OTC Trading Platforms for Unlisted Shares and Fractional Investments to Be Established... Incorporated into Regulatory System

The over-the-counter (OTC) trading platforms (distribution platforms) that enable 'fractional investment'-such as trading shares of unlisted companies or investing in portions of buildings and artworks-will be formally incorporated into the regulatory system. Until now, these platforms have only been operated on a limited, pilot basis through the regulatory sandbox system.

On September 16, the Financial Services Commission announced that the Cabinet had approved an amendment to the Enforcement Decree of the Financial Investment Services and Capital Markets Act (Capital Markets Act) to introduce a system for OTC trading platforms for unlisted shares and fractional investments.

This amendment, which sets out new licensing standards and operational rules for OTC trading platforms for unlisted shares and fractional investments, will be promulgated and take effect next week. In line with the enforcement of the decree, amendments to the 'Regulation on Financial Investment Business' and the 'Regulation on Issuance and Disclosure of Securities,' which address specific matters delegated by the decree, will also be announced and implemented.

The amendment includes the establishment of separate licensing categories for dedicated investment brokerage businesses for unlisted shares and fractional investment OTC trading platforms. To obtain approval for an OTC trading platform, applicants must meet requirements under the Capital Markets Act, such as minimum capital, feasibility and soundness of the business plan, human and physical resources, qualification of major shareholders, and social credibility.

Investor protection measures that were previously imposed as additional conditions during the sandbox phase have also been incorporated into the enforcement decree and supervisory regulations. Specifically, OTC trading platforms must regularly disclose financial information (such as audit reports) for unlisted shares, and information on the management status, returns, and fees of underlying assets for fractional investments. They must also establish and report to the Financial Services Commission detailed market operation standards, including criteria for designating and delisting tradable assets, periodic and ad hoc disclosure requirements, and methods for preventing, monitoring, and addressing unfair trading.

The Financial Services Commission also emphasized that the new system will improve investor convenience compared to the sandbox phase. If OTC trading platforms and securities firms establish a stable settlement system in cooperation with the Korea Securities Depository, inter-broker settlements will be permitted. In this case, transactions can be executed even if the buyer and seller use linked accounts at different securities firms. Previously, during the sandbox phase, trading was limited to cases where both the buyer and seller opened linked settlement accounts at the same securities firm, reflecting the test-bed nature of the regulatory sandbox.

With this institutionalization, a new OTC trading platform will emerge where various fractional investment securities issued by multiple fractional investment operators and securities firms can be traded in one place. In the fractional investment sandbox, only a 'restricted distribution platform' was permitted, allowing sandbox operators to broker only the fractional investment securities they issued themselves.

The Financial Services Commission expects that this systematization will vitalize the trading of shares in high-growth-potential unlisted companies and the fractional investment market, thereby facilitating capital raising for small and venture companies through share issuance and asset securitization.

An official from the Financial Services Commission stated, "Through the institutionalization of OTC trading platforms for unlisted shares and fractional investments, trading of shares in high-growth-potential unlisted companies and fractional investment in various underlying assets will become more active," adding, "With the existence of a distribution market, investor liquidity will be enhanced, which is also expected to boost demand in the primary market."

The relevant licensing procedures are expected to proceed after the promulgation and enforcement of the amended enforcement decree, which is anticipated between September 23 and 25. For unlisted shares, the initial licensing review will be conducted for the two sandbox operators (Securities Plus and Seoul Exchange). According to the Financial Innovation Act, sandbox operators are granted exclusive operating rights for up to two years, as determined by the Financial Services Commission at the time of approval. For fractional investment OTC trading platforms, licensing applications and reviews are being conducted in accordance with the new licensing operation plan announced on September 4.

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