The Financial Services Commission (FSC) of South Korea has finally included security tokenization in the official regulations: According to Korean media EToday (as cited by TechFlow), the FSC has disclosed a draft proposal for revisions to the Electronic Securities Act and the Capital Markets Act, intending to extend previously piloted tokenized securities in fragmented investments such as real estate and art to traditional securities assets like stocks, bonds, and funds. In the first phase, regulation allows only institutions to participate—private money market funds (MMF) aimed at professional investors, private bonds, non-listed stocks based on trusts, and existing publicly issued fragmented investment securities will be included in the tokenization pilot program; public bonds and funds related to ordinary investors will gradually open up only after the initial market operation and demand assessment, with the timeline deliberately left blank. Alongside this "expansion" is a clear gate: the draft proposes that the annual net purchase of tokenized securities by ordinary investors in the over-the-counter (OTC) market may be capped at 100 million Korean Won. This figure is still in the consultation phase but already indicates the regulators' predefined boundaries regarding retail risk exposure. From the deadline for feedback on November 11 until the planned effective date of February 4, 2027, the core conflict of this design has become clear: South Korea aims to draw a new safety line between pushing traditional capital market assets onto the blockchain and compressing retail leverage space in OTC tokenized products.

From Fragmentation to Stocks and Bonds: Expanding Tokenized Securities

In recent years, South Korea's push for "tokenized securities" has largely remained focused on fragmented investment products like real estate shares and art copyrights, with participants mainly consisting of vertical platforms and niche investors, separated from the traditional capital markets by a layer of institutional glass. This round of amendments, associated with the Electronic Securities Act and the Capital Markets Act, shatters that glass: regulators clearly define that tokenization can extend to mainstream securities assets like stocks, bonds, and funds and provide an initial asset list for phased opening—private money market funds (MMF) for institutional investors, private bonds, non-listed stocks based on trusts, and publicly issued fragmented investment securities. They maintain the structural characteristics of the original fragmented model while approximating the legal forms of traditional securities, becoming a transitional step from "alternative investment tokens" to "mainstream securities on the blockchain."

Once traditional securities are included in the tokenization framework, the focus of the game rules shifts from early innovative platforms to licensed institutions. Under the revision, securities companies and asset management institutions are designated as the primary interface for tokenized bonds and funds, responsible for issuance, trading, and custody, migrating products that traditionally operated offline within the account system to a new medium recorded in token form, while still completing settlements through the existing cash settlement system of the Korea Securities Depository. Regulators plan to establish approval criteria for an OTC trading venue for bonds aimed at ordinary investors, which means that any OTC tokenized bond business targeting retail investors must be embedded in this licensing and quota control system. For brokerages and asset management firms, this represents an expansion of their business landscape: traditional bond and fund businesses extend to the blockchain format, but each step of front-end innovation must balance between established settlement infrastructure and the newly drawn boundary for retail risk; the speed at which traditional securities are tokenized will ultimately be determined by capital market regulation rather than technological enthusiasm.

100 Million Won Cap: Retail Investors Framed at the OTC Edge

The regulators have inscribed a number on this "risk boundary"—100 million Won. According to the draft proposal, this cap applies to the annual net purchase of tokenized bonds and other products by ordinary investors in the OTC market, locking exposure with monetary limits rather than retrospectively pursuing losses. South Korean regulators have consistently preferred this hard limit or qualification threshold for OTC derivatives and high-risk products: first, defining who needs protection as small and medium investors, and then specifying the risks they can bear in complex products. For some high-net-worth retail investors, 100 million Won signifies that their concentrated betting model, already accustomed offline, cannot seamlessly transfer to tokenized bonds and funds; a single year's OTC purchases are sliced into regulator-approved "safe sizes."

From a market perspective, this proposed cap directly undermines retail investors' contributions to liquidity and price discovery in OTC tokenized securities. The initial OTC trading of tokenized bonds and private funds resembles institutional transactions: private MMFs, private bonds, non-listed stocks based on trusts, etc., allow institutional investor participation unbound by the 100 million Won cap, enabling free adjustment of duration and positions on the new tools, while retail investors can only tentatively participate within controlled limits. Regulators, by setting a monetary limit, delineate investors into two layers—institutions that can bear full risks and lead liquidity in the OTC market and retail investors who are allowed to "stand at the door and look." What truly determines the structure of the on-chain securities market is not whether technology can bring everyone in, but rather the regulators’ willingness to let which categories of funds bear how much risk in the OTC.

Institutions First on Chain, Public Offerings Testing Risk Appetite on Slow Lane

Before delineating retail investors outside the 100 million Won annual net purchase threshold, regulators have already established a "first come, first served" guideline on the asset side. The revisions to the Electronic Securities Act and the Capital Markets Act explicitly adopt a phased introduction mechanism, with the first phase only open to institutional investors: it only covers private money market funds, private bonds, non-listed stocks based on trusts, and publicly issued fragmented investment securities that have prior practical foundations. Truly public products aimed at ordinary investors—public bonds and public funds—are reserved for the second phase, awaiting regulatory assessment of initial market operations and investment demand before being "slowly released." The specific timetable and assessment criteria for public inclusion have not been disclosed yet. This deliberate blank serves as a cautious approach: first observe whether institutions and private placements run smoothly on-chain, then decide whether to allow retail funds access to the same infrastructure.

This pace arrangement directly shapes the path to implanting the tokenized infrastructure and compliance ecosystem. The initial asset concentration in the institutional private and trust stock sectors implies that processes such as issuance registration, custody, investor suitability review, and technical interface development will first revolve around large-scale, professional funding scenarios instead of optimizing scattered retail trading volumes. Initial settlement will continue to utilize the existing cash settlement system of the Korea Securities Depository, and true "token settlement" for on-chain securities will need to await subsequent legislative advancements, providing custodial institutions, tech service providers, and platforms with a buffer period to gradually layer new on-chain modules over the existing system rather than reconstructing the entire market infrastructure all at once. The cost is that when public products will be included, and through what technological paths and risk standards, remain unresolved; the initial operation of institutional private placements will serve as the only "practical stress test" for a considerable time, determining whether retail investors can genuinely share this new on-chain securities pathway.

OTC Trading Venue and Clearing Path: On-Chain Settlement on Pause

When designing the trading scenarios for the first batch of tokenized bonds, regulators did not directly package and allow for "on-chain matching + on-chain delivery," but instead started with the institutional entrance of the OTC market. The Financial Services Commission in South Korea proposed to establish approval criteria specifically for an OTC trading venue for bonds aimed at ordinary investors, although the details have not yet been made public. This step essentially outlines who is eligible to build a tokenized bond trading hall accessible to retail investors and how to integrate with existing securities systems before discussing the technical form. For brokerage-affiliated platforms and emerging tokenized infrastructure, whether they can obtain this "OTC license" will determine whether they operate within the boundaries approved by regulators or are forced to retreat as backend tech service providers, with compliance costs and business spaces undergoing structural changes based on approval standards.

Equally crucial as the approval pathway is the settlement method behind this new channel. The revision plan clearly states that the initial delivery of tokenized securities will continue to rely on the existing cash settlement system of the Korea Securities Depository, rather than directly switching to token settlements and smart contract deliveries on-chain. The result is that, on the surface, securities are now "on-chain," but trading funds and clearing credit remain firmly locked within traditional centralized infrastructure, with on-chain operations only undertaking part of the registration and circulation functions. More thorough on-chain delivery—such as synchronizing fund-side and security-side settlements using a currency-anchored on-chain settlement tool—has been explicitly noted to wait for future legislative progress and remains merely a planned direction without completed institutional drafting. As long as this legislative blank is not filled, South Korea's securities tokenization experiment can only remain in the intermediate state of "digitization of asset form, traditionalization of settlement paths," and the truly comprehensive on-chain model separating from the old clearing networks is not yet in reality.

Effective by 2027: South Korea Enters the Asian Securities On-Chain Arena

From the feedback deadline on November 11 until the planned effective date of February 4, 2027, South Korea has allowed itself a nearly two-year "buffer zone" to refine the details and boundaries of this securities on-chain rule. The revision has expanded the asset end from previous fragmented investments in real estate and art to stocks, bonds, and funds, using a "institutional priority, retail restrictions" layered structure to lock in participation order: the first phase focuses on private MMFs, private bonds, trust non-listed stocks, and publicly issued fragmented securities, prioritizing institutions and qualified funds; ordinary investors are guided to a regulatory-approved OTC trading venue for bonds, with the annual net purchase cap of 100 million Won currently remaining only as a proposal in the plan. On the clearing side, the cash system of the Korea Securities Depository maintains delivery control in the early stages, while when the currency-anchored on-chain settlement tokens will receive legislative authorization and integrate into delivery processes remains undefined. By the endpoint of the timeline on February 4, 2027, South Korea will likely have become one of the samples with the "widest asset scope" in Asian securities on-chain trials, but the final form of the retail investor's 100 million cap, the release pace of public bonds and funds, and the pace of legislative advancement for on-chain settlements will determine whether this tokenization system becomes a closed experimental field serving only a few institutions or an upgraded infrastructure gradually open to a broader range of market participants.

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