[Opinion] Time to Institutionalize a Phased Shift to Tokenized Listed Stocks

Lee Jeong-myung, Attorney at Bae, Kim & Lee LLC

Revisions to the Electronic Registration of Stocks, Bonds, Etc. Act and the Financial Investment Services and Capital Markets Act, passed by the National Assembly in January 2026 and promulgated in February, are scheduled to take effect on Feb. 4, 2027.

Making Distributed Ledgers the Original Book of Record

The centerpiece of the amended Electronic Securities Act is its explicit recognition of a distributed ledger as an electronic registration account book. That means records on a distributed ledger can have the same legal effect as electronic registrations in a conventional centralized ledger, including presumptive ownership, the legal effect of transfers and pledges, and the enforceability of trusts against third parties.

That breaks with the "mirroring" model used during the fractional-investment sandbox period, when a separate electronic security matching each token on a one-to-one basis had to be issued. Under the revised framework, the distributed ledger itself becomes the legal original book of record.

Using the tokenization models classified by the International Organization of Securities Commissions, or IOSCO, South Korea's framework can be viewed as adopting a digital-native model in which the security itself is issued directly on-chain from the outset and the on-chain record serves as the original ledger.

The Financial Services Commission said at the second meeting of its public-private token securities consultative body in May that it would examine a phased roadmap for tokenizing standardized securities such as stocks, bonds and money market funds.

How Tokenized Listed Shares Could Reshape Capital Markets

Until now, fractional investment in South Korea has centered on non-standard assets such as real estate and art. Those products have typically been structured as beneficiary certificates in non-cash trusts or as investment contract securities. Their significance lies in bringing fractional investment in non-standard assets into the securities framework and turning it into a regulated investment product with investor protections such as issuance rules, disclosure requirements and unfair-trading restrictions.

Tokenization of standardized securities such as stocks and bonds carries a different significance. Moving a market that already has deep liquidity and standardized rights structures on-chain could spread infrastructure gains across the broader market through 24-hour trading, instant settlement and automated rights execution. The resulting increase in liquidity and lower transaction costs could in turn boost capital-market activity and improve financing efficiency across industries.

Among standardized securities, tokenizing equities is especially important. Shares combine complex rights tied to corporate actions, including consolidations, splits, dividends and voting rights. If those functions are moved on-chain and automated through smart contracts, not only settlement but also dividend payments, voting and a range of corporate actions could be digitized. The implications of stock tokenization would therefore extend well beyond settlement efficiency.

Overseas examples are instructive. In December 2025, the Securities and Exchange Commission's Division of Trading and Markets granted a no-action letter to The Depository Trust Company for a three-year pilot program on the tokenization of highly liquid securities.

Even so, the pilot does not target the securities themselves or wrapped versions of them. Instead, it is designed to tokenize DTC participants' entitlements to those securities.

In other words, the registered owner of the underlying security remains unchanged at all times and continues to be DTC's nominee, Cede & Co. Nasdaq received approval for tokenized stock trading based on that DTC pilot, and the New York Stock Exchange has signaled a 24-hour trading platform. Yet even in the US, cases remain rare in which corporate actions for listed shares, including dividends and voting rights, are completed entirely on-chain, and the issue is still under review.

The US also continues to rely on a digital-twin model for direct stock tokenization. In that structure, the off-chain ledger remains the authoritative record of rights, while the on-chain record serves as a supplemental means of representing and transferring those rights.

South Korea can also consider stock tokenization. An amendment to the Enforcement Decree of the Capital Markets Act that took effect on Sept. 23, 2025 institutionalized a structure in which the Korea Securities Depository receives fractional shares in trust and issues beneficiary certificates. For unlisted shares, that framework could allow indirect tokenization through stock trusts and beneficiary-certificate issuance.

From the standpoint of the broader capital market, however, the greater significance lies in tokenizing listed shares. Listed stocks are the market's deepest and most standardized asset class, meaning the efficiency gains from moving them on-chain would be the greatest and could drive a broader shift in market infrastructure.

The Move On-Chain Should Be Phased

Even so, processing all corporate actions for listed shares entirely on-chain from the start would be difficult in practice. Even under the current Electronic Securities Act, corporate actions such as dividends and voting rights are not completed directly within the electronic registration account book. They go through separate procedures involving the issuer, transfer agent, electronic registration institution and account management institution, and are also handled at the shareholder-registry level. In other words, the trading ledger and the reference ledger for corporate actions are separate and operate in parallel.

That does not mean the full-scale introduction of tokenized listed shares should be delayed. A practical approach would be to begin with a two-track model in which corporate actions are handled through an off-chain ledger at the outset, then gradually expand the on-chain portion once the infrastructure has been sufficiently tested. That phased approach does not run counter to the purpose of the amended Electronic Securities Act. The revised law recognizes distributed ledgers as original books of record while preserving existing principles on total issuance control, resolution of excess issuance and investor protection. It also allows conversion between distributed-ledger-registered securities and existing electronically registered securities.

By recognizing a distributed ledger as the original book of record, South Korea's Electronic Securities Act adopts a digital-native model and provides a legal foundation that goes a step beyond the US-style digital-twin structure, where on-chain records remain subordinate to an off-chain ledger. But a more advanced legal framework does not mean every corporate action must be completed on-chain from day one. In its final report on financial asset tokenization in November 2025, IOSCO also said the shift to tokenization was more likely to proceed at an evolutionary rather than revolutionary pace, with legacy and new infrastructure coexisting for the time being.

South Korea should actively consider, with reference to overseas cases, a plan to move listed equities, the market with the deepest liquidity, on-chain while beginning with a two-track structure in which corporate actions continue to run alongside proven off-chain infrastructure and the on-chain share expands in stages. The key is to design that phased transition not as a stopgap but as a coherent path toward the ultimate goal of a digital-native market. Its success will depend on how thoroughly subordinate regulations and on-chain settlement and rights-exercise infrastructure are prepared before the law takes effect in February 2027.

Lee Jeong-myung