Trading tokenized stocks in unlisted companies is inching closer to becoming a reality in South Korea.
The South Korean National Assembly is getting closer to signing off on a draft law that aims to legalize security token offerings, or STOs, reports South Korean outlet Hanz Kyungjae.
This is a bullish signal for the country’s traders, Yoon Ji-ho, a Seoul-based stock trader, told DL News.
“We lack the ability to trade in companies that aren’t listed on major stock exchanges,” Yoon said. “Of course, we want to have these kinds of options at our disposal.”
South Korean business leaders have been pushing for STO legalization for several years, as have lawmakers. But they have been frustrated by successive governments’ seeming inability to overturn 2019’s total ban on all forms of token issuance.
The momentum for the bill comes as tokenized stocks are gaining momentum across the world, with ventures like Robinhood and Kraken having launched the trading of such assets earlier this year, including trading representations of shares of companies that have yet to be listed.
A Long Time Coming for STOs
STOs are envisaged in South Korea as a blockchain token-powered version of an initial public offering that does away with the need for stock market listings.
If the Political Affairs Committee approves the bill as expected, it will then be passed on to the Legislation and Judiciary Committee before being tabled for debate during the National Assembly’s final plenary session of 2025.
With the ruling and opposition parties having reached a consensus, observers now expect the bill to pass before the end of the year, Hanz Kyungjae reported.
The media outlet said that if the bill passes without any major friction, politicians think this will “accelerate the passage of subsequent legislation, including bills relating to stablecoin and crypto exchange-traded fund approvals.”
The bill in question is an amalgamation of draft proposals created by Democratic Party lawmakers Kang Jun-hyun, Min Byoung-dug, and Jo Seung-rae, as well as Kim Jae-seop of the main opposition People Power Party.
The terms of the existing Electronic Securities Act do not recognize distributed ledger technology-powered solutions or blockchain technology.
The draft bill would seek to change that. It also includes clauses that would allow “qualified issuers” to “directly issue and manage tokenized securities using blockchain technology.”
Furthermore, the bill proposes establishing a legal basis for trading STO coins on over-the-counter exchanges.
Past Obstacles and Future Outlook
The draft law also contains clauses that would let South Korean companies issue real-world assets in the “real estate, music copyright, artwork, and livestock sectors,” the media outlet wrote.
South Korean lawmakers have been trying to fast-track STO legislation for several years, but have been thwarted in their efforts.
Their last concerted push to pass a bill came in September last year, but was eventually derailed by former South Korean President Yoon Suk-yeol’s attempt to declare martial law.
His successor, President Lee Jae-myung, has prioritized STO and tokenized securities-related legislation as part of his administration’s efforts to revitalize the domestic stock market.