Tokenized securities have been issued in many European countries over the course of the last years. The competent national supervisory authorities as well as the European Securities and Markets Authority (ESMA) do not view any critical regulatory obstacles for security token offerings and deem the stipulations regarding traditional securities and securities products also applicable to tokenized securities. Public offerings of security tokens are consequently generally subject to the EU Prospectus Regulation, which is directly applicable to the market participants. Issuers and offerors of security tokens are therefore in most cases required to draw up a security prospectus for the public offering of the tokens which contains detailed information regarding the issuer and if necessary, the offeror, the nature of the offered product, the conditions of the offer as well as the essential risks associated. Subsequently, the prospectus must be approved by the competent supervisory authority and it must be published prior to the start of the public offering. But there are also exemptions from the obligation to draw up and publish the prospectus.
Facilitations for Token Sales with a Low Volume
With regards to the public offering of securities with a total consideration within the European Union of less than 8,000,000 euros calculated over a period of twelve months, the EU Prospectus Regulation intends for the member states for the option to omit the prospectus obligation. This obviously also applies to offers of security tokens. The specifics of the exemption from the prospectus obligation are left to the discretion of the EU member states which has led to vast differences within the EU on this matter. In Germany for example, security token offerings of up to 8,000,000 euro in volume may be offered on basis of a four-page securities information sheet (WIB), if the distribution of the tokens is conducted via a licensed securities service provider and if retail investors can only invest up to specific maximum amounts. Other EU member states did not make complete use of the scope of the possible issuing volume. Austria for example allows security token offerings with a total consideration of up to 2 million euro to be conducted on basis of an information document. Other member states have decided on yet different maximum amounts and may also have different requirements to make use of the exemptions. WIBs and comparable documents cannot be used for offerings in other EU member states because the exemptions are for domestic use only. Should it be intended to conduct a security token offering in more than one member state, the requirements of each and every individual member state have to be fulfilled and possibly more than one documentation must be drawn up.
Neither a Prospectus nor a WIB in Certain Cases
The EU Prospectus regulation intends for a complete exemption from the obligation to create a prospectus for certain issuing projects, which can also be applicable to STO issuers. The most important exemptions relate to offers which are targeted solely at qualified investors, meaning primarily institutional investors and offers with a minimum investment or minimum denomination of 100,000 euros. Offers which are targeted at not more than 150 retail investors per member state can also be conducted without a prospectus, WIB or other documentation. In these cases, it must be observed that the offer really only targets 150 retail investors per member state, no matter if these 150 investors end up acquiring tokens or not. The prospectus obligation in accordance to the EU Prospectus Regulation is also not applicable to security offerings which do not exceed a total consideration of 1,000,000 euros. Regarding these offerings, member states have the option to obligate issuers and offerors with other disclosure obligations. In this context, the German legislator decided to permit such offerings on the basis of a WIB resulting in the fact that in Germany security token offerings with an issuing volume of between 100,000 and 8 million euro can be conducted on basis of a WIB provided that the aforementioned distribution requirements are met.
Attorney Lutz Auffenberg, LL.M. (London)