South Korea Advances Bill to Legalize Tokenized Securities, Opening STO Market

South Korea has taken a major step toward mainstreaming crypto finance: lawmakers have advanced a bill that creates a legal framework for issuing and trading tokenized securities — commonly called security token offerings (STOs) — using distributed ledger technology (DLT). What changed - The National Assembly passed amendments to the Capital Markets Act and the Electronic Securities Act that formally recognize tokenized securities as legitimate financial instruments. The revised definitions explicitly cover both debt and equity products. - Under the updated Electronic Securities Act, qualified issuers will be allowed to launch tokenized securities on DLT. Changes to the Capital Markets Act will allow those products to be traded as “investment contract securities” through brokerages and other licensed intermediaries. - Previously, the Capital Markets Act effectively prohibited distribution through securities firms by labeling investment contract securities as “unsuitable for distribution due to their non-standard characteristics.” The government says the new rules should “enhance accessibility to investments and improve the provision of investment information for these securities.” Timeline and implementation - After legislative approval, the bill goes to the State Council and then for presidential promulgation. Once signed, the law is expected to take effect one year later — currently projected around January 2027. - The Financial Services Commission (FSC) will lead roll-out and has announced plans to form a “Token Securities Council” with the Financial Supervisory Service, the Korea Securities Depository, the Financial Investment Association, industry participants and experts to coordinate infrastructure, safeguards and practical implementation. Why this matters - The move opens the door for regulated issuance and secondary trading of tokenized securities in South Korea, potentially lowering barriers for issuers and expanding investor access to tokenized debt and equity. - It also signals a broader policy shift: Seoul is building a more comprehensive crypto framework rather than maintaining a de facto ban on certain products. Broader regulatory context - The STO reform sits alongside other high-profile policy shifts. South Korea’s 2026 Economic Growth Strategy included plans to open the market to Bitcoin ETFs this year — a notable change after crypto-based ETFs were banned domestically since 2017. Regulators say they were influenced in part by the success of Bitcoin funds in the U.S. and Hong Kong. - The FSC plans to accelerate the next phase of digital asset legislation this quarter, focusing on stablecoins. However, the Virtual Asset User Protection Act’s second phase has been delayed until early 2026 amid an ongoing dispute between the FSC and the Bank of Korea over banks’ roles in issuing won-pegged stablecoins. - Core elements of the emerging crypto framework have been settled, including investor-protection measures such as no-fault liability for crypto-asset operators and mechanisms to isolate bankruptcy risk for stablecoin issuers. Institutional trading and corporate investment caps - Seoul is also moving to lift its long-standing ban on institutional crypto trading, expected later this year. As part of that, the FSC is reportedly considering a rule limiting corporate crypto investments to 5% of a company’s equity capital per year, and restricting eligible assets to the top 20 cryptocurrencies by market capitalization. A final draft of that proposal could be released as early as January or February. What to watch next - Practical rollout and market access: how quickly intermediaries, custodians and securities depositories adapt to tokenized issuance and trading. - Stablecoin rules: the outcome of FSC–Bank of Korea negotiations will determine issuance and bank participation in won-pegged tokens. - The final rulebook for institutional trading and any corporate investment limits, which will shape demand from institutional capital. Bottom line: South Korea is moving from cautious oversight to structured integration of crypto into regulated capital markets. The new STO framework, if implemented smoothly, could accelerate tokenization activity locally while the broader package of ETF, stablecoin and institutional rules will determine how much capital moves into the market. Read more AI-generated news on: undefined/news