Korea Exchange's New Securities Market: Fractional Investment Structure and Differences from STO ================================================================================================ The Korea Exchange plans to open a new securities market on November 16, 2026, for trading fractional investment securities involving artworks, real estate, and other assets. This will be an exchange market for trading conventional electronic securities and is distinct from the token securities framework that uses distributed ledgers. - The new securities market is an exchange market where fractional investment securities that meet specified listing requirements are traded on the Korea Exchange. - Investors buy securities containing rights to returns and redemption as specified in the issuance terms, rather than co-ownership of the underlying assets themselves. - Returns on fractional investments must be calculated by deducting all fees, taxes, and transaction costs from dividends and capital gains. - Even when listed on an exchange market, insufficient trading volume may prevent investors from selling at their desired time and price. - Token securities refer to a method of issuing and recording securities using distributed ledgers and are not the same concept as the new securities market itself. The Korea Exchange plans to launch a New Securities Market for trading fractional investment products on November 16, 2026. This market will allow securities that meet certain requirements among products previously traded mainly within individual platforms—such as art, real estate, and music revenue rights—to be bought and sold on the exchange through securities firms. The launch date and detailed trading rules are provisional. Before investing, investors should review the Korea Exchange’s final business regulations, participating securities firms, and the securities registration statements and investment prospectuses of listed products. What Is the New Securities Market? The New Securities Market is a separate exchange market within the Korea Exchange created to trade new types of securities that have been difficult to list on the stock market. Key products include investment contract securities and non-monetary trust beneficiary securities issued based on tangible assets or revenue from specific businesses. Category Key Details of the Announced Launch Plan Operator Korea Exchange (KRX) Planned launch date November 16, 2026 Main underlying assets Art, real estate, music copyrights and revenue rights, etc. Investment channel Accounts and trading systems of securities firms participating in the market Trading hours Planned from 9:00 a.m. to 3:30 p.m. Order method Planned to focus on limit orders during regular market hours Rights records Existing electronic securities system Key risks Loss of principal, price fluctuations, low liquidity, underlying asset valuation and operational risks Existing fractional investments have often been issued and traded on operators’ own platforms for each type of asset. Once the New Securities Market opens, orders for listed products will be brought together in a single exchange market and traded through securities firms. However, not all fractional investment products will be transferred automatically. The announced plan includes requirements such as a product issuance size of at least KRW 3 billion and issuer shareholders’ equity of at least KRW 2 billion. An interest-alignment mechanism requiring issuers to retain a specified amount until maturity has also been discussed. Specific ratios and exceptions should be checked in the final listing rules and disclosures for each product. What Rights Are Actually Purchased in Fractional Investments? Fractional investment is a structure that divides the economic benefits generated by a high-value asset or business into multiple units of securities. What investors generally purchase is not a direct ownership interest in the building, artwork, or music itself, but the contractual rights specified by the issued securities. For example, even if an investor buys fractional real estate investment securities, the investor’s name is not recorded as a co-owner in the building’s property register. Instead, depending on the terms of the securities, the investor may have the right to receive a distribution of rental income or the remaining proceeds after the asset is sold. The rights differ by product. The following should be reviewed in the investment prospectus: The basis for calculating dividends or income distributions The entity responsible for holding, operating, and selling the asset Maturity and maturity extension conditions The process and voting rights for deciding on an asset sale The existence of other rights, such as security interests and senior loans The asset segregation structure if the issuer or asset management company becomes insolvent Fees, taxes, and the order in which losses are borne How Are Returns and Losses Calculated? Assume that securities are issued based on a hypothetical office building worth KRW 10 billion and that an investor invests KRW 1 million. Under the simplified assumption that there is no other financing or difference in priority, this represents 0.01% of the total asset value, or one ten-thousandth. If annual rental income is KRW 500 million and asset-level expenses such as management fees and taxes are KRW 200 million, the asset’s net income is KRW 300 million. Assuming this entire amount is distributed in the same proportion, the investor’s annual share is KRW 30,000. Item Simplified Calculation Investment amount KRW 1 million Investor’s share of the asset’s net income KRW 30,000 per year Simple annual return 3% Distributions received at the same rate over five years KRW 150,000 Value of the interest if the asset is sold for KRW 12 billion after five years KRW 1.2 million Total amount recovered KRW 1.35 million Profit relative to investment principal KRW 350,000 This calculation is only an illustrative example. It does not reflect issuance, asset management, trading, or sale fees and taxes, and there is no guarantee that rental income and asset prices will remain stable. If the sale price falls to KRW 8 billion, the value of the interest would be KRW 800,000 under the same simplified assumptions, resulting in a loss of principal. A safer way to approach actual expected returns is as follows: Investor’s net return = distributions + gains from sale or trading − issuance, management, trading, and sale costs − taxes The underlying asset return shown in advertisements may differ from the net return received by investors. Investors should also check whether costs are deducted first at the asset level or charged separately to their accounts. Liquidity Risk Remains Even with Exchange Trading In the New Securities Market, investors can sell their securities to other investors without waiting until maturity or the sale of the asset. However, an exchange listing does not mean the securities can always be converted into cash at the desired price. Fractional investment securities may have a small issuance size and few investors for each listed product. If there are insufficient buy orders, sell orders may not be filled, or investors may have to offer a price substantially below the latest trading price to make a sale. Even if the appraised value of the underlying asset remains unchanged, the market price may be discounted because of insufficient liquidity. The following indicators should be reviewed together before investing: Recent trading volume and trading value The spread between bid and ask prices Concentration of holdings among specific investors or the issuer Maturity and the expected timing of the asset sale The issuer’s mandatory holding amount Whether a market maker or liquidity provision program exists How Does the New Securities Market Differ from Token Securities? The New Securities Market and token securities (STO) are not the same concept. The New Securities Market concerns where securities are traded, while token securities concern the system and technology used to issue securities and record their rights in a ledger. Comparison Criterion New Securities Market Token Securities System Core nature Exchange-based secondary market operated by the Korea Exchange System for issuing and recording distributed-ledger-based securities Main question Where are securities bought and sold? How are rights and ownership details recorded? Recording method Existing electronic securities system during the initial launch period Distributed ledger method that meets applicable requirements Planned timing Market launch planned for November 16, 2026 Relevant laws scheduled to take effect in February 2027 Legal nature Trading venue for listed new securities A method of digitizing securities, not a separate asset class Relationship Securities can be traded even if they are not token securities May be integrated with issuance and trading systems in the future if requirements are met STO generally means Security Token Offering, but under the Korean system, the term token securities is used for securities under the Financial Investment Services and Capital Markets Act that have been digitized using distributed ledger technology. Even if the name includes “token,” they are not treated in the same way as ordinary virtual assets. If their economic substance is that of securities, securities regulations apply. The implementation of relevant laws also does not mean that all tangible assets will immediately be issued or traded as token securities. Subordinate regulations and infrastructure must be established regarding issuers, distributed ledger requirements, investor protection, disclosure, account management institutions, and secondary markets. Priority of Rights That Market Articles May Overlook The key issue in fractional investment is not only the outlook for asset prices, but also where investors’ rights rank relative to those of other creditors. Even if the underlying asset is the same KRW 10 billion building, if there is a KRW 7 billion senior loan, the proceeds from the asset sale may first be used to repay the loan. Holders of fractional investment securities may only be able to recover funds from the remaining amount. The possibility of losses should therefore not be assessed solely on the basis of the asset’s appraised value. The following structures should be distinguished: Who is the legal owner of the underlying asset? Is the underlying asset segregated from the issuer’s proprietary assets? How much is owed under senior rights such as bank loans and security interests? Are investors’ rights claims, trust beneficiary rights, or rights under an investment contract? Who will continue to manage the asset if the issuer or asset management company defaults? An exchange listing is not a certification guaranteeing the product’s profitability or the recovery of principal. Meeting listing requirements and having high investment value are separate matters. Key Risks and Review Items for Fractional Investments Risk What to Review Loss of principal Effects of declining asset prices and reduced business income on repayment amounts Liquidity risk Trading volume, bid-ask spreads, sale restrictions, and the ability to convert to cash before maturity Valuation risk Appraisal institution, valuation date, valuation method, and conflicts of interest Issuer risk Financial condition, shareholders’ equity, mandatory holdings, and asset segregation in insolvency Operational risk Tenant vacancies, artwork storage, fluctuations in copyright income, and insurance coverage Cost risk Issuance, management, trading, and sale fees, and the cost of selling before maturity Rights structure risk Senior claims, voting rights, authority to decide on a sale, and maturity extension conditions Concentration risk Whether investments are concentrated in a single asset, region, or operator For art, authenticity, storage, insurance, and the timing of sale are important. For real estate, vacancies, interest rates, repair costs, and secured loans affect returns. For music or intellectual property rights, past income does not guarantee future income, and cash flow may vary substantially depending on consumption trends and contract periods. Review Steps Before Investing Check the type of security. Distinguish direct ownership of the underlying asset from investment contract securities and beneficiary securities. Recalculate the cash flow. Deduct all fees, taxes, and expected losses from the stated return. Check senior rights. Review secured loans and the repayment priority of other creditors. Assess post-listing tradability. Actual trading volume may be low even if the issuance size is large. Calculate the worst-case recovery scenario. Account for the possibility that an asset price decline, income suspension, and sale delay may occur simultaneously. Read the final disclosures. Review the securities registration statement, investment prospectus, appraisal report, trust agreement, and fee schedule. Market Size and Future Changes In the provided market data, the cumulative size of South Korea’s fractional investment market was reported as approximately KRW 640 billion based on a Bank of Korea estimate, while the secondary market size was approximately KRW 14.5 billion. Cumulative issuance, outstanding balance, and trading value are different indicators, so these figures should not be directly compared or interpreted as the total market value. Some analyses indicate that music copyright-related products account for a substantial portion of the cumulative market, but the proportion may vary depending on the reference date and products included. Once the token securities system takes effect, there may be more attempts to securitize various rights, including not only real estate and art but also bonds, intellectual property rights, and project revenue rights. However, the fact that an asset can be technically divided and issued more easily does not improve its quality, liquidity, or profitability. A privately led over-the-counter secondary market is also being pursued separately. The over-the-counter market and the Korea Exchange’s New Securities Market may differ in their operators, trading rules, participating securities firms, and investor protection systems, so they should not be regarded as the same market. Whether they actually launch and on what schedule should be confirmed through approvals and final announcements from each operator. FAQ Q. When will the new securities market open? A. The Korea Exchange plans to open it on November 16, 2026. As this is a tentative schedule, you should check the Korea Exchange's final announcement for the actual opening date and trading rules. Q. Can fractional investment products be traded through an existing securities account? A. The market is designed to allow trading through securities firms participating in the new securities market, but it cannot be assumed that every securities firm will participate from the outset. Before trading, you should check whether the securities firm you use participates in the market and whether there are separate terms and application procedures. Q. If I buy fractional real estate investment securities, will my name be entered in the property register? A. Generally, it will not. Investors acquire economic rights defined in the product terms, such as trust beneficiary certificates or investment contract securities, rather than a direct co-ownership interest in the building. Q. Is my principal guaranteed if a product is listed on the exchange? A. It is not guaranteed. Losses may occur if the price and income of the underlying asset decline or costs increase, and low trading volume may make it difficult to sell before maturity. Q. Are all products listed on the new securities market security tokens? A. No. The new securities market is an exchange-based trading venue, and the rights to initially listed products will be recorded using the existing electronic securities system. Security tokens are a method of issuing and recording securities using distributed ledger technology. Q. Once the laws related to security tokens take effect, will all products be immediately available for trading? A. No. In addition to the laws taking effect, subordinate regulations, issuance and account management infrastructure, disclosure and investor protection requirements, and preparations for a secondary market are needed. Each product must also comply with securities regulations and issuance requirements. Q. What costs should I check first when reviewing returns on fractional investments? A. You should check asset acquisition and product structuring costs, issuance fees, asset management fees, trading fees, sale fees, and taxes. You should compare the investor's net return after deducting all these costs, rather than the underlying asset's total return. Q. Are the exchange market and private over-the-counter fractional investment markets the same? A. No. They may differ in their operators, trading rules, participating institutions, liquidity, and investor protection mechanisms. You should separately check the authorization status and applicable regulations of each market. Sources - Korea Exchange: https://www.krx.co.kr/ - Financial Services Commission: https://www.fsc.go.kr/ - National Law Information Center: https://www.law.go.kr/ - Bank of Korea: https://www.bok.or.kr/ Images - Woman checking a trading screen on a tablet as a worker moves a framed painting in a gallery: https://injoys.com/rails/active_storage/blobs/proxy/eyJfcmFpbHMiOnsiZGF0YSI6MTMwNDIsInB1ciI6ImJsb2JfaWQifX0=--b563b3412036862c2b4b306093c969fad1714255/ai-526f889c.webp - Flowchart of fractional securities for art, property and music traded on an exchange and recorded on a ledger: https://injoys.com/rails/active_storage/blobs/proxy/eyJfcmFpbHMiOnsiZGF0YSI6MTMwNDgsInB1ciI6ImJsb2JfaWQifX0=--ce736583b319ebeff2308106eed8a4e923774879/ai-407391b6.webp --- Category: Knowledge Base Source: https://injoys.com/en/articles/krx-new-securities-market-fractional-investment-sto License: cc_by Translation-Status: reviewed