June 9, 2025 — Seoul, South Korea & New York, USA — South Korea’s financial regulators have introduced stringent measures to combat illegal stock trading, including a “one-strike-out” policy aimed at curbing practices such as naked short selling and stock price manipulation.
Announced on July 9, 2025, by the Financial Services Commission (FSC), Financial Supervisory Service (FSS), and Korea Exchange (KRX), the initiative includes the formation of a joint task force to enable real-time monitoring and swift investigations of suspected violations.
The move is part of a broader effort to enhance the credibility of South Korea’s capital markets and attract offshore investors, following a surge in the Korea Composite Stock Price Index (KOSPI), which closed 0.52% higher at 3,071.70 on July 9.
The “one-strike-out” rule, championed by President Lee Jae Myung, imposes severe penalties, including the recovery of illicit gains and potential expulsion of offenders from capital markets.
“This policy sends a clear message: illegal trading will not be tolerated,” said an FSC spokesperson during a press conference in Seoul.
The task force will leverage advanced surveillance technologies to detect irregularities, such as unauthorized short selling, and streamline the delisting process for non-viable companies to protect investors.
This regulatory overhaul comes amid growing global scrutiny of stock market practices, particularly in the United States, where retail investors are increasingly vocal about market injustices.
U.S. retail investors, organized through platforms like X and Reddit, have been raising awareness about high Failure-to-Deliver (FTD) rates, which they argue signal widespread naked short selling—a practice where shares are sold without being borrowed or delivered, potentially manipulating stock prices.
According to the U.S. Securities and Exchange Commission (SEC) data, FTDs in certain stocks have spiked in 2025, with some securities reporting cumulative FTDs exceeding millions of shares in the first half of the year.
For instance, a June 2025 SEC report highlighted persistent FTDs in heavily shorted stocks, fueling investor distrust.
Retail investors in the U.S. point to high-profile cases, such as the 2021 GameStop saga, as evidence of systemic issues.
They argue that naked short selling distorts market dynamics, artificially suppressing stock prices and harming retail investors.
Community Sentiment on Online Forums
Posts trending on X in early July 2025 show retail investors sharing detailed analyses of FTD data, with some estimating that naked short selling accounts for a significant portion of off-exchange trading, which constitutes roughly 40-50% of U.S. stock trades, according to FINRA’s 2025 market transparency reports.
We have also seen GameStop’s (NYSE:GME) off-exchange trading hit as high as 70%.
Off-exchange trading, often conducted in dark pools or over-the-counter venues, reduces market transparency and raises concerns about price discovery, as trades are not immediately reflected on public exchanges like the NYSE.
“Retail investors are fed up with a system that seems rigged,” said one X user, whose post analyzing FTDs in small-cap stocks garnered thousands of engagements in July 2025.
The user highlighted how high off-exchange trading volumes obscure true market demand, potentially benefiting large institutional players at the expense of retail participants.
Advocacy groups, such as We The Investors, have petitioned the SEC for stricter enforcement of Regulation SHO, which governs short selling, and greater transparency in dark pool activities.
In a July 2025 statement, We The Investors noted that the lack of real-time reporting in off-exchange venues creates an uneven playing field.
South Korea’s proactive measures contrast with the U.S., where regulatory responses have been slower.
The SEC has faced criticism for not addressing high FTDs and off-exchange trading with the same urgency as South Korea’s “one-strike-out” approach.
However, recent U.S. developments, such as the SEC’s 2025 proposal to enhance dark pool reporting, suggest growing pressure from retail investors is prompting action.
The global context underscores the significance of South Korea’s reforms.
J.P. Morgan’s Asia Pacific CEO, Sjoerd Leenart, praised the measures, stating they could “mark a turning point for the undervalued Korean stock market.”
The KOSPI’s 30% rise in the first half of 2025, driven by expectations of shareholder-friendly reforms under President Lee, has already attracted $3 billion in foreign investment.
Meanwhile, U.S. retail investors continue to leverage social media to expose market inefficiencies, with some calling for a “global standard” for market oversight inspired by South Korea’s model.
As both nations grapple with ensuring fair markets, South Korea’s decisive action may set a precedent for addressing the concerns of retail investors worldwide.
But I’m curious to know what you think — leave your thoughts below.
Also Read: Hedge Funds Are Now Throwing Each Other Under The Bus
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