The Financial Services Commission of Korea announced the ‘Token Securities Issuance and Distribution Regulation System Improvement Plan’ on the fifth of this month, recognizing that trapped security tokens in virtual asset fences had entered the institutional capital market. As a result, they have decided to revise the Capital Markets Act from early 2020 onwards with an introduction of the Token Securities Issuance (STO) system. With token securities issuance, investors can receive various rights, such as piece investment which are not available through existing electronic security forms.
What Are Security Tokens?
These security tokens are an issuance form of securities, a digital asset that uses distributed ledger technology to simplify and streamline investment processes. With this development, existing securities have been given an additional offering for investors to take advantage of.
Therefore, the extent of the rights investors receive is similar to that given for securities under current law; thus promises equal investor protection through compliance with disclosure, sales, and other market regulations specified in Capital Markets Act. In contrast, tokens or coins not considered securities shall be regulated by an upcoming Framework Act on Digital Assets.
By satisfying the needs established by financial bodies, any individual can launch security tokens in Korea. The distributed ledger technology attributes multiple verifying nodes and renders records unmanipulable; thus, it was determined that issuing through a security company is unnecessary.
Korea Will Regulate the Security Token Market
To facilitate small-scale exchanges of investment contracts, non-cash trust holdings, and other beneficiary certificates, the Financial Services Commission of Korea has authorized a multilateral over-the-counter transaction brokerage business. According to an official from the Commission: “Compared with large stock markets, which can be hard to access for smaller investors, Atypical securities are better suited for our niche distribution market; thus, we created this new OTC investment broker that is tailor-made for it. We hope these changes will bring more opportunities!”
To ensure the integrity and protect investors, the Korea Exchange (KRX) is launching a digital stock market that enables extensive trading of security tokens through an accredited infrastructure. To prevent conflicts of interest, issuing, acquiring, and arranging security brokerage will be restricted; self-contracts are also prohibited from differentiating between issuance and distribution clearly. Furthermore, to preserve investor safety during over-the-counter trades, the annual investment limit for ordinary investors has been capped off at a certain amount.
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