Regulators stymied by STO peculiarities

Regulators are still not entirely sure how to deal with securities token offerings (STOs), a new financial product that falls between two different regulatory frameworks.

STOs are cryptocurrency tokens that are backed by real assets such as gold or real estate.

The Securities and Exchange Commission (SEC) oversees the IPOs of stocks and other securities under the Securities Act, while initial coin offerings (ICOs) fall under the Digital Asset Act. The Finance Ministry approves all types of digital asset licences, including digital asset exchanges, IPO portals and dealer business licences.

The SEC has yet to issue any licences for ICOs to raise money in Thailand, and the regulatory framework for STOs has barely got off the ground.

Tipsuda Thavaramara, deputy secretary of the SEC, said the regulator will have to consider how to deal with STOs for issues such as share ownership, voting rights and dividends.

If STOs have conditions similar to other fund-raising securities, they could undergo processes similar to those for IPOs, thus coming under the SEC Act.

STO trading could fall under the Digital Asset Act if fund-raising is carried out in the same manner as for ICOs.

Mrs Tipsuda said an STO affiliated with Thai investors launching in an international market at this point would be guilty of wrongdoing under the Digital Asset Act. A company making such an STO launch would be trying to avoid regulated fundraising channels, such as sales of ordinary shares or sales of digital assets via IPO portals.

According to the Digital Asset Act, fundraising from digital assets not in the Thai market and not proposed on IPO portals is considered illegal.

“At the moment, we have not decided whether STOs fall under the SEC Act or the Digital Asset Act, but it depends on the STO’s conditions and the details in its white paper,” Mrs Tipsuda said. “The SEC will have to consider carefully how to respond to each STO.”

Prinn Panichpakdi, managing director of CLSA Securities Thailand, said STOs are popular and trendy in overseas markets, so they will likely come to the Thai market soon. Thai regulators are still not ready to issue digital asset licences.

“The environment is changing fast,” Mr Prinn said. “If Thailand is not ready to issue these kinds of products, I believe that the issuer will launch in other markets, so the SEC will have to consider how to deal with this.”

Satang Corporation, a cryptocurrency exchange operator, recently said it would issue an STO in the first quarter of next year but file for fund-raising with the US’s SEC and list on the T-Zero exchange in the US.