In this article, we will analyze the global ICO regulations in depth. Together, we will look into the following topic: How to trade regulated ICOs?
AtoZMarkets – After the announcement of the regulation on ICOs by SEC in mid-2017 report, it became clear that trading can only be practiced by authorized national securities exchanges such as Nasdaq and a number of alternative trading systems (ATS).
How to trade regulated ICOs?
The first and most important question to ask before going into the specifics of how to trade regulated ICOs is: Is ICO token a security?
In different states, the norms and regulations regarding this topic vary to a certain degree, though they share some similarities. But the overall point is clear – the service provider has to refer to either national securities exchange or ATS.
Back in December 2015, the US publicly traded company Overstock obtained a legal permission to issue blockchain securities. The blockchain-based trading platform t0 received the ATS license together with a number of valuable connections with national securities exchanges, sell-side management system etc. It turns out that Overstock became the first US retailer to issue SEC-regulated blockchain shares.
Since that time, the idea of trading without an intermediary slowly but surely gained popularity. In March of 2017, Blockchain Capital announced its own highly successful ICO compliance project which collected $10 million of a $50 million fund.
Despite that, compliance projects do not enjoy large popularity at the moment. In part, it is related to a legal concern over the recording of stock ownership on a distributed ledger. However, this issue is going to be eliminated in the future, as the founder and director of the state-run Delaware Blockchain Initiative claim.
According to several sources, there’s an increasing number of ICOs looking forward to running compliant projects. But it will take some time to introduce such investments to the market. This can take anywhere from six months to as long as one year. For now, the ones willing to be involved into projects and engage into capital raises can use t0 platform. Today it provides an access to ICO technology.
Support for ICO regulation
Initial coin offering (ICO) is an unregulated mean of raising funds for a project using cryptocurrencies. The concept became hugely popular nowadays. More and more companies and investors are avoiding licensed platforms providers and regulators. Certainly, that can be harmful to the latest and causes discontent from their side.
One of the victims is a US retailer Overstock, who is the owner of the blockchain-based securities trading platform. The President of t0 Joseph Cammarata stated the opinion about the situation:
“We were kind of annoyed when these ICOs started taking off. They weren’t getting approval, it was the Wild West. We thought long and hard about doing our own ICO … But we held off, going down the regulatory road.”
That is the reason why the service providers like Overstock are massively supporting the decision of SEC to regulate ICOs. Otherwise, the consequences for them would be damaging.
US ICO regulations
As US Securities and Exchange Commission ruled out, the offering and sale of digital tokens “are subject to the requirements of the federal securities law”.
The agency stressed:
“…the Commission deems it appropriate and in the public interest to issue this Report in order to stress that the U.S. federal securities law may apply to various activities, including distributed ledger technology, depending on the particular facts and circumstances, without regard to the form of the organization or technology used to effectuate a particular offer or sale.”
As it was already mentioned, once a token issued in ICO is acknowledged as a security, SEC gives a formal permission for trade only to national securities exchanges and some alternative trading systems (ATSs).
ICOs in the EU
There’s not much certainty about the regulation of ICOs in the EU. That’s all because certain legal issues are not so obvious as they may seem.
How to trade regulated ICOs in the EU?
As well as in the US, the main question remains whether a token is a security or not. If it is, then the application of financial regulations is inevitable. Important questions here are anti-money laundering laws (AML), payment services regulations and taxes.
However, in contrast to the US, particular issues in the EU may raise more questions. The reason for that is the complexity of the European Union as a system and constant changes of its regulatory system. There are two levels of the EU law – the EU level and the member states level. Many laws active at the EU level still need to get into
There are two levels of the EU law – the EU level and the member states level. Many laws active at the EU level still need to get into force at a local level. Adding to this continuously changing and evolving system of the regulatory framework. It gives a way for inconsistency within the system.
Are ICOs securities in the EU?
The key term in the EU legislation is “transferable securities”. These are the classes of securities which are negotiable on the capital market, with the exception of instruments of payment, such as:
All the investors should draw attention to this definition (even though it’s not an exhaustive one) because as long as a given token does not resemble any of the points above, it cannot be classified as a security.
It is worth to mention that as long as a rigid guidance on the EU level is missing, the member states regulations will be a priority. So keep in mind that there’s always a room for a divergence in the system.
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