Korea Capital Market Institute

As the number of products and services using distributed ledger technology (DLT)-based tokenization has gradually grown, tokenization has become a major focus for financial institutions and policymakers. In global capital markets, tokenization has moved beyond proof-of-concept and pilot stages and is being applied to the transactions and operations of regulated financial institutions, with a growing body of practical use cases. To date, tokenization has focused primarily on traditional financial products with established regulatory frameworks and market practices, with adoption progressing selectively in areas where the benefits are relatively clear. Financial market infrastructure institutions are also becoming more involved, reflecting the need for an institutional framework that supports tokenization, including legal certainty and operational responsibilities, as well as trusted operators. Major use cases in global markets include collateral management and repurchase agreement (repo) transactions, fund operations and administration centered on tokenized money market funds (MMFs), and bond issuance and settlement—areas where tokenization can substantially improve the efficiency of existing processes. More recently, digital asset platforms have begun issuing equity-linked tokens, while major U.S. exchanges have pursued initiatives to tokenize listed equities. For now, however, given the stringent requirements for investor protection and system stability, progress in this area is expected to be more gradual than in the other areas discussed above. Korea is also preparing to adopt tokenization, including by establishing a legal foundation for the issuance and trading of tokenized securities. Institutional and policy efforts are needed to ensure that tokenization can enhance the efficiency and competitiveness of Korea’s capital markets. Taking into account the risks associated with tokenization and domestic market conditions, adoption should proceed in stages, beginning with areas where tangible benefits can be demonstrated. To this end, regulatory clarity for tokenization projects should be enhanced, and pilot programs should be pursued in areas with strong potential for practical use, such as the tokenization of government bonds. Alongside these efforts, market infrastructure and settlement systems that support tokenization should be developed to foster a tokenization ecosystem that connects reliably with existing capital markets.

In December 2024, Korea entered a super-aged society, with the share of the population aged 65 and over exceeding 20 percent. As the country moves decisively into an era of a demographic onus characterized by a shrinking working-age population, it is becoming increasingly difficult to secure adequate retirement income through public pensions alone, which were designed on the premise of intergenerational support. Despite the recent parametric reform, the National Pension Scheme continues to face long-term fiscal constraints, and its income replacement rate remains well below the 60–70 percent level recommended by international organizations. Korea must therefore strengthen its retirement income security system through a multi-pillar pension framework in which the Basic Pension, National Pension, retirement pensions, and personal pensions complement one another. Against this backdrop, this report emphasizes that the retirement pension system should be repositioned as a core pillar of Korea’s multi-pillar retirement income system. At the end of 2025, total retirement pension assets amounted to KRW 501.4 trillion, nearly doubling from KRW 255.5 trillion at the end of 2020 in just five years. The expansion in asset size alone, however, cannot be regarded as evidence that the system’s retirement income security function has strengthened accordingly. As much as 75.4 percent of total assets remain concentrated in principal-and-interest-guaranteed products, the average annual return over the past ten years stands at only 2.64 percent, and the share of retirement benefits taken in pension form is merely 16.5 percent. Given inflation and the need to finance living expenses over a prolonged period after retirement, it is impossible to accumulate pension assets of sufficient scale through a savings-oriented approach centered on principal-and-interest-guaranteed products. The investment paradigm for retirement pension assets must therefore shift from saving to long-term investment. Pension assets should pursue an appropriate risk premium through globally diversified portfolios. The overall annual return of 6.5 percent recorded by retirement pensions in 2025 was driven by the exceptional 16.8 percent performance of market-linked products, while principal-and-interest-guaranteed products returned only 3.1 percent over the same period. Although these figures partly reflect the recent strength of capital markets and should therefore be interpreted as short-term performance, it remains clear that principal-and-interest-guaranteed products cannot serve as the primary long-term investment vehicle for retirement pension assets. As the direction for reforming the retirement pension system, this report proposes both the introduction of a fund-based governance structure and improvements in the operational efficiency of the existing contract-based retirement pension system. A fund-based system is not simply a mechanism for pooling assets to increase investment scale. Rather, it represents a reform of governance designed to ensure that professional asset management, effective management of conflicts of interest, and long-term performance evaluation operate through an independent decision-making body representing the interests of workers and through clearly defined fiduciary responsibilities. The principles developed by the OECD and IOPS, together with the experience of master trusts in the United Kingdom and superannuation in Australia, demonstrate that institutional independence, professional expertise, transparent disclosure and supervision, and meaningful competition among funds are critical determinants of success. The 2026 tripartite declaration by labor, management, and government proposed three types of retirement pension funds: nonprofit association-type funds, financial-institution open-type funds, and public-type funds. This report emphasizes that these models should not be regarded as mutually competing alternatives; rather, they are complementary arrangements designed to serve different institutional objectives. The purpose of nonprofit association-type funds is to enable enterprises with similar characteristics to form sustainable alliances and extend their retirement pension arrangements through to the payment of benefits. Association-type funds established by corporations are intended to provide competitive employee benefit arrangements that can help attract and retain high-quality personnel. Financial-institution open-type funds, by contrast, are intended to improve investment returns through the asset-management infrastructure of private financial institutions and active competition in investment performance. Governance and supervisory arrangements should be designed so that these distinct institutional objectives can be fully realized. Public-type funds are intended to close coverage gaps among small and micro enterprises and vulnerable workers and to secure stable benefit entitlements. From this perspective, participation by the National Pension Service (NPS) in the public-type retirement pension market would be inappropriate. The high investment returns and low operating costs cited by the NPS as its competitive strengths are unlikely, in the context of retirement pension management, to generate a meaningful advantage over Pureun Seed, the existing public-type fund operated by the Korea Workers’ Compensation & Welfare Service. From the standpoint of public-sector intervention in a private financial market, the potential benefits are uncertain, whereas the adverse effects are much more evident. Moreover, from the perspective of risk diversification within a multi-pillar pension system, it is undesirable to place the management of public and private pension assets in the same institutional basket. The introduction of a fund-based system alone will not resolve all of the current problems. The operational efficiency of contract-based retirement pension arrangements, which are likely to coexist with fund-based arrangements for a considerable period, must also be improved. In defined benefit (DB) plans, stronger incentives are needed to ensure that investment management committees and Investment Policy Statements (IPSs) operate in a substantive rather than merely formal manner. Discretionary investment management through an Outsourced Chief Investment Officer (OCIO) arrangement should be permitted for DB pension assets, thereby enabling the establishment of an asset-liability management (ALM)-based asset allocation framework that takes account of wage growth and the structure of pension liabilities. In defined contribution (DC) plans, the highest priority should be to enhance the effectiveness of the pre-designated investment method, or default option system. Although assets under default options have grown to KRW 53.3 trillion, 85.4 percent are concentrated in conservative options, resulting in an overall return of only 3.69 percent. The very purpose of a default option system is to prevent participants’ inertia from leaving pension assets stranded in low-return products. The current opt-in structure, however, under which participants must once again actively select an investment product, imposes significant limitations on the effectiveness of the system. The pre-designated investment regime should therefore be restructured into a genuinely automatic investment framework centered on target-date funds (TDFs) and target-risk funds (TRFs). These reforms will also require a fundamental transformation in the role of financial institutions. The retirement pension market of the future should evolve away from competition based primarily on asset size and product sales toward competition in asset allocation, risk management, and investment performance. Financial institutions should no longer function merely as product providers; they should be transformed into fiduciary institutions bearing substantive responsibility for the management of pension assets. The ultimate objective of retirement pension reform is to establish a system in which accumulated retirement assets are converted into stable pension benefits through the professional expertise of financial institutions and the rigorous discharge of their fiduciary responsibilities.

The Korean economy is facing structural challenges characterized by a slowdown in total factor productivity (TFP) growth and a persistent decline in its potential growth rate. As population aging deepens and the marginal productivity of capital declines, growth driven by the expansion of factor inputs is becoming increasingly constrained. At the same time, the deceleration in TFP growth has emerged as a major impediment to sustainable economic growth. Enhancing TFP requires not only technological progress but also efficient allocation of production factors across firms—that is, allocative efficiency plays a critical role. Meanwhile, the global economy is undergoing a rapid transition from a production structure centered on tangible assets such as plants and equipment toward one increasingly driven by intangible assets, including knowledge, know-how, and organizational capabilities. Although intangible assets have become a key source of firm competitiveness and growth, firms with greater reliance on intangible assets are more likely to face external financing constraints due to valuation uncertainty and the limited collateralizability of such assets. These financial constraints can hinder the expansion of highly productive firms and, in turn, lead to inefficient allocation of resources. Using financial statement data for audited Korean firms, this study estimates and aggregates firm-level stocks of intangible capital. The results indicate that the share of intangible capital in total corporate capital stock increased substantially from 23.1 percent in 1999 to 36.6 percent in 2023. In particular, industries that are more intensive in intangible assets experienced a faster pace of “intangible deepening” than other industries, and their share of total value added in the corporate sector has risen markedly in recent years. This study develops a misallocation framework that explicitly incorporates intangible capital as a production factor, alongside tangible capital and labor, and examines trends in allocative efficiency and the underlying sources of inefficiency in the Korean corporate sector. The main findings can be summarized as follows. First, reallocation gains—measured as the increase in aggregate TFP and value added that would result from eliminating misallocation—have risen substantially over the past two decades, indicating a broad deterioration in allocative efficiency across the corporate sector. This decline in allocative efficiency is estimated to have reduced Korea’s TFP growth and overall economic growth by approximately 0.7 percentage points per year during the period from 2003 to 2023. Second, the deterioration in allocative efficiency is largely attributable to a combination of worsening inefficiencies within intangible-intensive industries and structural changes in the economy reflected in the rising economic weight of these industries. Third, misallocation within intangible-intensive industries is driven primarily by the under-allocation of resources to firms with high marginal productivity. This pattern is particularly pronounced among young firms and unlisted firms, suggesting that structural financial constraints—stemming from limited collateral value of intangible assets and information asymmetries—are impeding the growth of highly productive intangible-intensive firms. The findings of this study suggest that easing growth constraints faced by intangible-intensive firms and improving allocative efficiency constitute a key policy challenge for enhancing Korea’s growth potential. To this end, several policy efforts are warranted. First, the capacity of the financial system to supply funding to intangible-based firms should be strengthened. Intangible-intensive firms—especially young and unlisted firms—are structurally disadvantaged under traditional financial systems that rely heavily on tangible collateral. Expanding the role of specialized investors and financial intermediaries capable of assessing the growth potential and innovative capacity of intangible-based firms, together with strengthening IP-based finance, would help alleviate financing gaps and growth constraints for these firms. Second, information asymmetries should be mitigated through improvements in disclosure regimes related to intangible assets. Given that information asymmetry, alongside limited collateral, is a key driver of financial constraints for intangible-intensive firms, continued efforts to refine accounting standards so that financial information better reflects the economic substance of such firms are essential. In addition, strengthening the disclosure of IP-related non-financial information should be actively considered.

Stock market volatility has increased substantially in recent months. The volatility of daily returns on the KOSPI index reached 3.6% in the first half of 2026, more than doubling from 1.4% in 2025. This development appears somewhat unusual in that the rise in volatility has coincided with an increase in stock prices and has been markedly greater than that observed in major overseas markets. Against this backdrop, this study examines the factors underlying the recent increase in stock market volatility. The results indicate that the sharp appreciation of Samsung Electronics and SK hynix increased the influence of these two stocks on the KOSPI index. At the same time, heightened volatility in the global memory semiconductor industry appears to have contributed to greater KOSPI volatility through the increased index influence of these firms. The outbreak of the U.S.–Iran war, which led to greater volatility in oil prices, interest rates, and exchange rates, also appears to have been a major contributing factor. In addition, the growing divergence between buying and selling across investor groups intensified conflicts in order flows and thereby contributed to heightened market volatility. A decomposition based on the results of a multiple regression analysis suggests that the rise in KOSPI volatility immediately following the outbreak of the U.S.–Iran war in March 2026 was driven primarily by increased volatility in macroeconomic and external variables, including oil prices and interest rates. By contrast, the increase in KOSPI volatility observed after the conflict began to stabilize in late May 2026 was driven mainly by strongly conflicting buying and selling pressure across investor groups and increased volatility in the global memory semiconductor industry. Meanwhile, a rigorous assessment of the volatility effects of the introduction of single-stock ETF will require further analysis once a sufficient data becomes available. Policy responses to stock market volatility should focus on mitigating short-term volatility arising from market concentration and price distortions without impeding information-based price adjustments. To this end, the use of capped indices should be expanded so that index-linked investment products do not become excessively concentrated in a small number of stocks or sectors. The effectiveness of volatility interruption should also be enhanced through more precisely calibrated trigger thresholds. In addition, greater use of block-trading platforms for transactions between institutional investors may help reduce the price impact of large trades. Expanding the domestic base of long-term institutional investors is a more fundamental policy objective. Their capacity for informed trading and risk absorption can improve price efficiency and mitigate temporary price dislocations. Moreover, by serving as effective monitors of corporate management, long-term institutional investors may help reduce the risk of price crash.

Recently, strengthening capital market–based financing for innovative SMEs has become an important policy issue in Korea. Despite the development of the domestic securities industry around capital-based investment banking, its role in SME financing and M&A advisory remains limited. This study aims to address this issue by examining U.S. small- and mid-sized investment banks that primarily serve the middle market and growing SMEs. Specifically, it analyzes their business models and competitive strategies and derives implications for the domestic securities industry. U.S. small- and mid-sized IBs are classified into Middle Market IBs, Boutique IBs, and Elite Boutique IBs based on client size and service scope. They have built competitiveness not on capital, but on human capital, industry expertise, and networks. Adopting a capital-light model that outsources capital-intensive functions such as clearing and settlement, they position themselves in segmented markets according to deal size and client characteristics, playing key roles in middle-market M&A, private capital raising, and public finance. From a business model perspective, Middle Market IBs pursue both full-service and specialized strategies. Some of them have expanded industry expertise and service scope through acquisitions of Boutique IBs. In response to the growth of the private equity market, they have recently established Financial Sponsor Coverage and expanded related services such as Private Capital Advisory, leveraged finance, and private debt, while integrating SMID-cap and sector-focused research, corporate access, and sales and trading to connect investor networks with deal sourcing. Boutique IBs specialize in specific areas such as M&A advisory, ECM, and public finance, strengthening deal sourcing capabilities based on industry expertise, senior professionals’ networks, and close client relationships. Elite Boutique IBs focus on large-scale M&A and high value-added advisory, competing on the basis of senior bankers’ reputations and global networks. These findings offer several implications for the domestic securities industry. In financing innovative firms, the core of competitiveness lies not in capital but in industry expertise and networks, highlighting the need to strengthen advisory functions and expand participation in the M&A market. It is necessary to create an institutional environment that enables the emergence of small, specialized IBs centered on professional talent, and to enhance the flexibility of equity issuance regulations to allow diverse financing instruments to be utilized.

The Korean government is pursuing plans to extend foreign exchange market operations to a 24-hour trading regime from the second half of 2026 in preparation for inclusion in the MSCI Developed Market Index. However, concerns have been raised that exchange rate volatility could increase given limited liquidity during overnight hours. To inform this policy debate, this study examines the effects of the July 2024 extension of FX trading hours (closing time: 3:30 PM → 2:00 AM the following day) on KRW/USD exchange rate volatility and market stability. The key findings are as follows. First, when compared over the same overnight window, volatility in the onshore regular market after the extension was not significantly higher than that of the NDF market prior to the extension. Moreover, during the same time window after the extension, the onshore market exhibited lower volatility than the NDF market, suggesting that the onshore market provides a more stable price formation environment. Second, the reduction in gap volatility—the price discrepancy arising while the market is closed—exceeded the mechanical decline attributable solely to the shortening of the overnight gap, indicating that the extended trading hours enhanced the continuity of overnight information incorporation and thereby substantively mitigated gap risk. Third, tail risk did not deteriorate even under a conservative measurement that incorporates price movements during the extended overnight session. These results demonstrate that concerns over increased exchange rate volatility from extended trading hours are not empirically supported. Rather, the extension is assessed to have been accompanied by improvements in market microstructure, including the mitigation of gap risk and the strengthening of price discovery in the onshore market. Nevertheless, as temporary price overshooting followed by partial reversal has been observed when major political or economic events occur during overnight hours, the transition to a 24-hour trading regime should be accompanied by measures to enhance overnight liquidity provision and strengthen volatility monitoring frameworks.