Full-scale fractional investing to be allowed for Koreans starting with offshore stocks

Big-ticket stocks at home and abroad would become more accessible for Koreans as the local authority moves to allow fractional investing in full scale starting with offshore shares this year.

The top policy maker Financial Services Commission (FSC) said Sunday that Korean nationals will be allowed to invest in less than a whole share of overseas stocks. Brokerages offering the service will collect orders throughout the day and cover up the shortfall themselves to execute the transaction.

Fractional investing will be allowed for overseas listed stocks within this year and for domestic stocks from the third quarter of next year. For instance, an individual may be able own expensive issues like Amazon or LG Chem with $10 or $100 depending on how little proportion a brokerage allows. FSC will take application from securities brokers for adding the related service from October to November.

FSC will grant brokerage firms the permit to offer fractional investing service by designating as an innovative financial service, according to Byun Je-ho, capital market department head at FSC. The financial authority will seek revising the local law to formally legalize the practice.

As many as 12 local brokerage firms are preparing to add the fractional investing service to win the niche market. On top of applying for the permit, the brokerages would need to set up a system to facilitate the service, which could take up to a year.

FSC tested out the program with two local brokerage firms – Shinhan Investment and Korea Investment & Securities – restricted to overseas-listed stocks from 2019. Korea Investment & Securities began offering the service in August last year and saw downloads for the app offering the service top 1 million. Trade amount for fractional stock investment is also close to hit 1 trillion won ($851 million). Investors in their 20s and 30s make up two-thirds of total app users.

The new investment technique would allow investors to run more diversified investment portfolio by allocating money in several companies instead of putting a lump sum in a single company.

Market watchers anticipate the introduction of fractional investment to reinvigorate retail trading, which has slowed to average at 14.3 trillion in daily turnover this month to last Friday, from 18.1 trillion won averaged for the first half of this year.

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