The Swiss Blockchain Federation has published guidelines for issuers of digital equity and related tokens. The concise and easily understandable manual particularly helps smaller and mid-sized companies to fully leverage the issuance and trading of equity on the blockchain.
The issuance of equity and other financial instruments in the form of digital tokens is seen as one of the most promising use cases for the blockchain technology. Even smaller issuers are now able to digitize their equity, participation certificates or bonds in in full compliance with regulatory requirements. They become digitally transferrable within seconds, which in the medium run could enable the development of a secondary markets for all shares that are currently not publicly traded.
The Swiss Blockchain Federation is convinced that the capital markets of the future will be digitized and that Switzerland is well-positioned to assume a pioneering and leadership role in this field. To make sure that not only large corporations with the necessary expertise are able to benefit, an expert group has developed these simple and concise guidelines, laying out the most important steps and recommendations around the issuance of equity tokens. The guidelines could further provide valuable insights to foreign issuers that consider creating security tokens under Swiss law.
In that regard, the paper clearly makes a distinction between Equity Tokens and Debt Tokens. As it was stated in the guidelines, the most straight-forward form of equity are shares. The shareholders are the owners of the issuing company and enjoy a well-defined bundle of legal rights towards the issuer. Sometimes, issuers decide to add a layer of indirection, by issuing options to buy shares or by having a nominee in between that holds the shares on behalf of the token holders. Other variants include the issuance of participation certificates or other alternative forms of equity. Shares and other equity instruments can be issued as registered shares or bearer sharers. “However, after May 2021, the issuance of bearer shares will only remain permitted when (i) listed on a stock exchange or (ii) if structured as intermediated securities (Bucheffekten). It is therefore not advisable to issue bearer shares,” the Swiss Federation reminds.
Since Swiss law allows the separation of the securities registry (Wertrechtebuch) from the
shareholder registry with the information on the beneficial owners (Aktienbuch), it is possible to tokenize registered shares and still keep the personal data of shareholders off-chain.
Regarding Debt Tokens, these represent a nominal claim against the issuer on repayment of a monetary sum (principal) after a fixed term and usually also periodic interest payments. It can also be structured in such a way that it has equity-like features (mezzanine instruments). Startups frequently issue convertible debt which can or must be converted into equity at the option of the issuer and/or the lender. This kind of structure requires a sophisticated underpinning in terms of documentation and are not discussed any further in this Circular.
Furthermore, the document focuses on the digitization of well-established financial instruments, namely shares, which unlike other token types provide investors by law with a well-known bundle of rights. Relying on established instruments enables a timely implementation and helps avoiding cumbersome legal evaluation and approval procedures. Moreover, concrete recommendations concerning transparency and governance are made, which are both essential for the development of a healthy capital market.
The following experts have contributed to the “Guidelines for Issuers of Equity and Related Tokens”: Khalil Aouak (Falcon Private Bank), Diego Benz (Drakkensberg), Hans Kuhn (DALAW), Luzius Meisser (Bitcoin Association Switzerland), Daniel Rutishauser (inacta), Peter Schnürer (daura), Christopher Schütz (SDX), Alexander Thoma (Alethena), Claudio Tognella (daura), Rolf H. Weber (University of Zurich).
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