South Korea will expand the range of assets eligible for tokenization to conventional financial products such as stocks, bonds and funds starting next year. The move reflects the government's intent to build blockchain-based infrastructure for issuing, managing and trading securities by broadening tokenized securities beyond fractional investments in assets such as artworks and music royalties. Pooling of underlying assets for fractional investment products, banned until now, will also be permitted.
The Financial Services Commission disclosed the policy direction at the third meeting of a public-private consultative body on tokenized securities, held on the 4th at the Korea Securities Depository in Seoul's Yeouido district. Tokenized securities are a new form of securities issuance that digitizes securities defined under the Capital Markets Act using distributed ledger technology, a record-keeping and management system maintained by multiple participants and protected through joint administration.
The centerpiece of the policy direction is a three-stage roadmap for building tokenized securities issuance infrastructure, including the tokenization of conventional securities such as stocks and bonds.
In the first stage, when the tokenized securities law takes effect in February, tokenization of private money market funds and bonds will be allowed for institutional investors only. For equities, trading will begin with a trust-based structure in which unlisted shares issued as electronic securities are entrusted to institutions such as the Korea Securities Depository and beneficiary certificates are issued against them. Fractional investment products, which are relatively easy to tokenize, will be eligible for tokenization of publicly offered fractional investment securities from the first stage.
The second stage calls for expanding and restructuring the infrastructure as far as technically feasible, including tokenization of publicly offered securities. The third stage aims to implement on-chain settlement by linking payment instruments such as stablecoins, though this requires that the second round of virtual asset legislation be discussed first.
Overseas, markets for trading traditional financial assets via blockchain are already growing rapidly. In conventional securities alone, the U.S. private MMF token BUIDL and Hong Kong's tokenized green government bonds are well known. BUIDL supports both dollar settlement off-chain and stablecoin settlement using USDC on-chain. Singapore has also opened a market that brokers trading in tokenized stakes in global private equity funds, bonds and structured products.
FSC Vice Chairman Kwon Dae-young said in opening remarks that the regulator will not confine tokenized securities to fractional investments.
"We will connect the entire value chain of the capital market — issuance, trading, clearing, settlement, exercise of rights and underlying assets — from the perspective of a single digital capital market," Kwon said.
The FSC decided against creating a separate licensing regime for tokenized securities. Firms that already hold financial investment business licenses will be able to handle tokenized securities within the scope of those licenses. Observers say this will make tokenized securities far more accessible for existing brokerages and over-the-counter exchanges. For debt securities, an additional licensing category for over-the-counter exchanges will be created in preparation for the expansion of the tokenized securities ecosystem.
The policy also includes support measures for the fractional investment market. Pooling of underlying assets, banned since December 2023, will be conditionally allowed for assets of the same type. That means multiple underlying assets such as music royalties or real estate can be bundled into a single fractional investment security.
The change is expected to make it possible to turn assets into products where individual scale had been too small for securitization, and to bring products tailored to a wider range of investor preferences. Conditions must be met, however, including clear standards and purposes for pooling, a ban on including impaired assets, and disclosure of information distinguishing individual assets.
Investor protection measures were also discussed, including investment caps for retail investors and rules on unfair trading. Annual net purchases will be capped at 100 million won per over-the-counter exchange. Fraudulent trading that exploits over-the-counter exchange transactions will be subject to sanctions under the Capital Markets Act, including criminal penalties, fines, account freezes and restrictions on appointing executives.
Provisions in the policy direction that fall under subordinate regulations will be included in proposed amendments to subordinate rules of the Capital Markets Act and the Electronic Securities Act, which are set for public notice late this month.
