The financial authorities will institutionalize trading platforms for unlisted stocks, fractional investment, and fractional domestic stock trading services.
On May 8, the Financial Services Commission announced that it would begin the legislative notice process for amendments to the Enforcement Decree of the Capital Markets Act, the Regulations on Financial Investment Business, and the Regulations on Issuance and Disclosure of Securities. These amendments will institutionalize unlisted stock trading platforms, fractional investment trading platforms, and fractional domestic stock trading services. The legislative notice period will run until June 17, and the amendments are scheduled to take effect on September 30.
Unlisted stock trading platforms have been operated as innovative financial services by two providers since 2020 (such as Securities Plus Unlisted and Seoul Exchange Unlisted). Previously, the only over-the-counter market for unlisted stocks was K-OTC, operated by the Korea Financial Investment Association, but the scope has now been expanded.
Unlisted stock trading platforms allow venture company employees and angel investors, among others, to sell their unlisted stocks and convert them into cash. These platforms serve as over-the-counter markets where investors can trade promising companies' shares before they are listed on exchanges.
To operate an unlisted stock trading platform, a dedicated investment brokerage license (over-the-counter brokerage business) is required. Specifically, the minimum capital requirement is between 3 billion and 6 billion won. In addition, the operator must have at least one specialized trading professional and eight IT specialists.
It is prohibited for over-the-counter brokerage operators to broker securities in which they have an interest on their own trading platforms. Furthermore, to protect investors and ensure fair market order, any unfair business practices by over-the-counter brokerage operators may result in fines of up to 100 million won or sanctions against the institution or its executives and employees.
Unfair business practices also include activities such as providing credit, short selling, and soliciting investments through investment solicitation agents, all of which could induce excessive trading and cause investor harm. In addition, unfair discrimination between securities is prohibited, including discrimination in designating or delisting tradable securities, providing research and analysis materials for specific securities, and operating investor bulletin boards in a discriminatory manner.
Transactions conducted through over-the-counter brokerage operators will also be granted special disclosure exemptions for sales. The threshold for small investors will be relaxed from the existing 1% stake to 5%.
A new licensing category will be established for platforms that enable the trading of fractional investment products. Fractional investment trading platforms, like unlisted stock trading platforms, will require a separate investment brokerage license. The requirements for licensing, business standards, unfair business practices, and special disclosure exemptions will be institutionalized in a manner similar to unlisted stock trading platforms.
In the case of fractional investment, since information about the underlying asset, which is both the investment target and trust property, is important, trustees (issuers) will be required to disclose information on the trust property on a quarterly basis. If the over-the-counter brokerage operator or its related parties are the issuer, underwriter, arranger of the relevant beneficiary securities, or the settlor of the trust, brokering such transactions will be prohibited.
Furthermore, considering that fractional investment issuance platforms that perform underwriting or arrangement functions are, in effect, equivalent to issuers, and that these are new types of securities unfamiliar to investors, investor protection measures will be strengthened.
The institutionalization will also include fractional domestic stock trading services. To this end, the Korea Securities Depository will be allowed to perform trust business without a trust business license, and it will be stipulated that a securities registration statement for trust beneficiary securities need not be submitted. Meanwhile, since institutionalization of fractional trading services for overseas stocks requires amendments to the Capital Markets Act, the government plans to actively support legislative discussions in the National Assembly.
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