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SEC, Revolutionizing Rule Proposition Named: “Securities Act Rule 195 – Time-Limited Exemption for Tokens.”
The Securities and Exchange Commission’s Commissioner Hester Peirce end of January 2020 drafted a new proposed rule with regards to tokens, and yes, she demanded that the Securities and Exchange Commission adopt a rule that exempts the sale of tokens or cryptocurrencies from most provisions of the federal securities laws. Which we believe to be the right move to undertake. It’s bold and unusual because the drafted proposed rule leaves the SEC with very few excuses to avoid considering it.
“The analysis of whether a token is offered or sold as a security is not static and does not strictly inhere to the digital asset,” according to notes detailing the proposal. – Said Ms. Peirce.
Thus, some tokens may appear to have the qualities of a security at launch but mature to the point where it no longer appears to be one. Of course, the rule as proposed requires to disclose to the public the managerial team’s backgrounds to avoid bad actors, and the platform’s source code and transaction history, but also all details of the token launch, including the number of tokens to be issued in the initial issuance, the overall total number of tokens to be created, the release schedule for the tokens, the total number of tokens outstanding, and the current state and timeline for the network development. This rule could allow anyone to conduct initial coin offerings (ICOs) of tokens intended to be used to develop a decentralized or functional network, provided, that “Network Maturity” occurs within 3 years. “Network Maturity” is defined by the proposed rule as the time where the network is either (i) no longer controlled by a single group or (ii) is functional, as demonstrated by the ability of token holders to use tokens for the transmission and storage of value, to prove control over the tokens, to participate in an application running on the network or in a manner consistent with the utility of the network.
As expected the rule requires to disclose to the public the managerial team’s backgrounds to avoid bad actors, and the platform’s source code and transaction history, but also all details surrounding the token launch and supply process, including the number of tokens to be issued in the initial allocation, the total number of tokens to be created, the release schedule for the tokens, the total number of tokens outstanding, and the current state and timeline for the network development.
Whats even more amazing, is that the proposed rule has zero limits as to the amount of money to be raised, or even more impressive they would be no restrictions as to the type of investor who may invest (i.e., non-accredited investors), and it would preempt all state securities (blue-sky) laws. This is huge NEWS!!!!
Wait the best is to come here, this proposed rule authorizes for secondary trading of the tokens, it requires the development team to undertake good faith and reasonable efforts to create liquidity for the tokens.
The rule’s preliminary note expressly recognizes that secondary trading is necessary both to get tokens into the hands of people that will use them and to offer developers and people who provide services on the network a way to change their token for fiat or cryptocurrency.
The rule as it stands today includes exemptions from the Securities Exchange Act of 1934 as amended, for market participants by excluding from the definitions of “exchange,” “broker, and “dealer” transactions in tokens exempt under the rule. The proposed rule also provides an exemption from Section 12(g) of the Exchange Act, which otherwise would subject issuers with more than 500 non-accredited token holders (or 2,000 accredited holders) and $10 million in total assets to register under the Exchange Act and become subject to the full securities regulatory regime applicable to US public companies. Hence, it would not require public listing and would not be deemed a security.
Finally, this new proposed safe harbor is also designed to protect token purchasers by requiring disclosures tailored to the needs of the purchasers and preserving the application of the anti- fraud provisions of the federal securities laws,” according to Peirce’s notes