September 27, 2020

Malta is developing a regulatory framework for security token offers (STOs)

Malta is developing a regulatory framework for security token offers (STOs)

Malta Financial Services Authority (MFSA) has published a document proposing a legislative framework for Security Token Offers (STOs). The authority considers STO as a link between the traditional offer of securities and the offer of securities based on blockchain technology.

MFSA strategy published asa consultation document and will be open for public comment until the end of August 2019. This document is intended to determine the legal framework for managing financial products on the blockchain, such as digital assets, STOs and ICOs.

Innovative Capital Markets Strategy

Malta positions itself as a state withfavorable climate for the development of crypto business. The government has launched several programs that provide legislative and operational support for blockchain startups.

The strategy of Maltese capital markets is carried out taking into account five basic principles:

  • determination of risk appetite by the listing authority;
  • regulatory review;
  • strengthening the sponsorship regime;
  • investing in technology;
  • investor training.
  • The legislative document consists of six sections.

    The first section is devoted to defining the concept. MFSA classifies STO into two segments: traditional and others.

    The second is the approval of prospectuses and / or admission tolisting and trade STO. The MFSA sets out a number of specifications that must be met in order for the STO to be successfully registered and listed by the competent authority. To begin with, an STO must fall within one of the two definitions outlined in the first section. In addition, the issuer must be a legal entity.

    In addition, MFSA will evaluate financialissuer stability at STO launch. The issuer must provide a list of assets and liabilities, income and losses, as well as any other information relating to their financial situation. Other factors that will be considered in the registration process are corporate governance and compliance with the MFSA transparency requirements.

    The third section is devoted to any additionalcurrent obligations after an offer and / or listing and / or trade. In this section, the MFSA describes the circumstances in which an issuer may amend any of its offers. This includes obtaining new permits from the Maltese administration.

    The fourth section is devoted to secondary markets. These are platforms on which securities can be sold. The consultation document determines the legal status of exchanges, and also provides additional clarifications on the legal status of issues such as automatic trading through direct electronic access (DEA).

    The fifth section is devoted to regulationmarket abuse. The MFSA wants to maintain fair markets and has identified three cases of market abuse. These are insider trading, illegal disclosure of insider information and market manipulation.

    The final section is about a post-trade settlement. It stipulates the rights that an investor receives after participating in STO.

    Over the past year, the popularity of STO has been significantlyincreased. MFSA believes that the growth is associated with their transparency, reduction in settlement and intermediate risks, as well as with an innovative approach to meeting the needs of investors while maintaining a healthy risk profile.