Korea to Launch Novel Securities Market in November for Fractional Investing

A new market for trading novel securities — investment products tied to underlying assets such as artworks, real estate and music royalties — will open in South Korea in November, allowing investors to buy fractional stakes in the same way they trade stocks.

The Korea Exchange (KRX) held a briefing on the 3rd to explain the launch and said the novel securities market will open on November 16, according to the financial investment industry on the 17th. The exchange plans to run a six-week mock market from October 6 to November 13 to test its trading infrastructure. The actual launch date could change depending on the schedule for regulators' approval of listed products.

Novel securities can be traded through brokerages in a manner similar to stocks. Trading is allowed only during regular hours, from 9 a.m. to 3:30 p.m., and only limit orders are permitted. Businesses seeking to list products on the exchange-traded novel securities market must meet certain requirements, including equity capital of at least 2 billion won ($1.4 million) and a mandatory holding of at least 1 billion won, or 5%, until maturity.

Novel securities are products that securitize non-standardized rights, unlike conventional stocks and bonds. They include investment contract securities and non-monetary trust beneficiary certificates. The most representative examples are fractional investment products, in which multiple investors put money into shares of various assets or rights such as artworks, livestock raising, film production, real estate and music copyrights.

Starting February 4 next year, the revised Electronic Securities Act — known as the tokenized securities law — will take effect, enabling issuance and management of tokenized securities using distributed ledgers. The change is expected to accelerate the integration of the fractional investment market into the regulated financial system. The specific secondary market and scope for tokenized securities have not yet been finalized.

Separately, licensing of over-the-counter exchanges for fractional investment is set to proceed soon. The NXT Consortium and KDX submitted applications on the 10th to the Financial Services Commission (FSC) for full licenses to operate over-the-counter exchanges for fractional investment. The financial authorities will decide on final approval at regular meetings of the Securities and Futures Commission and the FSC after reviewing the applications and conducting on-site inspections and external evaluations.