Financial Services Commission allows fractional investment exchanges…bonus points for consortia and small securities firms

Batch applications for provisional approval next month

The Financial Services Commission will start accepting applications for authorization to operate over-the-counter exchanges (distribution platforms) for fractional investment securities from next month. Considering the market's small size, it plans to limit the number of authorized operators to a maximum of two.

According to the financial authorities on the 4th, the FSC is creating a new licensing unit for operating over-the-counter exchanges for fractional investment securities. It plans to complete revisions to the Enforcement Decree of the Capital Markets Act and related supervisory regulations by the end of this month.

Fractional investment securities are products that divide underlying assets such as real estate and music copyrights into trust beneficiary certificates and sell them to multiple investors. With the issuance authorization system established in June, the institutionalization of distribution platforms will complete the related regulatory improvements.

The FSC decided to allow new authorizations for fractional investment distribution platforms to a maximum of two. The judgment was that the fractional investment market is still in its early stages and the annual purchase transaction volume is only about 14.5 billion won, and if platforms proliferate, liquidity could fall and lead to investor harm.

Key basic evaluation items include business plan (300 points), conflict-of-interest prevention system (150 points), and physical facilities (150 points). A consortium approach with multiple securities firms participating is advantageous compared with individual applications.

Also, preference points will be given to securities firms specialized in small and medium-sized enterprises or consortia that include them rather than to large firms. Because SME-specialized securities firms have focused on supplying venture capital, they can use fractional investment products to support SMEs that have difficulty raising funds.

Experience operating fractional investment distribution platforms and the ability to launch services quickly are also important evaluation factors.

Applications for authorization will be accepted for about one month after the regulatory revisions are completed at the end of this month, and the final recipients will be decided following external expert evaluation and deliberation by the Securities and Futures Commission. The FSC will hold an industry briefing on the 18th and conduct a Q&A.

Reporter Park Ju-yeon grumpy_cat@hankyung.com