Security token offerings are more and more regarded as an interesting alternative to traditional issuances of securities by companies. But the success at the digital capital markets is follows the same rules as their traditional counterparts and will be rated by the placement success of the security tokens. This means that a company seeking fresh capital at the capital markets cannot simply create and issue a digital investment product, but rather has to ensure that the offered product is economically attractive enough for the potential investors to invest in. It therefore should be based on a promising asset with a high enough potential return rate and preferably low associated risks. This also means that STO issuers must start marketing their products as soon as possible in order to introduce them to the potential investors. But at what point in time can tokenized securities be marketed in the European Union? Is it possible to start the marketing prior to the approval of the securities prospectus by the competent supervising authority and the subsequent publication of it?
MARKETING FOR SECURITY TOKEN OFFERING PRIOR TO THE APPROVAL OF THE PROSPECTUS IS POSSIBLE
According to the European Prospectus Regulation, an advertisement for the first public offering of a security prior to the necessary approval and publication of the prospectus is generally possible. However, the issuer has to comply to the same rules and restrictions that apply to the marketing efforts after the approval and publication of the securities prospectus. For transparency and investor protection reasons, the issuer e.g. has to ensure that marketing statements that are made will actually match the information in the future prospectus. Marketing statements must not deviate or exceed the information which is or will be provided in the prospectus. Furthermore, the issuers must place a well-visible disclaimer on every advertisement for a security token offering that requires the publication of an approved prospectus. that the disclaimer must point out that the information provided is indeed an advertisement and that the corresponding prospectus is not yet published. In addition to that, issuers will have to inform potential investors on every advertisement where the prospectus – once it is published – will be accessible. STO issuers have to be very diligent when it comes to the wording of the advertisement. The wording of any marketing activity must not be wrong or misleading. The display of forecasts and the description of the investing details have to be unbiased. This can be achieved e.g. by displaying positive and negative scenarios or by equally displaying the associated risks and rewards of the investment.
WHAT ABOUT SECURITY TOKEN OFFERINGS THAT DO NOT REQUIRE A PROSPECTUS?
The aforementioned requirements for advertisements of first public offerings of tokenized securities do not apply to projects that do not require the issuer to publish a prospectus according to the European Prospectus Regulation. But even in these cases, STO issuers are regulatorily restricted in their marketing efforts and must ensure that the essential information of the soon to be offered tokenized security is made available to all and not only selected potential investors. STOs that are issued in accordance with the German regulation regarding security information sheets (WIB) are subject to special national requirements when it comes to advertisement for the token sale prior to the approval and publication of the WIB. Insofar, the German legislator however designed this legislation similar to the European Prospectus Regulation and therefore the requirements are mostly comparable to those of the EU regulation.
Attorney Lutz Auffenberg, LL.M. (London)
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