THE Securities and Exchange Commission (SEC) on Thursday released its proposed rules for the governance and registration of initial coin offering (ICO), a measure that many start-ups are using to raise cash instead of tapping either the bond or the equities market.
“Despite being analogous to securities, the present registration process for initial public offering [IPO] may not be tailor fit for the initial coin offering. Hence, the proposed rules have been formulated for the registration of security tokens offered through initial coin offerings,” the SEC said.
The proposed rules are open for comment from banks, investment houses and the investing public. The SEC said it would accept comments for the memorandum circular until the end of the month. According to the proposed rules, any company that will conduct an ICO will have to undergo an initial assessment and be registered with the agency.
An initial assessment requires the submission of certain documents such as the proposed whitepaper wherein said start-up or corporation shall have the burden to prove that the tokens are not security tokens. The SEC shall have 20 days upon receipt of complete documents for an initial assessment to determine whether the tokens are security tokens or not.
If the SEC finds the tokens are security tokens, the issuer must register the security tokens before the start of the pre-sale. The ICO may also fall under the exemptions from registration provided under the rules or conducted exclusively through crowd-funding portals under the proposed rules for crowd-funding, the SEC said.
An ICO refers to distributed ledger technology fund-raising operations involving the issuance of tokens in return for cash, other cryptocurrencies or other assets. They involve coins or tokens being issued in order to raise money from the general public. Once the project reaches a certain stage, benefits to holders may include gains through profits or increase in the value of tokens, which can be sold if the project is successful, voting or governance rights.