Financial Services Commission Allows Fractional Trading of Domestic Stocks

[Asia Economy Reporter Jihwan Park] The financial authorities will allow fractional share trading for domestic stocks. The innovative financial service of fractional share trading, which had been permitted only for overseas stocks, will now be extended to domestic stocks as well. With the allowance of fractional trading for domestic stocks, individual investors are expected to be able to build more diverse portfolios for investment.

On the 12th, the Financial Services Commission announced, "We have prepared institutional improvement measures for fractional trading of domestic stocks along with overseas stocks." For domestic stocks, they plan to enable fractional trading without undermining existing principles and infrastructure by utilizing a trust method that facilitates rights division. Unlike the current method that grants regulatory exceptions to each securities firm, a separate infrastructure for fractional trading will be established at the Korea Securities Depository, and securities firms wishing to use it will be able to do so through institutionalization.

Fractional trading means buying stocks, which are usually traded in units of one share, in fractional units. This system changes the trading standard to fractional units, allowing small investments in blue-chip stocks or diversified investments. For example, if stock A is priced at 1 million KRW per share, which might be burdensome for easy investment, dividing it into 0.1 shares instead of one share would allow investment in stock A with 100,000 KRW.

Currently, fractional trading has been designated as an innovative financial service since 2019 and is only conducted for overseas stocks by two firms: Shinhan Financial Investment and Korea Investment & Securities. As of the end of June, the cumulative trading volume was 140,000 users and 315.9 billion KRW for Shinhan Financial Investment, and 510,000 users and 877.5 billion KRW for Korea Investment & Securities.

Going forward, for overseas stocks fractional trading, when an investor places an order for fractional units, the securities firm will create a whole share (one full share) and place the order overseas. Investors will be able to trade overseas stocks in fractional units and receive dividends through domestic securities firms.

For domestic stocks, fractional trading will be enabled by using the trust system (beneficiary certificate issuance trust), which divides one whole share into multiple beneficiary certificates. To create one whole share, the securities firm will issue 10 beneficiary certificates based on one share it holds. A Financial Services Commission official explained, "Investors, as holders of beneficiary certificates, can enjoy economic rights such as dividends from the stock. However, voting rights for fractional shares are not recognized in principle, so the Korea Securities Depository must exercise voting rights according to the Capital Markets Act."

The Financial Services Commission plans to first operate the service for a certain period through designation as an innovative financial service and then institutionalize it through amendments to the Capital Markets Act. Securities firms wishing to provide the service must apply for innovative financial service designation with the Korea Securities Depository between October and November this year and receive approval from the Financial Services Commission. The Commission stated, "Considering the time required for detailed system design, IT development, and testing, overseas stock fractional trading service is expected to start within this year, and domestic stock service is expected to begin in the third quarter of next year."

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