SEC revising listing rules for ready-to-use utility tokens

SEC revising listing rules for ready-to-use utility tokens

The Securities and Exchange Commission (SEC) is preparing to revise the listing rules for ready-to-use utility tokens to make them more appropriate and protect investors, according to the regulator.

With the new rules scheduled to take effect in the second quarter this year, the SEC is giving issuers of ready-to-use utility tokens listed on digital asset exchanges 60 days to comply with the new rules.

The changes were initiated by the SEC in March 2022. The regulator approved the revisions, both for the primary and secondary markets, to ensure they are consistent with the risk profile, development and usage, and include adequate trader protection mechanisms.

The SEC then held a focus group hearing and public hearings between May and June last year.

Nopnuanparn Pavasant, assistant secretary-general for financial innovation at the SEC, said the regulator opened another public hearing on the draft regulation, meant to better match the intended use and risks of each type of ready-to-use utility token to ensure adequate protection mechanisms for traders. The hearing runs until Feb 24.

Ms Nopnuanparn said there are two groups of ready-to-use utility tokens. The first group (Group 1) is tokens intended for consumer purposes. These include digital vouchers issued in the form of tokens, concert ticket redemption tokens, non-fungible token (NFT) artwork, images, music, stamps, or videos in which one particular right is granted to the NFT holder.

The second group (Group 2) is a token that can be used in lieu of certificates or proof of rights, such as renewable energy certificates, tax invoices, or land title deeds.

Group 1 tokens are exempt from regulatory requirements for public digital token offerings. Supervision of related business operations is waived if the tokens are not a means of payment, in accordance with guidelines set by the Bank of Thailand.

The SEC also prohibits digital asset exchanges from listing Group 1 utility tokens and prohibits brokers and dealers offering tokens from Group 2 with the following four characteristics: (1) a utility token that grants access to goods and services on distributed ledger technology, including decentralised finance; (2) tokens fixed at a trading centre or exchange tokens intended for use on a trading centre to pay a fee, or as a discount on a fee; (3) tokens that grant voting rights to modify or make decisions about business operations (governance tokens); and (4) tokens that provide services related to digital assets in the form of centralised finance.

If an issuer wants to list Group 2 tokens on digital asset exchanges, this action must be approved by the SEC for sale.

The issuer must submit a filing prospectus, including offering it through a digital token offering service portal.

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