Preliminary approval for over-the-counter brokerage (distribution platforms) that handle unlisted stocks and fractional investment (STO), which has so far operated as an innovative financial service, is expected soon. The service is set to be brought into the formal regulatory framework.
According to the investment industry on the 2nd, the Financial Services Commission plans to decide soon on preliminary approval for unlisted stock distribution platforms operated by Naver Pay Unlisted, run by Naver Financial, and Seoul Exchange Unlisted, run by Seoul Exchange.
However, controversy has arisen over a special exception to the "separation of issuance and distribution" principle. In the market, critics say the exception is a tailor-made favor for Naver Financial, which is moving to make Dunamu a wholly owned subsidiary.
The Financial Services Commission revised the Enforcement Decree of the Financial Investment Services and Capital Markets Act and other rules last year to lay the groundwork for institutionalizing distribution platforms for unlisted stocks and STO. In the process, authorities carved out an exception to the separation of issuance and distribution for unlisted stock distribution platforms.
According to the plan to institutionalize OTC brokerage released by the Financial Services Commission last year, "OTC brokers are prohibited from brokering securities in which they have a conflict of interest on a distribution platform they operate," but "for unlisted stock OTC brokerage, if the 'securities issued' by the broker itself or a related party (an affiliate with an equity stake of 30% or more under the Fair Trade Act, etc.) are subject to prior approval and post-reporting to the Financial Supervisory Service (FSS), concurrent operation of issuance and distribution is allowed."
While concurrent issuance and distribution carry a high risk of conflicts of interest, the exception was reportedly created to avoid applying overly strict regulations in order to activate a new market with strong growth potential.
The enforcement decree established a year ago has become an issue because Naver Financial, which is seeking preliminary approval, is expected to form a special relationship with issuer Dunamu.
The predecessor of Naver Pay Unlisted was "Securities Plus," a business unit of Dunamu. In July last year, Dunamu conducted a physical split of the business and sold all equity to Naver. Naver Financial holds 34% and 66% stakes, respectively, so on the surface it is not in a direct special relationship with Dunamu.
The issue is that Naver Financial and Dunamu are expected to form a parent-subsidiary relationship soon. Last year, Naver, Naver Financial, and Dunamu decided through a comprehensive stock exchange that Naver Financial would acquire 100% equity in Dunamu. Once the process is completed, Dunamu will become a subsidiary of Naver Financial and a second-tier subsidiary of Naver.
When this stock exchange is completed, Naver Pay Unlisted, the platform operated by Naver Financial, will be structured to directly review and distribute shares issued by its subsidiary Dunamu.
Moreover, even now, a significant portion of the unlisted stocks traded on Naver Pay Unlisted are Dunamu shares. This is because it is among the most actively traded unlisted stocks in Korea and Dunamu has registered its share trading only on Naver Pay Unlisted.
An industry official said, "The stock issuer Dunamu and the distributor Naver Financial are already closely entangled through business cooperation and equity ties," adding, "It is too risky to leave it solely to their good faith to completely block the possibility of concealing defects or risks in issued shares during distribution or manipulating share prices or transaction volumes."