Controversy over STO OTC exchange grows… regulator again postpones preliminary approval

South Korea’s financial regulator is reported to have once again postponed its decision on granting preliminary approval for a tokenized securities (STO) over-the-counter (OTC) exchange, a move seen as reflecting heightened controversy over the selection of the exchange operator.

According to relevant government sources on the 28th, the Financial Services Commission (FSC) did not place the STO OTC exchange preliminary approval agenda item on the regular meeting held that day. The FSC also did not table the agenda at the regular meeting held in mid-month. FSC regular meetings are typically held once or twice a month.

Earlier this month, the Securities and Futures Commission (SFC), an affiliate of the FSC, said the Korea Exchange and alternative trading venue NextTrade (NXT) were suitable as preliminary operators. Lucentblock, a domestic fintech startup that has operated an STO business for about seven years through the regulatory sandbox, was reported to have been eliminated during the SFC’s review.

However, controversy flared after Lucentblock objected during the FSC review process. Heo Se-young, CEO of Lucentblock, said at a recent press conference, “This is evidence that they placed a higher value on the on-paper plans and signboard of a giant institution staffed with former FSC officials, which severely undermines the fairness of the review.” As the controversy escalated, even President Lee Jae-myung weighed in, noting, “Those who are rejected may feel wronged, so it seems important to explain it well in a way they can accept.”

FSC Chairman Lee Eok-won also moved to contain the fallout. At a monthly press briefing held that day, Lee said of the controversy surrounding the STO OTC exchange licensing process, “Whatever the outcome, it must proceed fairly and transparently,” adding, “We will also explain the outcome itself transparently and in detail.”