The Financial Services Commission (FSC) on the 19th mentioned institutionalizing security token offerings (STO) as one of its key tasks in its policy briefing to the president. It said it would design related systems so that early-stage ventures and innovative companies can use STOs as a new fundraising tool.
An STO is a security-type token that converts real assets such as real estate and artworks into electronic securities based on Blockchain, enabling small investments and transactions.
The Financial Services Commission (FSC) said in its briefing that, in preparation for the STO regime taking effect in about a year, it is designing detailed systems such as building and testing Blockchain-based securities infrastructure and disclosures and investor protection. The FSC cited STOs as one of the means for unlisted and small and midsize companies to raise funds smoothly in the capital market.
A person in the financial investment industry said, "For now, financial authorities believe STOs will help small and midsize companies, for which initial public offerings (IPOs) and the like are practically difficult, tokenize their own products and real estate to attract investment, making it easier to raise funds."
The Financial Services Commission (FSC) also said it would expand the scope of small public offerings beyond the current 1 billion won to help ventures and small and midsize companies raise funds smoothly, build an intermediary platform for venture capital, and permit entry of electronic registration institutions for unlisted shares.
A partial amendment to the Financial Investment Services and Capital Markets Act and the Electronic Securities Act, which would bring STOs into the regulatory framework, has passed The National Assembly's Legislation and Judiciary Committee and is awaiting a final plenary vote. The market expects passage within this month. Once the bill passes, the Financial Services Commission (FSC) will draw up specific enforcement decrees, including the scope of assets that can be traded in token securities distribution markets.
The biggest focus regarding the STO regime is the result of the preliminary approval for the STO over-the-counter exchange (distribution platform). Three applicants— the consortium led by KDX (Korea Exchange (KRX)), the NEXTRADE (NXT) consortium, and Lucentblock— have applied, and the Financial Services Commission (FSC) is conducting the preliminary review.
Initially, the Financial Services Commission (FSC) aimed to select two consortia within the year and open the over-the-counter market in the first half of next year. But as the review schedule slipped, the final operator announcement is likely to come early next year. The preliminary approval process proceeds in order through an external evaluation committee review, deliberation by the Securities and Futures Commission, and a vote by the Financial Services Commission.
In the industry, many see the KDX consortium, centered on the Korea Exchange (KRX) with credibility in listing and settlement, as having a higher chance of approval. However, in the case of the NXT consortium, Musicow, which secured more than a 5% equity stake, participated through a contribution in kind, so the valuation process needs careful verification; and for Lucentblock, the industry expects the Financial Services Commission (FSC) to scrutinize further from the standpoint of controlling shareholder transparency because the representative of the fund that is the consortium's largest and major shareholder is the same person.
With this policy briefing confirming the Financial Services Commission (FSC)'s resolve to institutionalize STOs, expectations for market revitalization among related corporations are growing.
Shin Beom-jun, chair of the Token Securities Council, said, "Until now, it was virtually impossible for small and midsize companies to raise funds without collateral or credit ratings, and individuals also rarely had opportunities for venture investment," and added, "With the institutionalization of token securities, both barriers could come down."