Aspiring Canadian companies looking to raise capital by offering a token sale may now have a government sponsored and ‘fully-regulated’ alternative to the popular method of an initial coin offering (ICO).
On Feb 13, the Canadian Securities Exchange (CSE) announced the launch of a securities clearing and settlement platform based on the Ethereum (ETH) Blockchain that will allow companies to raise funds by selling digital tokens as securities.
As opposed to an ICO, the funding mechanism will be called a Security Token Offering (STO), and will be “subject to full regulation by applicable securities commissions.” The CSE claims that the new STO program will benefit both “large, established companies,” as well as, “start-up entrepreneurs seeking to access the public capital markets for the first time.”
Companies hoping to issue an STO must first file an application with the relevant securities commission and obtain approval. According to a report by Reuters, CSE Chief Executive Officer Richard Carleton said that the tokens can take the form of conventional equity or debt securities. However, the main difference between an STO and a traditional listing is use of the ETH Blockchain platform, which allows trades to clear almost immediately instead of two days, which is how long traditional trades take, thus lowering costs and boosting effectiveness.
In conjunction with their press release, the CSE announced the signing of a Memorandum of Understanding with Vancouver-based Kabuni Technologies, a Blockchain-based manufacturing platform that tracks 3D printed products, to issue what may become the world’s first STO. If approved, Kabuni’s STO would “mark the first time a tokenized security has been listed for trading on a recognized securities exchange.”
Although Carleton said that the review process will be “quite lengthy” and that he expects the preparations to launch the new platform to take “some months,” the CSE has a big vision for the future. The new STO funding mechanism may be a good fit for smaller companies, especially blockchain technology startups, who are looking for safe, legal, and regulated ways to raise funding.
The CSE’s effort to create a ‘fully regulated’ ICO alternative comes in the wake of several major developments in the realm of ICO regulation in North America. US Securities and Exchange Commission Chairman Jay Clayton revealed in comments to a Senate committee last week that he believes that every ICO “he has ever seen” is a security and wishes to treat ICOs as such. Arizona’s state legislature is currently considering a measure to amend its existing securities law, which would define ICOs as securities offerings, with a few notable exceptions.