Understanding Offering Frameworks

Table of contents:

• Registered vs. Exempt Security Token Offerings

• Key Differences Between Registered and Exempt Offerings

• Registered Security Token Offering (STO)

• Exempt Security Token Offering (STO)

• Selecting the Right Regulatory Framework for a Security Token Offering (STO)

• Conclusion: Ensuring a Legally Compliant STO

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Once an issuer determines that their token qualifies as a security, the next step is to evaluate whether the Security Token Offering (STO) requires full registration with a regulatory authority or qualifies for an exemption under applicable securities laws.

This decision has significant legal, financial, and operational implications, affecting:

1. Investor Eligibility – Who can invest in the STO (retail investors, accredited investors, or institutions)?

2. Marketing & Solicitation – Whether the STO can be publicly advertised or only privately offered.

3. Regulatory Compliance Obligations – The level of reporting, disclosure, and approval required from financial authorities.

4. Liquidity & Secondary Market Trading – Whether the security tokens will have transfer restrictions, lock-up periods, or unrestricted trading.

Making the right decision ensures that the STO aligns with legal requirements, avoids regulatory risks, and maximizes investor participation.

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Registered vs. Exempt Security Token Offerings

Security token offerings can fall into two primary categories:

1. Registered Offering – The STO is fully registered with a recognized financial regulator, allowing broader investor participation but requiring full compliance.

2. Exempt Offering – The STO qualifies for an exemption from full registration, limiting investor eligibility and marketing options but reducing regulatory burdens.

Both options have benefits and restrictions, depending on the issuer’s objectives, target investor base, and jurisdictional requirements.

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Key Differences Between Registered and Exempt Offerings

Factor	Registered Offering	Exempt Offering
Regulatory Approval	Requires approval from a financial regulator (e.g., SEC, FCA, BaFin, MAS).	No formal approval required, but must comply with exemption conditions.
Prospectus & Disclosures	Issuer must file a full prospectus and periodic regulatory reports.	No full prospectus required, but must provide limited disclosures based on exemption requirements.
Investor Eligibility	Open to retail, accredited, and institutional investors.	Usually limited to accredited investors, institutions, or professional clients. However, small-size offerings in some jurisdictions may allow retail participation under specific conditions.
Marketing & Solicitation	Public advertising, media promotions, and general solicitation allowed.	Public marketing prohibited, requiring private placement strategies.
Secondary Market Liquidity	Fewer restrictions on secondary trading, making it easier to sell security tokens.	May include lock-up periods or resale restrictions, limiting token liquidity.
Compliance Costs & Timeline	Higher costs and longer approval process due to regulatory oversight.	Lower compliance costs and faster time-to-market due to simplified requirements.

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Registered Security Token Offering (STO)

A registered STO is fully regulated and approved by a securities authority before any tokens are sold. This process involves formal registration, disclosure filings, and compliance with financial reporting requirements.

Key Characteristics of a Registered STO

• Requires Approval from Financial Regulators

  • SEC (United States) – Regulation A+, S-1 Filings

  • FCA (United Kingdom) – Fully regulated STOs under FSMA

  • BaFin (Germany), FINMA (Switzerland), ESMA (EU-wide MiFID II compliance)

• Submission of a Prospectus & Ongoing Reports

  • Issuers must prepare a detailed prospectus that provides full transparency on the investment.

  • Ongoing financial disclosures, corporate governance filings, and regulatory reporting are required.

• Broader Investor Participation

  • Open to both retail and institutional investors, allowing mass-market access.

  • Can be listed on regulated Alternative Trading Systems (ATS) or securities exchanges.

• Public Marketing & General Solicitation

  • Issuers can advertise, promote, and publicly offer the security token.

  • Retail investors can participate under regulated conditions.

Example of a Registered STO

A U.S.-based issuer tokenizing a real estate investment trust (REIT) files for SEC Regulation A+ approval, allowing up to $75 million in fundraising from both retail and accredited investors. The tokens are listed on an SEC-registered ATS for secondary trading.

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Exempt Security Token Offering (STO)

An exempt STO qualifies for a regulatory exemption, meaning it does not require full registration but must comply with exemption-specific rules. Exempt offerings are typically restricted to accredited investors, institutional buyers, or professional investors and may impose marketing and resale limitations.

Key Characteristics of an Exempt STO

• Qualifies for a Regulatory Exemption

  • Regulation D (U.S.) – For accredited investors only

  • Regulation S (U.S.) – For offshore offerings

  • Small Offers Exemption (EU, UK) – Below a capital-raising threshold

  • Qualified Investor Exemption (Switzerland) – Institutional investors only

• Limited Investor Base

  • Participation is restricted to accredited, institutional, or high-net-worth investors.

  • Retail investors cannot participate in most exemptions.

• No Public Marketing or General Solicitation

  • Issuers cannot promote the STO publicly, only through direct investor outreach.

  • Advertising campaigns, media promotions, and general solicitation are prohibited.

• Potential Lock-Up Periods & Resale Restrictions

  • Some exemptions impose resale restrictions, requiring investors to hold the tokens for a minimum period (e.g., 12 months under Regulation D, Rule 144 in the U.S.).

Example of an Exempt STO

A private equity fund tokenizing a luxury hotel investment raises $10 million under Regulation D (506c) in the U.S., limiting participation to accredited investors and imposing a one-year holding period before tokens can be traded.

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Selecting the Right Regulatory Framework for a Security Token Offering (STO)

Ensuring legal compliance is one of the most critical aspects of launching a Security Token Offering (STO) or tokenized asset issuance. Unlike cryptocurrencies or utility tokens, security tokens represent investment rights, ownership, or financial interests in an underlying asset. As a result, they are subject to securities laws, just like stocks, bonds, or traditional financial instruments. Failure to comply with these regulations can lead to legal penalties, fines, or even the termination of the offering.

Each country enforces its own securities regulations, defining the rules for investor protection, financial disclosures, and compliance requirements. Some jurisdictions have clear, crypto-friendly regulations, making them attractive for tokenized offerings, while others impose strict restrictions or outright bans on STOs.

As an issuer, you must ensure compliance not only in the jurisdiction where the tokenized asset is structured but also in each country where tokens are offered to investors. The regulatory framework you select will determine:

• Who can invest (retail, accredited, or institutional investors).

• Whether public marketing and solicitation are allowed.

• Compliance requirements, including disclosures, filings, and ongoing reporting.

• Secondary market trading restrictions and liquidity conditions.

As an issuer, you are required to select the jurisdiction(s) and regulatory framework under which your STO will operate.

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Conclusion: Ensuring a Legally Compliant STO

By determining whether an STO requires full registration or qualifies for an exemption, issuers can:

• Ensure legal compliance and avoid regulatory enforcement.

• Select the most suitable jurisdiction and regulatory framework based on investor eligibility, legal requirements, and operational efficiency.

• Structure the offering to match investor eligibility requirements, ensuring compliance with securities laws in all applicable jurisdictions.

• Optimize marketing strategies and distribution channels, considering whether the STO can be publicly promoted or must rely on private placement.

• Plan for liquidity, resale, and secondary market trading, ensuring that security tokens can be legally transferred and traded within compliant frameworks.

Selecting the right regulatory framework and jurisdiction is essential for building investor trust, ensuring regulatory approval, and facilitating seamless security token issuance and trading.

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