South Korea’s financial regulator outlined the key priorities for developing the tokenized securities market, with plans to create a unified digital infrastructure for issuing and trading traditional securities and new fractional investment instruments in tokenized form.
South Korea’s Financial Services Commission (FSC) presented a phased plan to develop the tokenized securities market. Authorities intend to extend the new infrastructure beyond fractional investments to funds, bonds, stocks, and other traditional financial instruments. The first phase of the reform is scheduled to begin in February 2027. The new measures will be introduced gradually to ensure technological changes don’t undermine the stability of the financial system.
The reform is based on amendments to legislation governing electronic securities. These are securities issued and traded electronically using distributed ledger technology. The regulator distinguishes tokenized securities from fractional investment instruments. Their status is determined by the form of issuance, not the economic substance of the asset.
Amendments to the Electronic Securities Act and the Capital Markets Act that establish the legal framework for tokenized securities in South Korea will take effect on February 4, 2027.
South Korea’s Tokenization Market Reform Will Proceed in 3 Phases
In the first phase, authorities plan to introduce several areas of tokenization:
- money market funds for institutional investors;
- privately placed bonds for institutional investors;
- over-the-counter stocks using a trust-based model;
- fractional investment instruments offered through public offerings.
In the second phase, the infrastructure is expected to expand to publicly offered securities. The timing of the transition will depend on the stability and effectiveness of the first phase, market demand, and the pace of technological development.
In the third phase, the FSC plans to establish infrastructure for settlement directly on a distributed ledger, including through the use of stablecoins. South Korean authorities also plan to examine the experience of pilot programs by NYSE and Nasdaq.
New Rules Will Be Introduced for Fractional Investments
A separate part of the reform focuses on fractional investment instruments. For non-custodial investment securities, regulators propose allowing multiple underlying assets to be combined into a single issuance, subject to several conditions. These include using assets of the same type, applying a common investment objective and selection criteria, excluding distressed assets, and requiring disclosure of information on each asset.
To protect retail investors, the FSC proposes limits on participation in public offerings. The proposed benchmark is 5% of the lower of an investor’s annual income or financial assets, capped at 30 million won. The specific parameters are expected to be established through implementing regulations.
Authorities also intend to explore ways to improve the liquidity of investment contract securities. All instruments of this type currently issued are based on a shared ownership model for the underlying asset, but this structure makes it difficult to transfer rights between investors. The regulator also sees heightened investor protection risks in certain business models and plans to establish additional standards for permitted structures.
Over-the-Counter Platforms Will Gain New Capabilities
The regulator plans to integrate the tokenized asset market more closely with the existing licensing framework. Companies authorized to provide securities brokerage services will be able to handle tokenized instruments under their existing licenses without obtaining separate additional authorization.
For over-the-counter platforms, authorities propose limiting ordinary investors to 1 million won in net purchases per year on each platform. The document cites existing thresholds for other alternative investment markets:
- crowdfunding has an annual investment limit of 5 million won per instrument and 10 million won in total;
- over-the-counter stock trading has a limit of 300 million won;
- investment contract securities have a limit of 40 million won.
The FSC is also considering establishing a separate category for over-the-counter trading of tokenized debt instruments. The proposal reflects expectations that bond market liquidity could change once tokenization begins.
Issuers Will Be Allowed to Manage Investor Accounts Directly
Another component of the new system will be an issuer account management framework. It will allow issuers of tokenized securities to open and service investor accounts directly, a function traditionally handled by brokers, banks, and other specialized institutions.
These companies will be subject to financial and operational resilience requirements. In particular, the proposed minimum equity capital requirement is 4 billion won. Companies will also need specialists responsible for account management, internal controls, and information systems. The regulator said these requirements are intended to protect investors’ ownership rights and ensure the stability of digital securities issuance and trading.
The Korea Securities Depository also prepared standardized requirements for distributed ledgers. They cover network participants, consensus algorithms, infrastructure, key management, electronic registration, and data storage. Once a participant connects to the system, the depository will conduct system reviews and functional testing.
Representatives of the Avalanche blockchain network said its infrastructure will be used to tokenize South Korea’s capital market. According to the statement, the entire securities lifecycle is expected to move on-chain, from issuance and trading to clearing, settlement, and the exercise of investor rights.
The next step will be preparing the infrastructure for the launch of the reform’s first phase. The FSC, the Korea Securities Depository, and market participants will work together on the project’s technical aspects. The regulator will also continue discussions on additional issues related to tokenized securities and plans to introduce measures progressively as they become ready.
South Korea’s government previously officially included the development of blockchain technology and the digital asset market in its economic growth strategy for the second half of 2026. The government announced plans to prepare a new digital asset law, launch government bond tokenization projects, develop blockchain infrastructure, and provide state support for the industry.
