South Korea’s alternative trading system (ATS) operator Nextrade and the country’s main bourse, the Korea Exchange (KRX), are advancing toward the launch of over-the-counter (OTC) exchanges for tokenized securities, according to a report by The Korea Economic Daily TV. Both entities have formed separate consortiums with securities firms and partner companies and plan to submit final license applications in August, with the goal of opening their respective markets within the fourth quarter of this year.
Two Parallel Consortia, One Regulatory Path
Nextrade and the Korea Exchange are pursuing distinct but parallel strategies. Each consortium includes major domestic securities firms and technology partners, though specific member names have not been officially disclosed. The dual-track approach reflects the competitive dynamics in South Korea’s emerging digital securities market, where regulators are encouraging innovation while maintaining oversight.
The Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) are expected to review the applications under the country’s revised Electronic Securities Act, which provides a legal framework for tokenized securities. The final approval process is anticipated to take several months, with market openings targeted for late 2024.
Current Limitations: Real-World Assets Only
A key constraint remains in the domestic market. Under current regulations, tokenized securities in South Korea are limited to real-world assets (RWAs) such as cultural intellectual property, real estate, and certain commodities. Financial assets like stocks, bonds, or derivatives have not yet been included in the scope of tokenization.
This limitation means that the initial OTC markets will focus on assets that are traditionally illiquid or difficult to trade in fractional shares. Industry observers note that the exclusion of mainstream financial instruments could slow adoption among institutional investors, who typically seek exposure to more liquid markets.
Why This Matters for Investors and the Market
The development signals a significant step forward for South Korea’s digital asset ecosystem. Tokenized securities OTC platforms could improve liquidity for previously hard-to-trade assets, reduce transaction costs, and open investment opportunities to a broader retail base through fractional ownership. For the Korea Exchange, the move represents an effort to modernize its infrastructure and compete with emerging digital trading venues globally.
However, the restricted asset class may limit initial trading volumes. Industry analysts suggest that the expansion to financial assets will likely require further legislative updates, which the National Assembly is expected to deliberate in 2025.
Conclusion
The upcoming license applications by Nextrade and the Korea Exchange mark a concrete milestone in South Korea’s journey toward regulated tokenized securities trading. While the current focus on real-world assets provides a cautious starting point, the establishment of dedicated OTC exchanges could pave the way for broader digital securities adoption in one of Asia’s most active financial markets. Stakeholders will be watching the August submissions and subsequent regulatory decisions closely.
FAQs
Q1: What are tokenized securities?
Tokenized securities are digital representations of traditional assets, such as real estate or intellectual property, recorded on a blockchain or distributed ledger. They allow for fractional ownership and more efficient trading compared to conventional paper-based securities.
Q2: Why are Nextrade and the Korea Exchange launching separate OTC markets?
Both entities are competing to establish early leadership in South Korea’s tokenized securities market. By forming separate consortiums, they can pursue distinct business models and technology partnerships while operating under the same regulatory framework.
Q3: When will the tokenized securities OTC markets open?
Both Nextrade and the Korea Exchange aim to submit final license applications in August 2024 and open their respective markets within the fourth quarter of 2024, pending regulatory approval.
