STO Classifications
The issuer must determine whether the Security Token Offering (STO) will be conducted as a Registered Offering or under a Regulatory Exemption. This decision shapes the entire compliance strategy — who can invest, how the token can be promoted, what disclosures are required, and how tokens may be traded post-sale.
Objective
Select the STO framework that ensures regulatory compliance, aligns with your investor base, and supports your marketing and liquidity goals.
STO Classification: Registered vs. Exempt
Registered Security Token Offering
A Registered Offering is reviewed and approved by a national financial regulator (e.g., SEC, FCA, BaFin, FINMA).
Key characteristics:
Requires
Requires full submission of a prospectus or offering memorandum.
Allows participation by both retail and institutional investors.
Enables public marketing and advertising.
Requires ongoing reporting and financial disclosures.
Suitable for larger, mass-market, or institutional offerings.
Examples of Registered Offerings:
SEC Regulation A+ or S-1 (USA)
FCA-authorized prospectuses (UK)
MiFID II / EU Prospectus Regulation
FINMA-registered public offerings (Switzerland)
Exempt Security Token Offering
An Exempt Offering qualifies under specific legal exemptions and does not require full registration, but imposes restrictions.
Key characteristics:
Restricted to accredited, institutional, or qualified investors.
No public solicitation or mass marketing is allowed.
May require investor verification and self-certification.
Subject to resale restrictions or lock-up periods (e.g., 12 months under Rule 144 in the US).
Lower cost and faster launch time, ideal for private placements.
Examples of Exempt Offerings:
Regulation D, Rule 506(c) (USA) - Accredited investors only
Regulation S (USA) - Offshore investors only
Small Offers Exemption (EU/UK)
Qualified Investor Exemption (Switzerland)
Key Differences Between Registered and Exempt STOs
Regulatory Approval
Required (full review)
Not required (relies on exemption)
Investor Eligibility
Open to all investors
Limited to accredited or qualified
Marketing & Promotion
Public advertising permitted
Private placement only
Disclosures & Prospectus
Full prospectus & filings required
No prospectus, limited disclosure
Secondary Market Access
More flexible
May be restricted
Time to Launch
Longer (3–6 months)
Shorter (1–3 months)
How to Choose the Right Framework
Where are your investors located?
If you’re offering to retail investors in the US or EU, a registered offering may be required.
What kind of investors are you targeting?
If you’re raising from institutions or accredited investors only, an exemption may be ideal.
Do you want to publicly promote the STO?
Only registered offerings allow general solicitation.
Do you want flexibility in secondary trading?
Registered offerings often offer smoother access to regulated exchanges.
Do you have the legal resources to manage a full registration process?
If not, exemptions may be faster and more cost-effective.
Issuer Action Items
Determine Offering Type: Registered or Exempt.
Select Jurisdiction & Regulator: (e.g., SEC, FCA, FINMA, BaFin).
Document the Framework: In your Token Issuance Specification (TIS), Terms of Use, and Whitepaper.
Comply with All Requirements: Investor verification, marketing rules, and filing obligations.
Conclusion: Ensuring Compliance
Selecting the correct STO framework ensures:
Legal compliance and avoidance of enforcement action
Clear rules for investor participation
A suitable marketing and distribution plan
Proper planning for liquidity and secondary trading
Strong regulatory positioning and investor confidence
Stobox Legal Support
Stobox and its legal partners provide full support with STO framework selection, including exemption analysis, jurisdiction strategy, and regulatory filings.
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