As the token securities (STO) system approaches implementation, applications for primary licenses from distribution platform operators are intensifying, igniting competition for the 'first product' beneath the surface. However, fractional investment companies, which have pioneered the market as innovative financial service providers since the early days of the system's introduction, find themselves sidelined in this initial product competition due to delays in the issuance-related approval process.
According to the financial investment industry on August 19, the KDX Consortium and the NXT Consortium submitted applications for primary licenses for token securities distribution platforms to financial authorities on August 10, prompting securities firms to engage in a behind-the-scenes competition to list competitive products on these platforms.
Currently, firms such as Kiwoom Securities, Hanwha Investment & Securities, DB Securities, and LS Securities are reportedly searching for underlying assets to secure the first product. With the primary license for distribution platforms expected to be granted as early as December, they must secure actual products and complete the issuance process beforehand to claim the 'first' title.
The issue is that fractional investment companies, which have been issuing non-monetary trust income securities and investment contract securities since the system's inception, are effectively excluded from this competition. Initially, these companies were expected to establish themselves as key market players following the system's formalization due to their accumulated business experience in the domestic token securities market.
However, the situation has changed during the formalization process. The approval review for issuance-related matters has lagged behind that of distribution platforms, and early-stage startups find it challenging to meet the financial stability requirements demanded by financial authorities.
Industry insiders believe that existing fractional investment companies have been effectively excluded from the issuance business. One industry source stated, 'Even if the distribution platform receives its primary license, the likelihood of existing issuers obtaining issuance approval at the same time is low. Ultimately, the first product will inevitably emerge from securities firms that meet the capital, personnel, and trust company approval requirements.'
Frustration is growing among early-stage companies. They argue that despite being designated as innovative financial service providers for periods ranging from two to nearly four years, allowing them to validate their business models and gain experience in securities issuance and disclosure, they are unable to fully leverage this experience in the process of entering the regulated market.
Particularly, concerns have been raised regarding the burden on profitability due to the application of the Asset Securitization Act. The requirement to retain 5% of the outstanding balance of securitized securities while publicly offering the remainder and paying fees to the distribution platform is seen as a challenge for startups to manage.
In contrast, securities firms are better positioned to enter the issuance business with relative ease. They can meet capital requirements, have experience in preparing securities registration statements, and can collaborate with trust companies.
Securities firms are actively seeking to tokenize products by locating owners of actual assets. Contrary to initial expectations that fractional investment companies would have an advantage due to their practical experience in asset sourcing and securities registration statement preparation, the business structure required during the formalization process overlaps significantly with the existing operations of securities firms, altering the competitive landscape.
Previously, from 2019 to 2024, six businesses designated as innovative financial services related to non-monetary trust income securities by the Financial Services Commission included Casa, Lucent Block, Funble, Musicow, A-Panda Partners, and Galaxia Money Tree. Among these, Funble and Casa announced the termination of their services in April and August of this year, respectively.
* This article has been translated by AI.
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