Capital markets News

Korea to launch security token guidelines, pilots this year

korea security tokens

Korea’s Financial Services Commission (FSC) announced plans to issue security token guidelines in the fourth quarter. Initially, blockchain-based digital securities will have to comply with the same regulations as conventional securities. However, there are plans for pilots in a sandbox to determine any regulatory changes needed to the Capital Market Act.

Security tokens will be traded via the Korea Exchange (KRX) with transactions via brokers. Over-the-counter trading will be allowed but subject to transaction size limits. 

Likewise, issuance has to be via a regulated institution, whether that’s a securities firm or bank. All security tokens need to be registered with the Korea Securities Depository, which will also be used for settlement.

Since a key benefit of security tokens is reducing costs, including through reducing the role of intermediaries, it might be hard to harness the efficiency benefits with this structure. 

However, So-Young Kim, Vice Chairman of the Financial Services Commission, said, “The government will provide various pilot business opportunities and embrace the technological characteristics of blockchain as much as possible so that security tokens can lead digital innovation.”

There is also the tricky issue of deciding whether or not a digital asset is a security token. This will be decided on a case-by-case basis based on general principles of what constitutes a security.

The announcement was part of a Security Token Policy Seminar held on Tuesday and jointly hosted by the FSC, the Financial Supervisory Service, Korea Exchange, Korea Securities Depository and Capital Market Research Institute.

Meanwhile, security tokens are progressing elsewhere. In the United States, a moderate number of security tokens have already been issued in compliance with conventional security regulations. Both the EU and the United Kingdom are planning DLT pilot regimes.