Mal­ta looks into Secu­ri­ty Token Offerings

MFSA, the Mal­ta Finan­cial Ser­vices Author­i­ty, seeks con­sul­ta­tion to improve investor pro­tec­tion with­in Secu­ri­ty Token Offerings.

To main­tain high stan­dards for mar­ket integri­ty and investor pro­tec­tion, the Mal­ta Finan­cial Ser­vices Author­i­ty (MFSA) issued a con­sul­ta­tion doc­u­ment for their Secu­ri­ty Token Offer­ing Pol­i­cy. They aim to achieve a more effi­cient frame­work for busi­ness­es and entre­pre­neurs to raise cap­i­tal and expand their busi­ness­es. Their ulti­mate goal is to enhance cap­i­tal mar­kets by estab­lish­ing legal cer­tain­ty for secu­ri­ty token offer­ings (STOs) in the finan­cial sec­tor of Malta.

To fur­ther improve legal cer­tain­ty, the MFSA is propos­ing to ini­tial­ly intro­duce the frame­work for ‘tra­di­tion­al STOs’ (such as shares and bonds). As for Tokens, they sug­gest that fur­ther analy­sis of the risks and chal­lenges is need­ed. Nev­er­the­less, the author­i­ty acknowl­edges that with the use of the new tech­nol­o­gy Cap­i­tal Mar­kets are like­ly to:

1. Enhance in transparency,
2. Reduce set­tle­ment & inter­me­di­ary risk,
3. Improve investors’ engage­ment with the busi­ness­es in which they invest, and
4. Gen­er­ate inno­v­a­tive types of secu­ri­ties to enhance investors’ and issuers’ needs.

 

Trad­ing on Sec­ondary Mar­kets in Malta

For issuance, trad­ing and exchanges of STOs, the mar­ket struc­ture of trad­ing venues employ­ing DLT can either be cen­tralised or decen­tralised. The dif­fer­ence between the two exchange sys­tems lay with­in the inter­ac­tion of mar­ket stakeholders.

As for cen­tralised exchange sys­tems trans­ac­tions are car­ried out with the help of third par­ties. Stake­hold­ers can issue, trade and exchange their assets through the third par­ty, which then remains in con­trol of the access key for the investors’ assets. A minor­i­ty of cen­tralised exchange sys­tems offer their stake­hold­ers to own and man­age their keys themselves. 

In a decen­tralised exchange sys­tem, the stakeholders/users con­nect to each oth­er and secu­ri­ty of their assets is pro­vid­ed by a shared ledger of which every­one has the same copy. Here, assets are trad­ed peer-to-peer, and for each new trans­ac­tion, the ledger is being updat­ed fol­low­ing a con­sen­sus. The users them­selves keep the keys for their assets.

The MFSA rec­om­mends that in a decen­tralised exchange sys­tem an inter­me­di­ary (qual­i­fied with the MiFID II licence) needs to admis­sion the users and pro­vide them direct elec­tron­ic access for the DLT, ulti­mate­ly allow­ing stake­hold­ers to make secure invest­ments and trades.