South Korea is gearing up to fully embrace tokenized securities as the country is set to open a new exchange for fractional investing.
The Finance Services Commission (FSC), the country’s top financial regulator, announced on Thursday that it will start accepting applications in October from firms seeking licenses to operate fractional asset trading platforms.
To pave the way, the FSC plans to complete amendments to the Capital Markets Act and related rules by the end of this month.
The move follows earlier reforms. In June, the regulator began reviewing applications from tokenized asset issuers after launching the legal and technical infrastructure to support them.
Seoul also introduced guidelines for security token offerings in February 2023, formally recognizing digital tokens backed by traditional assets such as stocks, bonds and real estate.
Fractional investment, where investors buy and trade portions of high-value assets, uses security tokens as its underlying mechanism.
Tokens issued on a blockchain provide legal recognition, transparency and tradability, but can be exchanged only on licensed platforms.
The model has drawn growing interest from retail investors seeking exposure to nontraditional assets with smaller sums.
LIMITED MARKET ENTRY
To ensure stable growth, the FSC will cap the number of new exchanges at two in the initial phase, citing the relatively modest size of the market, which posted annual trading volume of about 14.5 billion won ($10 million).
The regulator also indicated that it will favor applications from a consortium of multiple brokerages, as well as small and mid-tier securities firms that cater to mid-sized companies.
Startups specializing in tokenized securities will also face fewer barriers, with their track record in fractional trading platforms taken into account in the review process.
One likely applicant is Lucentblock, operator of SoU, a security token platform for real estate fractional investment.
If approved, it would become the country’s first licensed tokenized-asset exchange.
Founded in 2018, the fintech startup issued Korea’s first security token – Anguk Downtowner – and has since listed 11 properties ranging from hotels to office buildings. SoU users can invest with as little as 5,000 won ($3.60).
The company plans to expand into other asset classes once licensed.
ISSUER LICENSES
Since June, other fintech firms have been seeking licenses to issue tokenized assets.
Applicants include FUNBLE and Kasa Korea, which operate digital platforms for fractional investment in commercial real estate, as well as Galaxia Moneytree Co., a financial services provider that runs a token-securities issuance platform for aviation finance.
Many of these firms have operated under Korea’s regulatory sandbox for security tokens.
With the new framework, regulators expect the range of assets eligible for fractional investment to broaden, extending beyond real estate, artwork and music copyrights into intellectual property and renewable energy projects.
Analysts expect institutionalized security-token trading will accelerate the development of Korea’s fractional-investment ecosystem, attracting a wider array of participants and creating new investment opportunities.
By Joo-Yeun Park and Eun-Yi Ko
grumpy_cat@hankyung.com
Sookyung Seo edited this article.
