'Fractional Trading' Blocked in Stock Transactions

To Promote Diversified Investment for Ordinary People,
Authorities Prioritize Legal Amendments to Lower Barriers to Stock Trading Entry

[Image source=Yonhap News]

#University student Kim Min-seok recently gave up on trying stock trading amid the booming stock craze. This was because the stocks he could buy with the 100,000 won left after monthly living expenses were limited. He even considered 'debt investment' (borrowing to invest), but judged that it was difficult to bear the risks associated with stock price declines.

The introduction of fractional share trading, which changes the standard of stock trading to decimal units to allow small investments in blue-chip stocks or diversified investments, has been stalled for over four months. It has emerged as one of the ways to establish a sound stock investment culture for ordinary people, and discussions on the introduction of the system have been heated this year, but the financial authorities have not reached any definitive conclusion, causing the issue to subside. The fractional trading temporarily allowed only for overseas stocks by a few securities firms is also expected to end by the end of this month, raising doubts about the authorities' commitment to innovation.

Lowering Barriers to Entry for Stock Trading

According to the Korea Exchange on the 8th, as of the closing price on the 7th, the stock price of the top 50 listed companies by KOSPI market capitalization is 230,000 won. The top 100 listed companies are around 160,000 won. Among the top 20 stocks by market capitalization, only Samsung Electronics, Kia, KB Financial Group, and Shinhan Financial Group are priced under 100,000 won. There are also stocks priced over 1 million won per share, such as LG Household & Health Care (1,535,000 won) and Taekwang Industrial (1,300,000 won).

A domestic securities firm official said, "Because stocks that can be purchased with small funds are limited, small investors are excluded from investing in blue-chip stocks," adding, "It is quite challenging to build a diversified portfolio with the desired stocks due to high entry barriers."

Industry Pushes for Innovation, Authorities Remain Stagnant

On the 7th, the KOSPI opened at 3,244.59, up 4.51 points (+0.14%) from the previous trading day. Dealers are working in the dealing room at the Hana Bank headquarters in Jung-gu, Seoul. Photo by Jinhyung Kang aymsdream@

Although market demand has increased, the Financial Services Commission maintains its stance to institutionalize the system through legal amendments. For fractional trading of domestic stocks, amendments to the Commercial Act and Capital Markets Act are required due to issues related to voting rights and dividends. This means it will take a long time.

Accordingly, the industry is requesting the authorities to at least extend the fractional trading currently allowed only for overseas stocks by Shinhan Financial Investment and Korea Investment & Securities since last September. However, the authorities remain silent. The services at Shinhan Financial Investment and Korea Investment & Securities are scheduled to end in July and November, respectively.

A financial investment industry official said, "Even if only for overseas stocks, the innovative financial services should be expanded further and used as a testbed to verify the effects of fractional trading introduction and identify improvements needed for system refinement to realize innovative finance, but the authorities continue to maintain the same position."

Trading Stocks Like Funds?

On the 7th, the KOSPI opened at 3,244.59, up 4.51 points (+0.14%) from the previous trading day. Dealers are working in the dealing room at the Hana Bank headquarters in Jung-gu, Seoul. Photo by Jinhyung Kang aymsdream@

There is also a significant temperature gap between the authorities and the industry regarding how fractional trading should be operated. The industry argues that real-time-like trading services should be provided through the brokerage method offered by a few securities firms. For example, if A and B each buy 0.3 shares of company C, the securities firm should fill the remainder and purchase one full share when the market opens, thus providing the trading service.

However, the authorities insist on first signing a trust contract between the securities firm and the Korea Securities Depository, then when customers order in fractional units, the securities firm trades whole shares on the exchange and issues beneficiary certificates to investors. In this case, all trading processes are completed by registering in the Depository's account book and recording in the securities firm's ledger and beneficiary register. The complex trading process increases transaction time lag and may cause discrepancies between the price ordered by the investor and the actual transaction price.

An industry official pointed out, "It is like telling investors to invest in stocks while keeping in mind the possibility that the actual buy and sell prices may not match, as if investing in a public fund, which lowers the product value of stock trading," adding, "If this is called 'innovative finance,' it will inevitably be evaluated as lacking in meaning and justification."

This content was produced with the assistance of AI translation services.