Stocks, Bonds, and Funds to Be Fractionalized and Traded via Blockchain
The era of security token offerings (STOs), in which stocks, bonds, and funds are divided into small units using blockchain technology for trading, is about to begin. Blockchain is a technology that prevents forgery and tampering by storing transaction records across multiple computers, and tokenized securities are products that allow assets to be split into small fractions and bought and sold using this technology.
On the 4th of this month, the Financial Services Commission (FSC) announced its future policy direction at the third meeting of the joint public-private Security Token Council. Under the Electronic Securities Act revised in February, tokenized securities will be incorporated into the institutional framework starting February 4 next year, with the key difference from existing electronic securities being that issuance and distribution records are stored on the blockchain.
The FSC plans to expand the scope of tokenization in stages. In the first phase, public fractional investment products, institutional-only private money market funds (MMFs), private bonds, and trust-based unlisted stocks will become subject to tokenized trading. In the third phase, the plan is to build on-chain payment infrastructure that utilizes stablecoins and other instruments as payment methods.
Competition for market entry has already begun. The KDX Consortium, led by the Korea Exchange and Koscom, and the NXT Consortium, led by NextTrade, applied to the FSC for approval of their fractional investment OTC trading platforms in early last month and are making preparations.
Hong Jin-hyun, a researcher at Samsung Securities, explained that securing products is the key challenge in the early stages, because a wider range of products will attract more investors, accumulated orders will improve liquidity, and this liquidity will in turn attract new issuers, creating a virtuous cycle.
For brokerages, which will take on broad roles ranging from fundraising and issuance underwriting to sales, distribution, and customer management, expecting immediate profitability is difficult. Kim Se-hee, a researcher at Eugene Investment & Securities, said that while short-term profitability is very limited, this is an inevitable change for firms seeking to participate in the future market.
