1. Background
With the introduction of a new system for trading platforms that broker multi-party transactions of unlisted shares and fractional investments, operational standards are being established for OTC trading intermediaries operating such platforms. These standards aim to ensure investor protection and maintain fair market order.
2. Regulatory Details
The amendment sets forth business standards that licensed OTC trading intermediaries must comply with when operating trading platforms for unlisted shares and fractional investments. These include:
- Methods of trade execution,
- Classification of securities into general and professional categories,
- Disclosure requirements related to the securities being traded,
- Separation between issuance and secondary trading of securities.
a. Establishment of a New Licensing Category and Operational Standards for Trading Platforms of Unlisted Shares and Fractional Investments
(Articles 15, 19-3, 177, 178, 178-2, 354-2, Annexes 1, 5, and 20)
A new licensing category for brokerage business specializing in trading platforms for unlisted shares and fractional investments will be introduced—currently not permitted under existing regulations. This includes establishing operational standards for intermediaries operating such platforms, covering trade execution methods, disclosure systems, rules to prevent unfair trading practices, conflict-of-interest management, and more.
b. Expansion of Eligible Professional Investors for “Professional Securities” on Unlisted Share Platforms
(Article 11)
The scope of investors permitted to trade “professional securities” on unlisted share platforms will be expanded beyond statutory professional investors under the Capital Markets Act to include quasi-professional investors such as venture capital companies, venture funds, and certified angel investors, thereby improving the liquidity of professional securities.
c. Exemption from Securities Registration Statement Requirements for Platform-Based Transactions
(Articles 120, 137)
With the introduction of unlisted share and fractional investment trading platforms, transactions by small-scale investors conducted through such platforms will be exempt from the requirement to submit a securities registration statement. Instead, a simplified disclosure procedure will be allowed as a special exemption.
d. Institutional Improvements to Allow Fractional Share Investments Using Beneficiary Certificates
(Articles 7, 119)
To facilitate fractional share trading, the Korea Securities Depository will be permitted to hold whole shares in trust and issue multiple beneficiary certificates, allowing investors to conveniently trade shares in fractional units.
