South Korea Moves Capital Markets to Blockchain: Plan Announced!

The first phase of the plan will begin with new regulations coming into effect on February 4, 2027. However, this date does not mean that all stocks in the country will be transferred to the blockchain at once. In the first phase, tokenization will start with more limited product groups, and the scope will be expanded in subsequent phases, with the ultimate goal of conducting securities transaction payments on the blockchain.

According to the roadmap announced by the FSC, South Korea will not be satisfied with just tokenizing securities as fractional investment products. It aims to issue and circulate traditional types of securities such as stocks, bonds, and funds through distributed ledger technology.

For this purpose, a new infrastructure is planned to be established between securities companies and the Korea Securities Depository (KSD). With the amendment to the Electronic Registration Act, which is set to come into effect on February 4, 2027, tokenized securities will be legally recognized as the digital form of securities. Thus, the blockchain-based registration system will gain a legal basis alongside the existing financial infrastructure.

The first phase starts in February 2027

In the first phase, the scope of tokenization will be kept controlled.

Under the plan:

• Special money market funds (MMF) allocated to institutional investors will be tokenized.
• Special bonds for institutional investors will be tokenized.
• Shares of non-public companies can be tokenized through a trust structure.
• Tokenization of publicly offered fractional investment securities will be permitted.

Therefore, in the first phase starting in February 2027, it will not be possible to directly transfer all company shares traded on the Korea Exchange, such as Samsung Electronics and SK Hynix, to the blockchain.

The FSC will use the first phase to test the technology and infrastructure in a more controlled environment. The stability, efficiency, and technological readiness of market participants in the first phase will be decisive for the timing of subsequent steps.

Korea Exchange pilot for public shares

One of the most notable parts of South Korea's plan is the tokenization of public shares.

The FSC plans to conduct model validation and pilot studies for the tokenization of public shares, centering on the Korea Exchange (KRX). It was stated that the tokenization initiatives conducted by the New York Stock Exchange (NYSE) and Nasdaq in the United States would be referenced while preparing these studies.

The critical point here is that the tokenization of public shares will not be a mandatory practice starting in February 2027. The KRX's pilot study aims to test how traditional stock exchange shares can be transferred to a blockchain-based structure.

In other words, South Korea prefers to progress by testing new technology in a controlled manner rather than changing the entire existing system at once.

The scope will expand in the second phase

In the second phase, it is planned that tokenization will not be limited to certain types of funds, bonds, and shares.

According to the FSC's roadmap, the goal is to expand the infrastructure for the tokenization of all publicly offered securities in the second phase.

This phase could strengthen the connection between South Korea's traditional capital market and blockchain infrastructure significantly. However, no specific timeline has been announced for the second phase.

Officials state that the second phase will be shaped by the results of the first phase, the technological development of market participants, and progress in the regulatory framework.

The real big change will occur in the third phase

The most notable goal in South Korea's plan emerges in the third phase.

In this phase, the aim is not only to transfer securities but also the payment infrastructure used in transactions to the blockchain. The FSC plans to establish an on-chain payment infrastructure linked to stablecoins.

When such a structure is implemented, it will theoretically become possible to simultaneously transfer a security and make a payment on the same blockchain infrastructure.

However, there is a significant obstacle in front of the third phase: the legal framework regarding stablecoins has not yet been completed.

The FSC also clearly states that the timing of the third phase will depend on the stablecoin regulations and the results of the initial phases.

New Limits for Investors

South Korea is establishing rules not only for the technological infrastructure in the tokenization process but also for the protection of investors.

For individual investors in fractional investment products, a limit of 30 million won or 5% of the total issuance is anticipated for a single investment; the lower amount will be applied from the investor's perspective.

Additionally, it is proposed that a certain share be allocated to individual investors in some publicly offered fractional investment products, along with the establishment of mechanisms supporting equal distribution.

In over-the-counter (OTC) tokenized security transactions, the annual net purchase amount for individual investors will also be limited to 100 million won for each OTC exchange.

Existing Financial Institutions Will Be Used Instead of a New Licensing System

The FSC plans to utilize the existing financial infrastructure instead of creating a completely separate licensing system for tokenized securities.

Currently authorized companies for financial investment activities will be able to trade tokenized securities within the scope of their existing licenses. However, institutions wishing to mediate OTC transactions of tokenized securities will be required to have preliminary discussions with the Financial Supervisory Service.

Moreover, issuers responsible for managing tokenized securities will need to have at least 4 billion won in equity and meet specific personnel, internal control, information technology, and cybersecurity requirements.

The Role of Korea Securities Depository is Changing

One of the key players in the transformation will be the Korea Securities Depository (KSD).

KSD will conduct technical assessments and operational tests for the distributed ledger infrastructures to which securities companies will connect. The aim is to maintain the security and continuity standards of the existing financial system while transitioning to the tokenization infrastructure.

The FSC also plans for KSD and securities companies to jointly develop the necessary infrastructure by the first phase in February 2027. The regulatory body anticipates that proposals for relevant secondary regulatory changes will be published by the end of September 2026.

South Korea's Goal is Not Just to Issue Tokens

What makes this plan significant is that South Korea does not see blockchain merely as a technology for issuing new investment products.

The ultimate goal of the plan is to increasingly integrate the issuance, circulation, rights management, and payments of securities on the same digital infrastructure.

Therefore, South Korea's move is regarded as a broader transformation than a classical "security token" project. The country is trying to create a model where distributed ledger technology can be used in the fundamental registration and transaction infrastructure of the capital markets.

This content is provided for general informational purposes only and doesn't constitute financial, investment, legal, or tax advice. Any events, rewards, online promotions, or related information mentioned herein should not be considered a recommendation, solicitation, or invitation to purchase, sell, trade, or otherwise deal in any crypto assets. Crypto assets are highly volatile and may result in loss. The availability of WEEX services, products, and related events may vary by region. You are responsible for ensuring that your participation is in accordance with applicable local laws and regulations.