A feature on where the STO market stands, centered on NH Investment & Securities' newly formed STO Vision Group
Since the Financial Services Commission announced its framework for regulating security token issuance and distribution in early February, the topic has drawn keen interest from financial companies and the industry has been moving quickly.
PARAMETA is a specialist blockchain technology company. Backed by a full-stack blockchain capability, it plans to lead the formation of the security token ecosystem now taking shape through PARAMETA S (STO as a Service), a service that makes fractional management of real-world assets possible using tokens and supports investment, fractional ownership, and the management that goes with them.
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Why NH Investment & Securities CEO Youngchae Jeong Is Working to Get Ahead in Security Tokens
Whether the issuance and distribution market for security tokens — which is set to be brought inside the regulatory perimeter, beyond traditional financial assets — succeeds or fails depends on how it secures the trust of the market and of customers on top of a new technical foundation, the distributed ledger. It matters that specialist companies in each domain, financial institutions included, put their heads together and build a stable, transparent business model. Through running the STO (Security Token Offering) Vision Group, we will work to give investors more stable access to investment opportunities across a wide range of underlying assets.
Youngchae Jeong, CEO of NH Investment & Securities
Youngchae Jeong, president of NH Investment & Securities, is looking for new opportunities in security tokens.
That is how NH Investment & Securities CEO Youngchae Jeong described security token investment on the 20th. As financial authorities bring security tokens inside the regulatory perimeter, a shift is expected in the traditional investment industry as well. With performance sliding amid growing uncertainty in equity markets and the international environment, firms can no longer stick to existing investment approaches alone. Securities houses are looking for new opportunities in virtual asset investment, pursuing cooperation between institutions as they search for new avenues of growth.
NH Investment & Securities recently formed the STO Vision Group, an inter-company consultative body for building a security token ecosystem, following the incorporation of security token issuance and distribution into capital markets law.
As part of its national agenda for digital financial innovation, the government is pushing ahead with a framework for regulating security token issuance and distribution in order to permit STOs within the rules of capital markets law. The security token market is expected to open as early as next year. A security token is a capital-markets-law security that has been digitalized using distributed ledger technology. It is one form of digital security, but unlike existing electronic securities it is issued in token form using blockchain technology. It is issued on the basis of non-standard assets such as real estate and artwork.
The Financial Services Commission explained the background to the initiative by noting there has long been demand for small-scale issuance, investment, and trading of the many kinds of non-standard securities that the existing system — built around standard securities such as shares and around exchange-listed markets — has not accommodated.
Participants in the STO Vision Group security token consultative body
Securities firm — NH Investment & Securities
Fractional investment operators — Together Art (artwork), Treasurer (luxury goods and collectibles), GREENERY (ESG carbon credits)
Unlisted stock brokerage — Seoul Exchange
Blockchain technology companies — Block Odyssey, PARAMETA (formerly ICONLOOP)
Underlying asset appraiser — Korea Ratings
Gathered around NH Investment & Securities are fractional investment operators, an unlisted stock brokerage, blockchain technology companies, and an underlying asset appraiser. These are companies whose current business models need to change under the new security token rules, or for which future business opportunities exist, and they have formed the body to hold practical discussions. They plan to jointly pursue broad business opportunities for expanding the use of security tokens.
The group also intends to lead the building of a sound security token ecosystem — protecting investors by resolving information asymmetry, establishing efficient security token issuance and distribution systems, and laying the groundwork for smooth cooperation between financial institutions and innovative companies. As the rules bed in and the market expands, it plans to add participants in each domain.
Success or failure in security tokens hinges on liquidity
The Korbit Research Center, part of the domestic virtual asset (cryptocurrency) exchange Korbit, emphasized security token liquidity in a recent report on blockchain and revitalizing the distribution market. It argued that the tokenization of assets has to presuppose liquidity. "We should not forget that the highest-volume assets in overseas security token markets are based on public chains such as Ethereum," said Seokmoon Jung, head of the Korbit Research Center. "The financial authorities' STO guidelines should be operated so that they ultimately lead to greater liquidity in the security token market."
That said, there is the burden of having to fight through fierce competition with the securities firms that have jumped in to stake out the new business. "The short-term revenue a securities firm earns from token distribution fees is not large, but the medium- to long-term effect on customer acquisition will be significant," said Yudong Yoon, an analyst at NH Investment & Securities. "The more traffic there is to the MTS, the more useful it becomes across many fronts — driving stock trading, selling financial products, connecting to MyData, and so on."
Soohyun Kim, an analyst at DS Investment & Securities, likewise said, "The ability to source as many assets as possible that can satisfy investor demand is what will differentiate the competitiveness of securities firms in the STO market."
Kiwoom Securities is preparing an STO trading system within its MTS (mobile trading system), Youngwoongmun S. It has signed MOUs with nine partners, including the real estate fractional investment platforms Funble and Kasa Korea and the music copyright investment platform Musicow. KB Securities has been preparing a platform with SK C&C since November last year and is set to launch the service in the first half of this year. Mirae Asset Securities set up an STO task force early last year.
Shinhan Securities is planning a fractional investment platform for physical assets. It has signed a memorandum of understanding with BuySell Standards, operator of PIECE, on a joint security token (STO) business. "We have been carefully preparing a security token (STO) platform that spans a variety of asset types, including bonds, luxury goods, and artwork," said Jangwoo Kim, head of the digital group at Shinhan Securities. "We will continue working to create a sound market environment where new products can be invested in more conveniently and safely."
Will security token legislation come together properly?
In the National Assembly, little progress has been made since the public hearing on virtual assets two years ago. Related bills have been under discussion since the 2021 hearing took up virtual asset legislation. In total, 17 bills have been introduced — seven of them framework acts and the like, plus ten amendments adding virtual asset provisions to existing laws such as the Electronic Financial Transactions Act and the Act on Reporting and Using Specified Financial Transaction Information — but all are pending.
Discussion is difficult because the new concept of a security token is not easily accepted in the market. Even determining whether a virtual asset is a security can cause confusion. In publishing its guide, the FSC divided the question of security status into cases likely to qualify as securities and cases unlikely to qualify. These are only likelihoods, not a clear standard, leaving ample room for ambiguous interpretation. Various problems can also arise in the process of tokenizing assets whose objective value is hard to establish, such as artwork.
"We are thinking about whether digital assets can play a role that both complements and differentiates itself from existing financial assets," said Changhyun Yoon, chair of the special committee. "We will work to introduce a properly structured digital asset act, through a trading act at stage one and a framework act at stage two."
"The financial authorities are aiming for a balance between the advantages of security tokens and investor protection," said Subin Shim, an analyst at Kiwoom Securities. "Given the work still required to build security token infrastructure and to legislate, it will take time for the market to become active."
- Source: Insight Korea (http://www.insightkorea.co.kr)
- Original article: http://www.insightkorea.co.kr/news/articleView.html?idxno=105735