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With tokenized securities issuance and distribution set for February next year, preparations for OTC exchanges are accelerating.
The Korea Exchange's new securities market is also scheduled to open in November after trial operations.
On-exchange markets based on electronic securities and OTC exchanges for tokenized securities are successively announcing their launch.
As the era where even financial products like stocks, bonds, and funds are traded through 'tokenization' rapidly approaches, attention is focused on whether Security Token Offerings (STOs) will emerge as a new fundraising channel for small and medium-sized enterprises (SMEs) and small business owners.
Separately, next month, a new securities market for trading fractional investment products issued in the form of electronic securities will also begin trial operations. An on-exchange market based on electronic securities and an OTC market dealing with tokenized securities will open in parallel.
According to the financial investment industry on the 25th, the Financial Services Commission (FSC) unveiled its 'Policy Direction for Tokenized Securities' through the 3rd meeting of the 'Public-Private Joint Tokenized Securities Consultative Body' on the 4th of this month.
Tokenized securities, set to be incorporated into the institutional framework on February 4th next year following the amendment of the Electronic Securities Act in February this year, are differentiated by being issued and distributed through registration on a blockchain ledger.
For example, if a fractional investment product is issued through the existing electronic securities method, it is not a tokenized security, but if it is tokenized via a distributed ledger, it becomes a tokenized security.
In particular, this announcement is evaluated as highly significant because it does not merely reorganize the fractional investment system but expands the entire existing securities market, including stocks, bonds, and funds, to be targets for tokenization.
Kim Se-hee, a researcher at Eugene Investment & Securities, stated, "The meaning of this policy is the transformation of capital market infrastructure. The market potential of tokenized securities should be judged by how many assets in the existing capital market are converted to a tokenized method."
He added, "Given that it was decided to allow the handling of tokenized securities within the scope of existing investment trading and brokerage licenses without creating a separate tokenized securities license, it is closer to a direction where existing securities business operations are transferred to tokenized securities infrastructure."
In the financial investment industry, there are high expectations for a revolutionary change where, once tokenized securities can be issued and managed starting February next year, tokenized stocks will be traded 24/7 in blockchain-based OTC markets, beyond the traditional exchange market, in the long term.
In fact, the FSC plans to gradually expand the scope of tokenization.
In the first phase, public fractional investments, institution-only private money market funds (MMFs) and private corporate bonds, and unlisted stocks via trust will be tokenized and traded. In the second phase, the scope will be expanded to public securities, after confirming stability and market demand. Subsequently, in the third phase, on-chain payment infrastructure using stablecoins as payment methods will be established.
Regarding the tokenization of listed stocks, model verification and pilot projects will also be carried out, centered around the Korea Exchange.
In this regard, the KDX Consortium, centered around the Korea Exchange and Koscom, and the NXT Consortium, led by Nextrade, applied for a formal license for a fractional investment OTC exchange to the Financial Services Commission early last month and are accelerating related preparations.
The market believes there is a high possibility that the exchanges will be launched within the year.
Hong Jin-hyun, a researcher at Samsung Securities, said, "Early competition will be determined by product acquisition. This is because a two-sided market structure is formed where more products attract investors, accumulated orders improve liquidity, and liquidity, in turn, attracts new issuers."
Even if the issuance of tokenized securities is allowed, it may take time for the market to become active if there are not enough products available for actual distribution.
From the perspective of securities firms, which will play key roles in fundraising, structuring, issuance arrangement, sales, account management, distribution, and client management, it is also worth considering that profitability may be difficult to expect in the short term.
Nevertheless, experts generally agree that most major securities firms with the capacity to build systems are highly likely to actively engage in the tokenized securities business.
Researcher Kim Se-hee said, "Tokenized securities at this stage should be viewed as closer to an infrastructure transformation necessary to operate the securities business in the future. Although short-term profitability is very limited, it is a change that cannot be ignored for future market participation."
Meanwhile, the Korea Exchange plans to open a 'New Securities Market' on November 16th this year, after operating a mock market for 6 weeks starting next month on the 6th.
Initially, new securities issued and registered in the existing electronic securities manner will be traded. Representative examples are fractional investment products where various assets or rights, such as artworks, livestock farming, film production, real estate, and music copyrights, are divided for multiple investors.
Fractional investment products can be bought and sold through securities firms in a manner similar to stocks, but only limit orders are allowed within the regular market hours (9:00 AM to 3:30 PM).
However, rather than an immediate market activation, it seems more likely to grow gradually in line with the full-scale over-the-counter trading of tokenized securities, which will commence in February next year.
This is because issuers who wish to list products on the on-exchange new securities market must meet certain requirements, such as having equity of 2 billion won or more and mandatory holding of 1 billion won (or 5%) or more until maturity. The products themselves must also satisfy requirements such as a standard market capitalization of 3 billion won or more and a total number of listed securities of 100,000 or more.
An industry official familiar with the situation stated, "It is difficult for artworks, etc., to meet the market capitalization criteria, and I understand that there are no related real estate products prepared. It seems that if the OTC market becomes active first, products that are large in scale and need to be exposed to many people will then enter the on-exchange market."
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