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The Latvian Prospectus Exception Amendment

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Latvian Prospectus Exception takes effect

In a move that aligns with Latvian pro-investment and digital innovation sentiments, lawmakers have amended the country’s securities law (FITL), which could potentially benefit the STO industry at large.  The adjustments made through the Latvian prospectus exception make it much easier for small and medium companies (SMEs) to raise capital via a prospectus exempt public offering. Such prospectus exemption fits well within the tokenization framework, where issued equity can benefit from increased liquidity in the form of tokenized assets.

The Latvian prospectus exception showcases a forward-looking stance in regards to innovative financial tools, allowing for direct access of investors in primary and secondary markets for small capital investments. It also demonstrates a strengthening of the country’s capital market positioning within the EU.

Previously, companies were able to raise capital from 100,000 EUR to 5,000,000 EUR subject to a simplified prospectus. While this prospectus exception did spur some business, the task was cumbersome. In all instances, companies needed to hire a broker or a bank and a host of other third-party organizations just to accomplish their crowdfunding ventures. As a consequence, with all the costs incurred, a fundraise of, say, 1,000,000 EUR left the company with more expenses than benefits.

Latvian Prospectus Exception

Latvia’s latest prospectus exception is likely to up the amount of tokenized securities a firm can issue before filing a prospectus with regulators for larger issuances. The new rules allow prospectus-free issuance up to 1,000,000 EUR, and between 1,000,000 EUR and 8,000,000, a simplified offering document must be prepared according to the rules of the regulator. Whereas securities offering below 3,000,000 EUR can be done without the involvement of a broker or a bank. Importantly, this last exception is only available to small or medium businesses. Amazingly, these firms would have the ability to host one or several offerings under the total amount of 3,000,000 EUR every 36 months.

Notably, the prospectus exception lists that the issuance offers either equity or debt-based securities. Tokenized equity and debt provide new liquidity in the market. As such, new markets continue to form around these unique financial instruments. Discussing the prospectus exception, Liza Aizupiete, Managing Director of Fintelum stated

In a bid to help startup and real-estate sectors access better funding options, the present changes to the securities law are making Latvia a more attractive EU member state for capital raising. The present regulatory environment allows Fintelum to serve small and medium-sized enterprises raising up to EUR 3 million, within 36 months, with lower capital markets entry barriers. Investors will be able to invest in fiat or cryptocurrencies and access fractionalized ownership of dividend-yielding projects, open to retail investors. With Fintelum tokenization and compliance tools, fractional owners of securities, or utility tokens, will be able to swap interest in projects using our peer-to-peer secondary market and thus increase liquidity in typically illiquid assets. For example, if you own a part of a company that owns either a real estate or represents a commercial company, you can digitally buy or sell these fractions among existing shareholders, or you can seek new investors interested in the project.”

Latvian Crypto Sector

Latvia continues to be one of the top pro-crypto countries in the EU. Latvia has always had an active Bitcoin mining sector. As such, the country has seen incredible adoption. For example, in 2014 airBaltic became the first airline in the world to sell tickets for Bitcoin. Notably, Latvia is home to one of the world’s leading full-service blockchain technology companies – Bitfury.

Blockchain Integration

Realizing how powerful blockchain technology really was, the Latvian State Revenue Service announced that it would employ blockchain tech to combat tax evasion back in February 2019. Additionally, these regulators stated publicly that blockchain technology creates new business opportunities.

Latvia Prospectus Exception

The Latvian prospectus exception is sure to spur significant growth within the country’s STO sector. The country has a lot of momentum in the industry and this latest legislation should make Latvia an even more attractive country for any blockchain startups seeking friendly shores. For now, many of the regulators of the world could learn a thing or two from Latvia.

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David Hamilton is a full-time journalist and a long-time bitcoinist. He specializes in writing articles on the blockchain. His articles have been published in multiple bitcoin publications including Bitcoinlightning.com

Security Tokens

RBI Clarifies Crypto Banking Regulations in India

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RBI Clarifies Crypto Banking Regulations in India

This month, the Reserve Bank of India (RBI) clarified its stance on banks seeking to provide services to crypto customers. The clarification comes nearly a month after the supreme court ruled that cryptocurrencies trading is not illegal in the country. The news demonstrates a growing demand for decentralized currencies in India, as well as, a desire by regulators to remain relevant in the digital economy.

No Laws Prohibiting Banks

According to a statement by RBI executives, there are no laws prohibiting banks from offering banking services to crypto-related business clients. The statement comes after a public outcry from the cryptocommunity. Many voiced concerns over banks denying them service on the grounds of RBI’s previous statement. Now, the market has clarification. As such, crypto service providers and traders can now rest easy knowing that they have the same rights as other businesses in the country.

Further research reveals that statement was a direct response to a query filed by the co-founder of the cryptocurrency exchange Unocoin, BV Harish. BV Harish utilized the country’s Right to Information (RTI) Act to force the bank’s statement. Importantly, the official filing took place back on April 25. However, SBI took nearly a month to make the news public.

Clarify RBI Stance

Importantly, the statement follows a supreme court ruling last month on the use of cryptocurrencies in the country. The ruling made it clear that crypto exchanges and traders have a place in India. Discussing the ruling, Nischal Shetty, founder, and CEO of Mumbai-based cryptocurrency exchange WazirX explained why the market needed some clarification on RBI’s stance. He welcomed the decision. He also pointed out that RBI had been silent on the matter until forced to comment via the filing.

Right to Information (RTI) Filing Against RBI

Right to Information (RTI) Filing Against RBI

Despite the positive response from investors, central bankers were quick to chastise the decision. Not surprisingly, RBI Bank executives even planned to file a review petition against the decision. Like most central banking authorities, they believe that cryptocurrencies pose a direct threat to the stability of the market. Notably, the group hasn’t filed any reviews as of yet.

India Continues on its Decentralization – RBI

India continues to embrace blockchain technology on all levels. This vibrant nation has an active crypto community. They have fought long and hard for their right to a free crypto market. Over the last few years, the country has been embroiled in internal debates regarding the legality of these unique financial instruments.

Cryptocurrency Hub

Importantly, since the supreme court’s ruling, crypto activity in the country has seen a gradual uptick. Specifically, local exchanges across the nation reported major upticks in trading activity. Even with all the positive growth, it could be months before India regains its spot as the crypto epicenter in the region. Hopefully, the new ruling provides investors with the transparency needed to push expansion in the Indian crypto markets further than ever before. For now, many in the country can breathe a sigh of relief knowing that their decentralized investment strategies are still safe.

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Security Token Group Study Reveals Investors Hedging US Markets with Security Tokens

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Security Token Group - US Equities

This month, a research team from the Security Token Group delved into how security token holders faired against US equity investors. Interestingly, the report revealed a decoupling of the STO market from the US equities markets. As such, researchers demonstrated how investors can use security tokens to hedge against US equity markets during the Coronavirus pandemic.

Uncorrelated Assets – Security Token Group

The report begins with a eureka statement from researchers. Nicely, the Security Token Group takes a moment to let you know there’s some light at the end of the Covid-19 tunnel. Here, they explain the fruits of their research. Also, the main researcher, Jonah Schulman shares a heartfelt message when he states “have faith and remain positive during these hard times.”

Security Token Group Info Graphics

Security Token Market InfoGraphics

The study includes a comparison of two hypothetical investors from the start of 2020. Importantly, the first investor has $1 million in US equities in their portfolio. The second investor holds only $750,000 in US equities and the remaining $250,000 is held in a diversified security token. The Security Token Group chose to distribute the funds evenly over the top 14 security tokens in the market.

Top Security Tokens

 

  • Protos
  • Mt Pelerin
  • Lottery
  • Lesure St, Detroit, MI
  • Audubon Rd, Detroit, MI
  • Fullerton Ave, Detroit, MI
  • Marlowe St, Detroit, MI
  • Appoline St, Detroit, MI
  • Patton St, Detroit, MI
  • tZERO
  • Startupbootcamp
  • SPiCE VC
  • Blockchain Capital

 

The results from the report were an eye-opener. Researchers showed that the second investor outperformed the first by over 3%. Specifically, both investors took losses, but investor 2 was able to weather the storm better. The data showed investor one lost -9.50%, while investor 2 showed a return of -6.54%. In total, investor 2 held on to an additional $31,625 thanks to their security token investments.

Notably, Protos showed the most gains over 2020. The token is up 27% to date. Reversely, the worst performer in the portfolio was Blockchain Capital. This token showed a -10.03% loss over 2020. The report then breaks down the aggregate return for the total portfolio since the start of the year.

The data showed a +2.35 return. Importantly, researchers pointed out that an investor that followed this strategy would be up 12% versus investors that only held equities. Crucially, the data signals that if you were invested in the Dow Jones, S&P 500, and the NASDAQ exclusively for 2020, you may want to expand your horizons.

Security Token Group – Delving Deep

As part of this strategy, the group decided to calculate the correlation coefficient for all of the security tokens in the study. When you calculate a correlation number you examine varying factors and market movements to notice patterns. The higher the score, the more correlation you have between two financial instruments.

Security Token Group Coefficient

Security Token Group Coefficient

Amazingly, the security tokens correlation coefficient score was only -.19. To put this score in perspective, the report lists Apple stock as .88. Interestingly, researchers then show the data for each token independently. This data helps to indicate what security tokens unhinged from the US markets during the epidemic specifically.

The next step was to examine each tokens correlation to each of the major US markets independently. Interestingly, the largest security token in terms of market capital, tZERO showed the highest correlation among the tokens. SPecifically, tZERO ranked .74. The other tokens in the study scored much lower. For example, all of RealT’s tokenized properties scored just .21.

An Escape Pod

The Security Token Group’s research proves what blockchain-based financial instruments continue to make headway in the market. Notably, STG researchers plan to conduct further studies in the coming weeks to better understand the effect of these tokens in the sector. For now, savvy investors continue on their hunt for uncorrelated assets during the quarantine.

 

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DTCC Unveils Two Security Token Research Platforms

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DTCC Unveils Two Security Token Research Platforms

This week, the security token sector got a jolt of energy after the Depository Trust & Clearing Corporation (DTCC) unveiled two new blockchain programs. The programs are meant to study distributed ledger technology (DLT) and how it can improve the current settlement processes. The news marks a turning point in blockchain integration as the DTCC processes quadrillions worth of securities transactions yearly.

DTCC Projects Underway

According to reports, DTCC has two DLT initiatives already in the works. The two projects, Ion and Whitney, leverage blockchain technology to improve upon the current business models. For example,  Ion is a proof-of-concept alternative settlement service. The platform will work as a stress test indicator to verify the scalability of blockchain settlement systems under heavy traffic. The protocol is the result of years of research. In 2018, the public got a glimpse into the project as DTCC announced the results of a benchmark study. The report demonstrated for the first time that DLT is capable of supporting average daily trading volumes in the US equity market.

Ion

Ion is the DTCC’s new blockchain settlement protocol. Impressively, the platform is said to be able to handle quadrillions of transactions. Interestingly, Ion developers ran this concept for 12 weeks with mixed reviews. For example, in their report developers acknowledged scaling issues that emerge during development. Despite some bugs, the proof-of-concept served its purpose as a benchmark tester for DLT tech. Importantly, the platform utilized the Ethereum network. This decision makes sense as Ethereum is known for its developer-friendly ecosystem.

Jennifer Peve - Managing Director of Business Innovation at DTCC

Jennifer Peve – Managing Director of Business Innovation at DTCC

Ion is now moving on to the next stage in its development. DTCC executives are now on the lookout for a “technical stack” to bring the platform to life. Additionally, the DTCC already offered to start testing APIs of other firms within the ecosystem. This decision is sure to help bolster the security token sector as more developers make the leap into distributed applications (Dapps).

Whitney

The second platform the DTCC plans to examine is Whitney. This private securities market’s design is a combination of features from the private and public securities markets. Developers hope to bring more traditional investment firms to the STO sector with this maneuver.

Importantly, Whitney is a full security token ecosystem. The platform supports the issuance, distribution, and exchange of securities on the blockchain. Consequently, smart contracts integrated with compliance mechanisms are built throughout the protocol. Notably, the DTCC stated it will also keep records of every transaction stored off the blockchain as a security measure. While this decision seems redundant, it does reveal the level of caution the firm plans to exercise.

DTCC Backup

In a public interview, the managing director of business Innovation at DTCC, Jennifer Peve discussed the main goals of the projects. She started with an explanation of how the private securities markets lack transparency. Importantly, Reg D securities have far fewer regulations than publicly traded securities. She explained the DTCC plans to use the data gained from the platforms to build a next-generation securities clearing system.

The Time is Now

Peve, like many in the market, believes the time is ideal to leverage emerging technologies. Its true, blockchain provides intuitive minds a gateway to develop completely new solutions to many of the inefficiencies plaguing the market. For now, it’s exciting to hear a securities powerhouse such as the Depository Trust & Clearing Corporation (DTCC) already has plans to upgrade their systems in the near future.

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