How can I distribute tokenized securities in North America?

One of the important steps in issuing a security token is being aware of the rules and regulations that apply in each jurisdiction the issuance will take place.

Many factors go into choosing the jurisdiction including how the country handles compliance and regulations. Of course, you will want to use a jurisdiction with fair and not unduly burdensome regulations but also one that has very clear and well established laws. Having clear and well established laws can make it easier to find good legal counsel that can assist in your offering and can also offer more assurances for the potential investors.

Because security tokens are a regulated financial product, most countries will have established regulatory bodies and rules to govern the transactions. Some of the main issues to consider for Security Token Offerings and other important factors to consider are listed below.

USA:

The Securities and Exchange Commission (SEC) is the most well known financial regulatory bodies in the world. The SEC provides clear and well established offering rules and often used exemptions for conducting offerings without having to get approval from the Commission. The Commodity Futures Trading Commission (CFTC) is also a regulatory body to be aware of in the United States.

  • Reg D: Under the exemption 506(c) a Security Token offering can be generally advertised, sold to Accredited Investors only, and there is no limitation on the amount that can be raised. So far, this is the most common used SEC exemption for Security Tokens.
  • Reg S: Under Reg S, a US or non-US issuer can sell their Security Token to non-US investors in off-shore transactions without having to register the sale of securities with the SEC.
  • Reg A+: Offers the ability for an Issuer to offer their Security Token to non-accredited investors through general solicitation up to $50,000,000. In order to use Reg A+ the issuer must qualify the security with the SEC which can be a slow and expensive process similar to an IPO.
  • Reg CF: Allows an Issuer to sell up to $1.07M of their offering in a 12 month period to non-accredited investors. Investors can invest a maximum of $2500 or 5% of their yearly income if they make less than $100K a year or 10% of their income if they make more than $100K a year.

Canada: Similar to the USA, Canada has multiple exemptions for registering securities. The most common utilized exemption is the sale of your Security Token to accredited investors who must meet certain income thresholds such as an individual income of $200,000 a year.