Once upon a time, all financial transactions and investments were conducted in material terms: cash, gold bars, property deeds. Now with the world going digital, financial assets are following suit. Welcome Security Token Offerings (STOs).

Following in the footsteps of ICO (Initial Coin Offering), the STOs are heralding the arrival of the future, for investors today. The fundamentals remain the same – the offerings are based on real world assets such as profits of shares and revenue – what has changed is that the same offerings have taken a virtual form in the blockchain universe.

Simply put, STOs are digital representations of assets an investor looks to hold.

ICO To STO In Hong Kong

ICO opened with a bang and then faded away a bit due to security concerns. Investors soon found out that they were taking a high risk gamble with the coin offerings without any sort of regulations to govern them. The STOs appear to be a more robust investment opportunity, providing a level of transparency and trust of the more traditional markets. To further boost their credibility, the Hong Kong Securities And Future Commission (SFC) have announced a set of regulations and legal requirements to govern the token offerings.

Here are the two most important provisions investors need to know:

• Unless an applicable exemption applies under the SFO, any person who markets and distributes security tokens (whether in Hong Kong or targeting Hong Kong investors) must be licensed or registered for Type 1 regulated activity (dealing in securities).
• SFC-licensed intermediaries that market and distribute security tokens in Hong Kong are required to ensure compliance with all existing legal and regulatory requirements. In particular, they should comply with paragraph 5.2 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (Code of Conduct) as supplemented by the Suitability FAQs.

The SFC will consider STOS as a ‘complex financial product’ and add further steel to security measure by providing additional protection to investors.

ICO To STO – The Future In Hong Kong

If you are an investor in Hong Kong who is keen to make STOs a part of your portfolio, then there is good news and bad news.

The good news is that the token offerings are shaping up to be a more sound investment option, eschewing the volatility and unpredictability of the earlier ICO. This enables you to put your money in assets that fall under the Code of Conduct for financial entities registered under the regulatory board. In other words, they are regulated and monitored by the SFC.

Now for the bad news. Any form of digital assets is still deemed a high risk by the country’s regulatory board. To protect the investments of their citizens, Hong Kong is allowing only ‘experienced investors’ to trade in STOs. What this means is that unless you have accrued at least $1 million (HK $8 million) through investments, you can only dream of investing in token offerings.   

But it is not all doom and gloom for the small time investor. They may not be invited to the table today, but as STOs grow and become more stable, robust, and accepted, the token offerings are sure to transform into a mainstream option that anyone can invest in, no matter your ‘experience’.

ICO To STO In Hong Kong – Final Thoughts

Obituaries and final words are already being written for the ICO. What once generated revenue of around $1.74 billion is now pulling in a mere $46 million. STOs represent the next curve in digital assets and blockchain technology. Even if all investors are not invited to the party just yet.   

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