This week, the Financial Supervisory Commission of Taiwan published new STO regulations. Importantly, the new regulations affect nearly every aspect of the blockchain fundraising model. Unfortunately, many investors are upset at what they call exclusion from the STO market due to the new regulations. Now, investors and regulators are set to clash over the legislation in the coming weeks.
The new regulation brings more stability to the country’s STO market but at a steep cost. When regulators first introduced the new strategy, the cryptocommunity hailed it as a huge upgrade. For example, the new legislation deregulates STOs up to NT$30 million. This change means that companies can now access more capital without the need to invest huge amounts in IPOs.
Limited Participation – Taiwan
However, the regulations place strict laws on who has the ability to enter the STO market. Basically, only accredited investors will get to take advantage of these next-level financial tools. The wording of the new regulations makes it clear that STOs are to be inaccessible to anyone who is not a professional Taiwanese investor.
Critics of the new laws point to multiple issues found in the legislation. Some in the financial sector called the restrictions too tight. For example, a company can lose its STO exemption status if the STO exceeds NT$300,000. Putting a cap of NT$300,000 for each STO project appears to be an attempt to stifle growth in the sector as there doesn’t seem to be any other reason for such as small-cap.
Additionally, the exemption only applies to STOs conducted on the same trading platform. This is another downgrade in the market. It places incredible pressure on companies to pick the right platform for their launch. Also, companies must denominate all funds for the STO in New Taiwan Dollars (NT$). Its this last bit of legislation that appears to be a jab at foreign investors.
Taiwan’s close proximity to China has made it an ideal destination for cryptocommunity members seeking more friendly trading shores. Back in 2017, China banned STOs and closed all the crypto exchanges in the country. The move caused a wave of investment capital to exit the mainland into the surrounding countries. Taiwan was ideally situated to receive a large portion of these crypto investment funds.
Regulators placed a number of new restrictions on STO platforms as well. Now, each platform must apply for a securities dealer license. As part of the licensing compliance, these platforms must implement consumer protections such as price stabilization mechanisms. Also, the combined volume of a single security token traded on the same business day may not pass 50% of its outstanding security token volume.
Security Token Only – Taiwan
The new laws are particularly harsh on security token exchanges, and tokenization platforms. Now, the minimum invested capital must be $100 million USD, with a NT$10 million operating margin. Additionally, the platform must maintain a current contractual relationship with the Taiwan Depository and Clearing Corporation. Lastly, the firm must relay daily STO trading information to these organizations.
Open the Market
After so much wait and hype, its sad to see the legislation be so restrictive. One of the best parts of tokenization is its ability to democratize the markets. Its legislation like this that limits the functionality of blockchain technology. Hopefully, in the coming weeks, Taiwanese regulators will see the error in their ways, and open up the STO market to all its citizens.