[비즈한국] The Financial Services Commission (FSC) has selected the KDX and NXT consortia as preliminary approval candidates for the OTC brokerage business for profit-sharing securities (fractional investment OTC exchange). As the announcement was delayed once due to concerns over preferential treatment and unfair screening, the financial authorities responded by releasing the assessment scorecards. With Lucent Block, which had raised allegations of unfair screening and technology theft, failing to receive preliminary approval, eyes are now on the future operation of the fractional investment distribution market.
The FSC approved the preliminary authorization for the fractional investment OTC exchange at a regular meeting on the 13th. Out of the three applicants (KDX, NXT Consortium, and Lucent Block), KDX and the NXT Consortium were newly approved. However, the NXT Consortium’s approval is conditional: if an administrative investigation by the Korea Fair Trade Commission begins due to technology theft allegations raised by its competitor, Lucent Block, the final approval screening process will be suspended.
The KDX consortium is led by major shareholders Kiwoom Securities039490, Kyobo Life Insurance, and Kakao Pay Securities, with the Korea Exchange holding a stake of over 5%. Fractional investment firms such as Kasa Korea, BuySell Standard, Tessa, Together Art, and Stock Keeper are also participating. The NXT Consortium is led by the alternative exchange Nextrade, and its major shareholders (over 5%) include financial firms such as Shinhan, Hana, Hanyang, and Eugene Investment & Securities001200, as well as the music copyright fractional investment firm Musicow.
This preliminary approval announcement was delayed from the original date of January 14. At the time, allegations of unfair screening were raised by Lucent Block as news broke that KDX and the NXT Consortium were slated for approval. On January 12, Lucent Block claimed that the preliminary screening process involved issues such as "privileges for established players," "unfair authorization procedures," and "technology theft" (Related article: Why Lucent Block raised 'preferential treatment suspicions' regarding the fractional investment OTC exchange preliminary approval).
The "unfair authorization" claim refers to the argument that it is inappropriate for public institutions to compete with startups, noting that the Korea Exchange is involved with KDX and Nextrade with NXT. The "technology theft" allegation suggests that the NXT Consortium obtained internal information from Lucent Block under the guise of investment and consortium participation talks prior to the application. Regarding "privileges for established players," the claim was that large-scale corporate consortia should have undergone a business combination review before applying for approval, which KDX and NXT failed to do.
In response, the financial authorities disclosed the scorecards from the Financial Supervisory Service's external evaluation committee, stating, "We will ensure fair competition and eliminate controversy over preferential treatment." The scores were 750 for the NXT Consortium, 725 for KDX, and 653 for Lucent Block, showing a significant gap between the top two and the third-place applicant. The FSC provided a detailed explanation for the score gaps, stating, "The main differences arose in requirements regarding equity capital, business plans, and conflict-of-interest prevention systems."
The equity capital category evaluates the scale and the realism/appropriateness of funding plans. Regarding Lucent Block, the authorities explained, "The equity capital is significantly lower than other firms, and the feasibility of plans for raising capital and emergency funds was deemed fluid." Regarding the business plan, they noted, "While they have experience operating a distribution platform as an existing innovation business, their long-term strategy and internal regulations as a financial company are insufficient." Regarding the conflict-of-interest prevention system, they pointed out governance issues, stating, "With the majority shareholder and specially related parties holding a 51% stake, it is difficult to view this as a true consortium, and Lucent Block essentially functions as a private company."
The authorities also refuted all allegations raised by Lucent Block. Regarding technology theft, the evaluation committee concluded it was not the case. The committee stated, "There is insufficient objective evidence to reflect the technology theft issue in the evaluation. There are no ongoing criminal complaints, and while there was professional cooperation, we do not judge it to be technology theft."
Regarding the business combination review, the authorities explained, "The Korea Exchange, which is not the largest shareholder in KDX, is not subject to business combination reporting. Under the Act on Structural Improvement of the Financial Industry, entities like Nextrade or securities firms that are major shareholders must receive FSC approval when making investments. In this case, business combination reporting under the Fair Trade Act is exempted. The investment approval procedure will be conducted prior to final authorization." Regarding the unfair screening allegations, they replied, "We reflected preferential measures for startups in our screening criteria, and many fintech firms are participating in the KDX and NXT consortia as well. Being a sandbox operator does not guarantee approval."
KDX and the NXT Consortium, which received preliminary approval, must fulfill the authorization requirements and apply for investment approval and final authorization within six months. Operations can only begin after final authorization. Conversely, Lucent Block, which was eliminated from the screening, must cease its fractional investment distribution channel operations once the other two consortia receive final approval and begin operations. Alternatively, Lucent Block could apply for an issuance license instead of a distribution license to continue business. If they do not apply for an issuance license or are rejected, the fractional investment securities will be managed by an affiliated securities firm, and the underlying assets (real estate) will be managed by a trust company to distribute profits to investors. Lucent Block has approximately 25 billion won in outstanding fractional investment balances and about 45,000 investors.
Following the results, Lucent Block released a statement saying, "The stakes held by the majority shareholder and specially related parties are not a monopoly by the founder, but are based on trust with investors who believed in our initial vision and shared the risks. The second-largest shareholder, an 'individual investor association,' is a group of pure outside investors with no stake held by CEO Heo Se-young. It appears that the benefits of the startup preferential measures were nullified due to the point regarding the need to correct the 51% stake held by related parties."