Korea Securities Depository to support cross-broker OTC trades in unlisted shares

Investors using different brokerages will soon be able to trade unlisted shares and fractional investment products on over-the-counter markets with one another, under a plan announced Friday.

The Korea Securities Depository said Friday it has begun building a clearing and settlement infrastructure to handle the exchange of securities and cash following such trades. Transactions will be settled on the next business day (T+1), and the depository plans to complete the system by year-end.

The infrastructure project follows the government's policy to bring unlisted-share and fractional-investment OTC exchanges into the regulated financial system. Since an amendment to the enforcement decree of the Capital Markets Act last year, the depository has been working with the OTC exchange industry to design settlement procedures and develop the necessary rules and systems. In the first half of this year, it finalized a standard operating framework — settling trades on the next business day — in consultation with four unlisted-share and fractional-investment OTC exchanges. Last month, it briefed officials from 23 brokerages, OTC exchanges and the Korea Financial Investment Association on the construction plan.

Under the new system, the depository will sit between buyers and sellers to handle the transfer of securities and cash after a trade is executed. Under the current regulatory sandbox arrangement, some trades require buyers and sellers to use linked accounts at the same brokerage. Once the infrastructure is in place, investors at different brokerages will be able to complete transactions with each other. The depository said it expects the system to improve trading convenience and liquidity, raising overall market efficiency.

The T+1 settlement cycle is designed to speed up the turnover of investor funds and improve trading convenience. The depository also plans to use the new system as a test bed to assess the impact on markets and infrastructure ahead of a broader shift to T+1 settlement in the domestic securities market.

The system will be built on an electronic securities platform and will operate separately from the existing stock market and K-OTC clearing and settlement systems. The depository said it designed the system with scalability in mind to accommodate a range of future products, including security token offerings (STO), while minimizing any impact on existing market operations. The distribution and settlement of STOs, however, will be reviewed at a later stage in line with government policy.

The depository plans to conduct simulated market tests in October and November before completing the clearing and settlement infrastructure by year-end. It intends to launch the system in line with the licensing and service launch schedules of OTC exchanges, with the aim of supporting the early establishment of the market.

Even after the infrastructure is complete, the market cannot open until OTC exchanges obtain investment brokerage licenses and begin operations. Naver Pay Unlisted and Seoul Exchange Unlisted — both unlisted-share trading platforms — as well as the KDX-NXT consortium, which is pursuing the establishment of a fractional-investment OTC exchange, are currently going through the financial authorities' investment brokerage licensing process. Industry officials expect trading through the depository's clearing and settlement infrastructure to begin in earnest once the licenses are granted.