Beyond Fractional Investment: Token Securities to Include Shares and Bonds... Issuance Standards Set

From February Next Year, Private MMFs, Bonds, and Unlisted Shares for Institutional Investors Allowed
Expansion to Public Offerings and Stablecoin Integration to Follow
Fractional Investments in Real Estate and Music Rights Eligible for Public Tokenization Starting February

Starting in February next year, the tokenization of funds and bonds offered exclusively to institutional investors through private placements, as well as unlisted shares and public fractional investment securities, will be permitted. In addition, specific standards for pooling—combining multiple real estate assets to issue a single fractional investment security—have been established.

Limited Permission for Tokenization of Funds, Bonds, and Shares

On the morning of the 4th, the Financial Services Commission held the third meeting of the "Public-Private Joint Token Securities Working Group" and announced the policy direction for token securities (STO) in line with this agenda. As a result, the subordinate statute amendments and guidelines for the token security system, previously announced at the second meeting, have now been officially released.

Token securities are securities that are issued and circulated on the blockchain ledger. While in the past, the terms "token securities" and "fractional investment securities" were often used interchangeably, there is a key difference: fractional investment securities describe products where multiple investors share ownership of tangible assets or rights, whereas token securities are defined by the issuance method — where these rights are recorded and issued using blockchain technology. Token securities may be issued and traded starting February 4 of next year under the revised Electronic Securities Act and Capital Markets Act.

Under the new policy direction, the scope of token securities will be expanded to include shares, bonds, and funds. To achieve this, the Financial Services Commission will establish a trading infrastructure in three stages. In the first phase, beginning in February next year, the tokenization of funds, bonds, and shares will be carried out within a restricted scope. In this stage, the plans include the tokenization of private money market funds (MMFs) exclusively for institutional investors, private placement bonds for institutional investors, and unlisted shares via trust structures. In the second phase, the stability and other factors related to this initial tokenization will be reviewed, and the scope will be broadened to include public offerings. In the third phase, such token securities will be connected with payment instruments such as stablecoins to enable on-chain settlement.

This is seen as a measure to minimize market shocks while verifying technological stability. By testing interoperability and reliability of distributed ledger infrastructure through institutions with high risk tolerance, the strategy aims to prevent system errors or market disruptions that could occur if large-scale traditional assets, like bonds and funds, were immediately made available to general investors.

The on-chain settlement planned for phase three is also intended to maximize financial efficiency through simultaneous settlement. If not only the issuance and circulation of securities but also payment methods are placed on a blockchain network, the existing settlement delay of "T+2" (settlement two days after trade) will effectively disappear. This is expected to serve as a critical turning point for the Korean financial market to shift to a real-time, 24-hour settlement system in the future.

Fractional Investment: Public Offerings and Asset Pooling Permitted

Compared to shares, bonds, and funds, fractional investment securities are relatively easier to tokenize. Tokenization of public fractional investment securities will be allowed immediately in the first phase.

Standards have also been established for asset pooling, where multiple real estate assets and more are combined to issue a single fractional investment security. For non-monetary trust beneficiary certificates using basic assets that are eligible for trust, such as real estate or music rights, pooling will be permitted if certain conditions are satisfied: the assets must be of the same type; the standards and purposes for pooling must be clear; no non-performing assets can be included; and separate information for each asset must be provided.

The issuance of fractional investment securities based on underlying assets linked to uncertain events, such as accounts receivable, will also be allowed in a limited manner. Tokenization will be allowed only if there is a stable underlying legal relationship for the relevant receivables, and investor protection measures for receivables expected to be collected in the near future are in place.

To protect investors, the Financial Services Commission has set guidelines for public offering subscription limits for fractional investment securities: individuals may subscribe for no more than the lesser of KRW 30 million or 5 percent of the total issued amount. To prevent allocation concentration by specific individuals, it is also recommended that companies' internal policies stipulate a minimum allocation ratio for general investors and for equal distribution, especially regarding public offering allocations.

Meanwhile, regarding the issuance of investment contract securities that distribute business profits and losses directly without a trust—following further review through a research commission—the introduction of a new licensing unit will be decided. In the case of shared equity-type investment contract securities, transfer is not completed merely by the transfer of securities; a change in joint ownership under the legal system is required, which restricts circulation. For pure business-type investment contract securities where establishment of joint ownership is difficult, concerns have been raised about investor protection risks, including insolvency isolation issues between the issuer and joint business assets.

No Separate Licensing Regime for Token Securities

Token securities may be handled only within the scope of business permitted to financial investment companies that have received an official license. Brokerages with permission for beneficiary securities investment brokerage can arrange and underwrite public offerings for fractional investment token securities, while over-the-counter (OTC) exchanges licensed for beneficiary securities trading may support trading of fractional investment token securities. However, OTC exchanges must consult with the Financial Supervisory Service in advance when providing token securities trading support. In addition, individual investment limits for OTC exchanges are set at an annual net purchase amount of KRW 10 million per exchange.

An issuer’s account management institution system will also be introduced for token securities. While securities accounts have so far only been established and managed at brokerages and banks, going forward, token security issuers themselves will also be allowed to manage accounts directly. This aims to reflect the jointly recorded and managed nature of distributed ledgers and to ensure safety against unauthorized deletions; only those entities that meet requirements such as a minimum capital of KRW 4 billion and have specialists in account management will be permitted.

An official from the Financial Services Commission stated, "Key details in this policy direction—such as the scope of permissible token security issuance, OTC exchange licensing units, and trading limits—will be included in the proposed revisions to the subordinate regulations of the Capital Markets Act and the Electronic Securities Act, which will be publicly announced later this month. Going forward, we will continue to engage with the market and conduct in-depth discussions through the Token Securities Working Group."

This content was produced with the assistance of AI translation services.