Security Token Future Conference in Hong Kong

At the Security Token Future conference, held the 18 of October in Hong Kong, speakers from the emerging Security Token ecosystem held keynote sessions and panel discussions providing detailed insights into the possible implication and future trends of Security Token Offerings.

Several captains of the STO industry attended and led dynamic panel discussion and keynotes including Jaclyn Tsa, Former Minister without Portfolio in the Executive Yuan (Cabinet), Thomas Borrel CPO of Polymath, Jorge Serna VP of Product Strategy at Securitize. Here you can find what they keynotes were about.

Keynote: Overview of STO Landscape by Waishun Lo 勞維信, Chairman of QHIBEC, Partner, DL Capitals

We are approaching the fourth wave of crypto innovation. The first wave began in 2008 with the Bitcoin, the second wave in 2014 with the Enterprise Blockchain, the third wave with the DAO in 2015, and we are now, 2018 in the Smart Securities wave aka the Security Token. The STO can be disruptive as it will reduce the regulation cost, will have high compliance, reduce the possible frauds, and create a global listing.
The Security Token (STO) was created to provide the missing feature of the ICO. The security token can be defined as a tokenised security( equity/debt-like) and offers passive income for holders. That differs from an Asset-Backed token that provides the ownership rights to an asset, Application Token that provides functional or technical usability ina Blockchain, and, finally, also from a Utility Token that is a prepaid service provided by its issuers to the holders.

Moreover, a security token also differs from the classical stock investment. While in the stock investment the investors spend cash for an owner of the company’s economic operation, in the STO he investors own a percentage of the functional utilities or proprietary money supply.

There are many examples of STO, such as Telegram, Rapidash, Rental Coins, and Noon. As there are various platforms such as Spice, BR11, 22x, L.comTTERy, StarsBizz, Monetizr, Realcoin, Anexio, NYCQ, Amazing Jewelry, Cosimo Ventures, COinmint, GECKO Governance, GP, and Augmate.

Keynote: A new chapter in digital finance — Security Token Offering by Tom Huang 黄峤濛, Co-founder of Hashgard and BK Fund

Definitions are kings in the evolving market of Security Token, we can use the four Howey Test parameters to check the legitimacy of a security token: the presence of FIAT currency, the need of shared financial risk between two or more enterprise, a good investment forecast and if there is any possibility of profit from a third party. Therefore, a Security Token is: programmable as we can decide what to do, interoperable as it can operate with multiple assets, secure as it is on a Blockchain, valuable as it is backed by a real-world asset, disruptive as it redefines the attribution and attribution of rights, and local as it is subject to the regulations and laws of the host country.

Security Token operates in six categories: cash(liquid funds, savings account, online wallets, hard cash), equity(start-up funding, index funds, ETF, equity mutual funds, stocks), fixed income(bonds, post office, recurring deposits, fixed deposits, debentures), mixed token(innovative combination of various assets and rights), commodities(corn, wheat, crude oil, copper, silver, gold), real estate(REIT, commercial property, plots, flats, bunglow). Moreover, it can be for project parties, distribution solutions agencies, exchanges, and surrounding service organisation.

Compared to an IPO, Security Token has a lower investment threshold and increase asset liquidity, reduced cost of insurance, the lack of a middleman that can improve its market efficiency. Compared to an ICO, it has less investor base, a higher issuance cost, a liquidity problem in comparison to utility tokens. So it has advantages and disadvantages but compares to ICO STO is largely favoured by institutions. In the United State of America, a Security Token can raise an unlimited amount of money( up to $50M in 12 months), it is easy and cheap to set up but also to maintain as long as it follows the local and federal regulation. The investor can be accredited or the unaccredited U.S.A. or non — U.S.A. citizen, thus everyone can access, but they must comply to Rule 506. Most importantly, there is no need to fill any SEC documentation.

Keynote: Tokenization of Real Estate by Michael Wong 黃兆瑜, Managing partner and COO of MAX/MaiCapital

In Greater China and Hong Kong Security Token can have a future as it is a combination of Blockchain and traditional finance. This combination helped to clear the bridge to create a clear framework for the regulatory requirement for both retail and institutional investor.

The entrance of Security Token in the real estates is essential to fill the missed liquidity (more than $200T). This lack of liquidity is due to the lack of market accessibility, its slowness to changes, and its complexity for the fundraising process, but also due to the longer time to exit from the market and the lack of a secondary market. Thus, a combination of real estate asset and blockchain can create the needed Security Token.

The Security Token will enable to reduce the ticket size, lower the cost of securitisation and fundraising, and inability secondary market and faster exit time. To realise the real estate Security Token four elements are needed: financial expertise, for the regulation and the creation of securities; real estate experiences, for the management and the valuation; blockchain expertise, for the tokenisation and platform creation; secondary trading expertise, for the knowledge on crypto asset and exchange

Keynote: STO Issuance by Thomas Borrel, CPO of Polymath

We are approaching the third wave of tokenisation. The first wave or the wild west of ICOs was during the scam-era of ICOs. The second wave or the crowd-sale wave, was when the ICOs started to regulate their token emission. Nowadays we are at the third wave or the STO wave where companies sell securities.

The STO wave also pushed the progressive approval of tokenised IPOs in the U.S.A., Canada, and Switzerland. The underlying reason for this success is also due to the possibility of this token to access 24/7 to global pools of capital and exchanges. Besides these elements, the key success factors are the programmable enforcement of regulations between investors and the investment and the possibility to enforce existing regulations across multiple jurisdictions. But it still takes a village to launch an STO.

Keynote: US Regulations on Digital Assets by John Liu 劉強, CEO of Coindaq USA

A company to operate with Security Token in the USA needs to obey the Federal and State regulations, but there are several issues to take into account. First, there is a regulatory gasp the AML/KYC. Second, this gasp is also exacerbated by the unified approach regarding the money transmitter license(MTL), where all State require it, but there is no unified approach.

So, if a company want to operate in the State of New York as a Security Token exchange, it needs to have a broker-dealer registration provided by the Financial Industry Regulatory Authority (FINRA). Also, the company need to disclose its ownership, operations, and rules due to the Alternative Trading System (ATS). In some cases, an ICO issuer can be seen as an “investment company”. If this happens, the company is subject to the regulation of the Investment Company Act, and its treated as a mutual fund. SO, if the issuer is deemed to hold investment securities with the value exceeding 40% of its total asset.

However, there are also some exemptions to the Registration Requirement; this includes Regulation A, Regulation A+, Regulation D and Regulation S.

Regulation A: the public offering of securities that do not exceed $5 million in any one-year period.

Regulation A+: raise to $50 million in a 12-month period using a “public solicitation” of its shares and have the offering be exempt from SEC and the state securities registration.

Regulation D: private placement that engages either Safe Harbor (no advertisement) or Accredited Investors.

Regulation S: offer and sale are made outside of the US, to non-US persons.

Keynote: Decentralized Regulation System for STO by Donald Gao 高東亮, Chairman of Beijing Blockchain Platform Technology

The current regulation for an IPO are time and money demanding. It can take up to several months and several checks by multiple agencies to be approved. The Security Token offer a solution to this problem. Security Token project can decrease the regulatory cost via software products such as TokenSoft. The other side of the coin is the different national standardisation that could limit its global scale. The Security Token could reduce the cost, easy the bureaucratic process, democratise the process and establish a new type of investment bank, a blockchain bank. This bank will use Blockchain technology, decentralised regulation system, decentralised underwriting system and decentralised liquidity support.

Bonus Panel Discussion: Recent Development in STO Exchanges Moderator: Mik Mironov, Head of Partnerships at ICORating, GITA Foundation council

STO is a digital representation and refers to the capital market, allowing the ICO to become a product market. The main focus of STO exchanges is to add liquidity to the traditional capital market, applying best practices to the blockchain market.

However, there is no general regulation regarding STO, ICO and digital asset. Currently, in various countries, such as Malta, the government are drafting regulations for the digital asset, but we are still far away for a global regulation development.

Due to the global nature of STO, investors need to meet the requirements of several jurisdictions. Investors should comply with several countries regulation used for token issuance, investor qualification, broker license and so on.

Nevertheless, it is expected that more institutions will deal with security tokens within one year. The expansion probably depends on the acceptance of this asset placement method by regulators regarding its benefits.

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