completely paralyzing both price quotations and order executions.

KRX explained that the failure was caused by a delay in its trading system due to an error in processing transactions for Dong Yang Steel Pipe, a company that produces and supplies steel pipes for water, oil and gas transport.

The issue arose from a conflict between the existing trading logic and the newly introduced order system, which was implemented following the launch of Nextrade, the country's first alternative trading system that went into operation on March 4.

Dong Yang Steel Pipe recently gained attention as part of the so-called "steel-themed stocks" after U.S. President Donald Trump mentioned earlier this month the possibility of Korea participating in the Alaska gas pipeline project.

Until last month, the company had been trading around 600 won ($0.41) to 700 won, but its trading volume and share price have surged since then.

Even after KOSPI-related systems were restored, trading for the steel pipe firm remained suspended. In response, KRX halted the stock's trading at 12:05 p.m. and resumed it at 3 p.m. The company's stock price remained frozen for about three hours at 1,028 won, up 167 won — 19.4 percent — from the previous day.

"We deeply regret the inconvenience caused to investors by the system failure," a KRX official said. "We will identify the root cause of the issue and address investor concerns while doing our best to stabilize the system and prevent a recurrence."

Stock market experts warned that the full suspension of KOSPI stock trading could undermine global confidence in Korea's capital markets. Concerns are also rising over the possibility of similar incidents, especially as Nextrade will expand its listed stocks to 800 on March 31.

"The seven-minute trading halt due to the system failure has heightened investor anxiety," Daishin Securities analyst Lee Kyung-min said.