South Korea's Tokenized Securities Market Enters New Phase with Bond and Fund Inclusion

South Korean financial regulators have taken a significant step forward by expanding the scope of tokenized securities beyond fragmented assets like real estate and artwork to include core traditional financial instruments—bonds and funds. This move signals a new stage in the country's asset digitization journey.

Legal Framework Paves the Way

The legal foundation for this market expansion is now taking shape. Amendments to subordinate laws under the Electronic Securities Act and the Capital Markets Act entered a legislative notice period on the 2nd of this month, which will run until the 11th of next month. The detailed rules governing issuance and circulation are slated to take effect on February 4 next year, providing a clear regulatory framework for practical operations.

A key provision of the amendments explicitly brings standardized traditional securities such as stocks, bonds, and funds into the fold of assets eligible for tokenization. This clears a major legal hurdle for the digital issuance and trading of various financial products.

Phased Rollout: Institutions First, Public Later

To ensure a stable market launch, authorities are adopting a cautious, phased approach. The initial phase will primarily target institutional investors.

  • Products for Institutional Priority: The first wave of tokenized securities will include private placement money market funds, private bonds, and tokenized unlisted stocks based on trust structures.
  • Public Market Pilots: Concurrently, regulators will pilot public offerings of fractional investment securities, exploring viable tokenization models for a broader range of assets.
  • Retail Access to Follow: Tokenized public bonds and funds for general investors will be introduced later, only after the initial market demonstrates stability and matures. This "institutions-first" strategy aims to manage risks and build operational experience.

Supporting Regulations: Setting Boundaries and Opening Roles

Alongside market expansion, complementary rules for investor protection and market participation are being updated.

On one hand, to prevent excessive risk exposure for retail investors, regulators plan to cap the annual net purchase amount for individuals on over-the-counter trading platforms. The preliminary limit is set at 100 million KRW per exchange.

On the other hand, market participation will become more diverse. Non-financial institutions that meet specific conditions, including maintaining at least 4 billion KRW in their own capital, will be permitted to directly manage investors' securities accounts. This change is expected to inject new vitality and innovative service models into the market.

By combining legal revisions, a phased implementation plan, and supportive regulations, South Korea is systematically constructing a more mature and extensive tokenized securities ecosystem. The inclusion of bonds and funds not only diversifies investment options but also holds the potential to significantly impact the efficiency and liquidity of the broader financial market.