Legal analysis of STO under the framework of Chinese law

Author: Luo Tao, Chief Compliance Counsel block chain Global Compliance Alliance, Tahota (Beijing) Law Firm, service @ gbcuf.com

 

STO (Security TokenOffering) is a kind of securities issuance using digital tokens as a carrier. Under the established regulatory framework, financing can be provided to the global public through non-public offerings and public offerings. Financial assets or interests that already exist in reality can be used Tokenization, such as physical assets such as company equity, debt, intellectual property rights, trust shares, or gold jewelry, can be transformed into digital assets on the chain. The issuing body of the STO is an enterprise, and the issuing model is a digital token. The STO project needs to pass the qualification review of the regulatory agency before it can be issued. After the STO is completed, the investor holds a digital token, and the rights enjoyed are the equity of the token to the target. , Creditor's rights, intellectual property rights, trust shares or gold jewelry, etc., investors holding STO tokens can carry out circulating transactions in their wallets and encrypted digital currency exchanges. Many governments (especially the US government) have made many attempts to integrate the existing token market into traditional financial supervision without introducing new regulatory policies.

Chinese law currently has no proprietary provisions for STO, and related laws and regulations are scattered in various laws.

Article 2 of the Chinese Securities Law states: "In the territory of the People's Republic of China, this Law applies to the issuance and trading of stocks, corporate bonds, and other securities recognized by the State Council in accordance with the law. The provisions of other laws and administrative regulations. This law applies to the listing and trading of government bonds and securities investment fund shares; if there are other provisions of other laws and administrative regulations, its provisions shall apply. The administrative measures for the issuance and trading of securities derivatives shall be governed by the State Council The principles of this law. "

According to the securities law's regulatory requirements for securities, STOs can be divided into two categories based on whether their underlying assets are within the scope of securities law regulation.

The underlying assets of the STO are under the supervision of the securities law

Securities such as stocks, companies, and corporate bonds are strictly restricted in China. No unit or individual may issue securities publicly without legal approval. If the STO involves the public issuance of the above securities, it will violate the law and be subject to administrative or criminal penalties. The relevant laws are as follows:

Article 210 of the Company Law: "Anyone who issues stocks or corporate bonds without the approval of the relevant competent authority stipulated in this law shall be ordered to stop the issuance, refund the funds raised and the interest thereof, and shall be punished by illegally raised funds of more than one percent of the amount of funds raised. A fine of less than 5%. If a crime is constituted, criminal responsibility shall be investigated according to law. Article 179 of the Criminal Law: "Issuance of stocks or company or corporate bonds without the approval of the relevant competent authorities of the State is huge, serious or has other serious consequences. In the case, he shall be sentenced to fixed-term imprisonment of not more than five years or detained, and shall be imposed a fine of not less than one percent but not more than five percent of the illegally raised funds. If the unit commits the crime mentioned in the preceding paragraph, the unit shall be fined and directly liable. Supervisors and other persons directly responsible shall be sentenced to imprisonment of not more than five years or detention. "

For securities types such as private equity funds and ABS, although the securities law is not mandatory, it has also been included in the supervision, and needs to perform procedures such as association filing. If the STO involves these types of securities, it is necessary to perform the procedures such as the filing of the association in accordance with the relevant provisions of the "Administrative Measures for the Recording of OTC Securities Business".

"Administrative Measures for the Recording of OTC Securities Business" Article 2 OTC securities business refers to securities business carried out outside the Shanghai, Shenzhen Stock Exchange, Futures Exchange and the national SME stock transfer system, including but not limited to the following OTC securities Business: (1) OTC securities sales and recommendation; (2) OTC securities asset financing business; (3) OTC securities business technology system, registration, custody and settlement, third-party interface and other back-office and technical service outsourcing services; (4) OTC self-employment and market-making business; (5) OTC securities middle introduction; (6) OTC securities investment consulting business; (7) OTC securities financial consulting business; (8) OTC securities brokerage business; (9) Over-the-counter securities product credit ratings; (10) Private equity crowdfunding; (11) OTC securities market credit enhancement business; (12) OTC securities information service business; (13) OTC financial derivatives (14) Other OTC securities businesses that securities regulatory agencies or self-regulatory organizations deem necessary to be filed based on the development of OTC securities business. Article 3 Securities companies, securities investment fund companies, futures companies, securities investment consulting agencies, and private equity fund managers who engage in the OTC securities business stipulated in Article 2 of these Measures, and those that are required by the securities regulatory agency or self-regulatory organization to be filed with the Association Institutions (hereinafter referred to as filing agencies) shall file their OTC securities business in accordance with these Measures.

STO's underlying assets are not covered by securities law

The "Implementation Opinions of the General Office of the State Council on the Clean-up and Rectification of Various Trading Venues" ("Implementation Opinions") stipulates the issuance and trading of equity and other assets. If the underlying assets of the STO involve assets other than "securities", such as equity, commodities, cultural arts, etc., the relevant provisions of the implementation opinion shall apply. The implementation opinion clearly requires that no equity be split into equal shares for public issuance, and the total number of equity holders must not exceed 200. Except as otherwise provided by laws and administrative regulations, the actual holders of any rights and interests during the period of its existence, no matter in the issue or transfer, shall not exceed 200. If it is held on behalf of a trust or agency, it shall be held as it is. Counting people. If the STO violates this standard, it will be included in the scope of rectification.

In addition, it should be noted that in the Criminal Law, the criteria for criminally absorbing or depositing public deposits in accordance with the law should be investigated for criminal responsibility. That is, if an individual illegally absorbs or disguisedly absorbs more than 30 people, the unit illegally absorbs or disguisedly absorbs 150 More than people.

The specific regulations are as follows:

"Implementation Opinions of the General Office of the State Council on the Clean-up and Rectification of Various Trading Venues" The scope of this clean-up and rectification includes various types of trading venues engaged in equity transactions, medium and long-term transactions of commodities, and other standardized contract transactions, including unused " "Exchange", except for trading places that only engage in physical transactions such as vehicles and real estate. Among them, equity transactions include transactions such as property rights, stock rights, debts, forest rights, mineral rights, intellectual property rights, cultural and artistic rights, and financial asset rights; etc .; medium- and long-term transactions in commodities refer to standardized contracts for commodities The use of electronic centralized trading methods allows traders to settle transactions by hedging and closing positions without the purpose of physical settlement or the need to deliver physical standardized contract transactions; other standardized contracts, including securities, interest rates, exchange rates, indices , Carbon emission rights, pollution rights, etc. are standardised contracts for the subject matter. Trading venues and their branches that violate one of the following provisions shall be cleaned up and rectified. (1) No equity shall be split into equal shares for public offering. Any trading venue uses its services and facilities to split its equity into equal shares and sell them to investors, which is an “equal share public offering”. Relevant provisions of the Company Law and the Securities Law apply to the public issuance of shares of a company. (2) No centralized trading shall be adopted for transactions. The "centralized trading methods" as mentioned in this opinion include collective auctions, continuous auctions, electronic matching, anonymous transactions, market makers and other trading methods, but transfers by agreement and auctions conducted in accordance with law are not included in this list. (3) No equity shall be continuously traded in accordance with standardized trading units. The "standardized trading unit" as mentioned in this opinion refers to setting the minimum trading unit for other interests other than equity, and trading with the smallest trading unit or an integer multiple thereof. "Continuous listing transaction" refers to the sale of the same symbol within 5 trading days after the purchase or the purchase of the same symbol within 5 trading days after the purchase. (4) The total number of equity holders shall not exceed 200. Except as otherwise provided by laws and administrative regulations, the actual holders of any rights and interests during the period of its existence, no matter in the issue or transfer, shall not exceed 200. If it is held on behalf of a trust or agency, it shall be held as it is. Counting people. (5) No standardized contract transactions shall be conducted in a centralized transaction manner. The "standardized contract" referred to in this opinion includes two situations: one is a contract that is uniformly formulated by the trading venue, with fixed terms other than price, and stipulates that a certain amount of the subject matter will be delivered at a certain time and place in the future; Contracts uniformly formulated by trading venues that stipulate that the buyer has the right to buy or sell the agreed subject matter at a certain price in the future. (6) Without the approval of the relevant financial management department of the State Council, trading venues engaged in insurance, credit, gold and other financial product transactions shall not be established, and no other trading venue shall engage in insurance, credit, gold and other financial product transactions.

STO may involve illegal financial activities

The "Illegal Financial Institutions and Measures for Banning Illegal Financial Business Activities" stipulates that illegal financial business activities refer to the following activities without the approval of the People's Bank of China: (1) illegally absorbing public deposits or disguising public deposits in disguise; (2) Illegal fundraising to unspecified social objects in any name without legal approval; (3) Illegal loans, discounted bills, fund lending, trust investment, financial leasing, financing guarantee, foreign exchange trading; (4) The People's Bank of China determines Other illegal financial business activities.

As can be seen from the above regulations, the concept of illegal financial activities is relatively broad, and it is a high pressure to conduct STO activities. STO's possible offences include the crime of illegally absorbing public deposits or disguising the absorption of public deposits, and the crime of fraudulent fundraising. Specific laws and regulations include:

Article 176 of the Criminal Law Whoever illegally absorbs public deposits or disguisedly absorbs public deposits and disrupts the financial order shall be sentenced to fixed-term imprisonment of not more than three years or imprisonment, and a fine of not less than 20,000 yuan but not more than 200,000 yuan shall be imposed; For other serious circumstances, they shall be sentenced to fixed-term imprisonment of not less than three years and not more than ten years and a fine of not less than 50,000 yuan but not more than 500,000 yuan. If a unit commits the crime mentioned in the preceding paragraph, it shall be fined by the unit, and the person in charge and other directly responsible personnel shall be punished in accordance with the provisions of the preceding paragraph. Article 192 For the purpose of illegal possession, using fraud to raise funds illegally, if the amount is large, he shall be sentenced to fixed-term imprisonment of not more than five years or detained, and fined not less than 20,000 yuan but not more than 200,000 yuan; if the amount is huge or there are other serious circumstances Shall be sentenced to fixed-term imprisonment of not less than five years and not more than ten years, and a fine of not less than 50,000 yuan to not more than 500,000 yuan; if the amount is particularly large or there are other particularly serious circumstances, the term of imprisonment shall be more than ten years or life imprisonment. Fines above 500,000 yuan or less or property confiscated. Interpretation of the Supreme People's Court on Several Issues Concerning the Specific Application of the Law in the Trial of Criminal Cases of Illegal Fundraising Article 1 In violation of national financial management laws and regulations, the act of absorbing funds from the public (including units and individuals), while meeting the following four conditions, Except as otherwise provided by the Criminal Law, it shall be determined as “illegal assimilation of public deposits or disguised assimilation of public deposits” as stipulated in Article 176 of the Criminal Law: (1) Absorbing funds without the approval of the relevant department according to law or borrowing legal business operations (2) Publicly publicize to the society through media, promotion meetings, leaflets, mobile phone text messages, etc .; (3) Commitment to repay principal or interest or return in currency, kind, equity, etc. within a certain period of time; The public is an unspecified object of society to absorb funds. Absence of publicity to the society and the absorption of funds against specific targets within relatives or friends or units are not illegal absorption or disguised absorption of public deposits. Article 3 Illegal absorption or disguised absorption of public deposits shall be investigated for criminal responsibility in accordance with the law in any of the following circumstances: (1) If an individual illegally absorbs or disguisely absorbs public deposits, the amount of which is more than 200,000 yuan, the unit illegally absorbs or disguisedly absorbs Public deposits with an amount of more than 1 million yuan; (2) If an individual illegally absorbs or disguises more than 30 public deposits, the unit illegally absorbs or disguises more than 150 public deposits; (3) Individuals illegally absorb or disguise If the absorption of public deposits causes direct economic losses of more than 100,000 yuan to the depositor, the unit illegally absorbs or disguisely absorbs public deposits, causing direct economic losses of more than 500,000 yuan to the depositor; Or other serious consequences. Illegal assimilation or disguised assimilation of public deposits is mainly used for normal production and business activities. The absorbed funds can be promptly returned, and criminal penalties can be exempted; if the circumstances are significantly minor, they should not be treated as crimes.

 

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