Security Token Offerings Saga: Part 1 — Problem Posing
By INGVARR on ALTCOIN MAGAZINE
The true story about security token offerings
In October, a well-known fintech company announced the completion of its preferred security token issuance, which was declared to be one of the first security token offerings (STO). The legal effect of introducing new terminology in relation to the issuance and offering of tokens that qualify as securities remains unclear. The terms “token”, “token issuance” and “token offering” have not been properly defined, and neither have they obtained special recognition in those jurisdictions in which purchasers are usually located. Experience has shown that initial coin offerings (ICOs) have posed and continue to pose risks to participants; therefore, calls for regulation are justified. The U.S. Securities and Exchange Commission, as well as other regulators, have issued statements warning that ICOs will likely get securities law regime treatment. As a result, companies have reconsidered their approach from ICO towards STO as the latter is believed to be a more compliant way of raising funds.
On the one hand, STO is nothing new as far as relationships between companies and investors are concerned. If a company wishes to raise financing from the public using blockchain technology for this, it is no different from conducting a bond offering or initial public offering (IPO). Key issues to be considered by the company are full and proper disclosure to enable investors to make an informed investment decision, providing investors with relevant representation and warranties, adhering to high corporate standards, complying with ongoing reporting obligations further, and ensuring liquidity of an instrument. Local requirements applicable to securities issuers may vary and afford various exemption strategies, but there is no reason why investors purchasing tokens should be treated alike.
On the other hand, the process of issuing and offering securities through IPO requires having the proper infrastructure with depositaries, exchanges, investment banks, and custodians in place. The cost of this infrastructure is high and is unavailable for small and medium companies, as well as start ups. Blockchain technology allows the simplification of the process. A fully operational infrastructure for trading securities tokens is also yet to be developed and it is still a question mark how would it compete with incumbents of existing securities industry.
With recognised expertise in Corporate, M&A, Tax and Finance INGVARR team provides small and medium enterprises, emerging technologies start-ups and high net worth individuals with strategic turnkey legal and tax advice on business and product launches, joint ventures, investments, worldwide acquisitions, financing and business operations. INGVARR takes care of all transactional and regulatory work and can handle day-to-day matters, operating as in-house legal department. For more information on INGVARR please visit http://ingvarr.com/
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