FSC picks NXT and KDX as OTC venues for STOs; rejected LucentBlock says “assessment differs from the facts”

South Korea’s Financial Services Commission (FSC) has selected the Korea Exchange–Koscom consortium (KDX) and the Nextrade–Musicow consortium (NXT) as fractional-investment over-the-counter (OTC) exchange operators to handle the distribution of tokenized securities (STOs). As a result, LucentBlock— which had raised concerns over the fairness of the process—was excluded from the preliminary approval list.

On the 13th, the FSC held its regular meeting and passed a resolution granting preliminary approval in principle for fractional-investment OTC exchanges. In the review, the NXT consortium ranked first with a score of 750 based on an assessment by the Financial Supervisory Service’s external evaluation committee, while the KDX consortium followed with 725, placing it on the preliminary approval roster. LucentBlock, which also took part in the competition, scored 653. That left it 97 points behind NXT in first place and 72 points behind KDX in second.

LucentBlock’s point deductions were found to span key categories overall, including capital adequacy, its business plan and its conflict-of-interest prevention framework. Compared with rivals, it received a relatively lower evaluation in terms of the size of its equity capital and the specificity of its funding plan, and reviewers indicated that improvements were needed in the completeness of its business plan for operating an OTC venue as well as its internal control system. In addition, the stake held by its largest shareholder and related parties was shown as 51%, which was reported to have affected the assessment of the consortium’s independence and its conflict-of-interest management framework.

The FSC said it conducted a comprehensive evaluation of investor-protection capabilities—such as stable market operations, linkage to trade execution and settlement, and prevention of unfair trading—given that OTC venues have the nature of capital-market infrastructure. It added that the approvals were processed based on the external evaluation committee’s results in line with the operating plan and screening criteria disclosed in advance, and that selections were made according to the scores. On limiting the number of licenses to a maximum of two, the FSC said that splitting liquidity could hinder trading activity and undermine market stability, calling it a measure that takes investor protection and market efficiency into account.

LucentBlock said some parts of the approval outcome and assessment differ from the facts. The FSC had judged that LucentBlock’s 51% stake held by the largest shareholder and related parties makes it difficult to view the entity as a substantive consortium and that it retains the strong character of a company centered on an individual controlling shareholder. In response, LucentBlock CEO Heo Se-young argued that the interpretation of the ownership structure is inconsistent with the facts. He explained that the second-largest shareholder at the center of the controversy, a “personal investment association,” is an official investment vehicle certified by the Ministry of SMEs and Startups and includes no individual ownership at all.

The company also stressed that, contrary to the FSC’s assessment, LucentBlock is not a latecomer to the fractional-investment market. LucentBlock said it is not an operator that entered the market belatedly, but a company that has been building an institutional STO structure in a leading manner. It added that it was the first to implement an electronic-registration beneficiary-certificate-based STO distribution structure that links the Korea Securities Depository’s electronic registration system with securities firms’ account management agencies.

Meanwhile, the conditional preliminary approval granted to the NXT consortium is expected to remain a variable going forward. In connection with allegations of technology misappropriation raised by LucentBlock, the FSC imposed a condition that it would suspend the full-license review process if the Korea Fair Trade Commission (KFTC) launches an administrative investigation. Accordingly, whether and when the KFTC initiates such an investigation is expected to affect the timing and progress of NXT’s full-license review. The two consortia that received preliminary approval must implement the preliminary approval details and conditions within 6 months, then apply for a full license after completing a capital contribution approval procedure under the Act on Structural Improvement of the Financial Industry. They will begin operations once the full license is finally approved.

In addition, with the Tokenized Securities Act (amendments to the Electronic Securities Act and the Capital Markets Act) scheduled to take effect 1 year after promulgation, the FSC plans to launch a tokenized securities consultative body within this month to refine the distribution framework and licensing system. The scope of distribution for tokenized-securities-type trust beneficiary certificates and whether to grant additional licenses are also expected to be determined based on the consultative body’s discussions.