On May 30, 2022, Thailand’s Securities and Exchange Commission (SEC) announced that it would start regulating ready-to-use utility tokens, a type of digital token that had previously been exempted from the SEC’s approval and regulatory control. A public forum was open for comments from various stakeholders until June 29, 2022, and the draft regulation is expected to be issued soon.
So far, the SEC has only supervised the issuance of not-ready-to-use utility tokens—digital tokens with the underlying right to acquire specific goods or services, which cannot be utilized upon issuance but at a later date. Due to the growing digital asset industry and lack of regulatory control, ready-to-use utility tokens have become more popular and many are listed for trading in digital asset exchanges.
The SEC claimed that it is now necessary to regulate ready-to-use utility tokens as some issuers appeared to be exploiting the regulatory loophole to manipulate the price and supply of these tokens in both the primary and secondary markets, while providing insufficient data disclosure to investors.
The SEC’s proposed principles include the following key points:
The same pre-approval requirement applicable to not-ready-to-use utility tokens will apply to ready-to-use utility tokens which an issuer intends to list on a digital asset exchange. This means that the issuer must proceed with the standard formalities, i.e., obtaining prior approval from the SEC, filing a draft prospectus, and offering the approved tokens via a SEC-approved ICO portal operator only.
The SEC offers a fast-track (15 days) approval for qualifying ready-to-use utility tokens, which are those with plain-vanilla characteristics; with an offering price corresponding to the value of the underlying goods/services; for which the supply of goods and services does not vary with the price of the tokens (i.e., fixed coins); and which are not intended to be means of payment.
The SEC also sets out exemptions to the pre-approval requirements. The exempt tokens are primarily those which the issuer does not intend to list on a digital asset exchange, and must meet the same qualifications required for fast-track approval.
Additional Ongoing Disclosure Obligations
Issuers of ready-to-use utility tokens will be subject to the following disclosure obligations:
- Pre- and post-offering disclosure of information such as the rights and benefits of token holders, the project’s business plan, turnover, smart contract source code, and financial statements.
- Ad hoc disclosure (ongoing disclosure) of material changes to the rights and benefits attached to the token and any information or news which may impact the price of the token.
- If the project allows for the staking of digital tokens, it is required to disclose information pertaining to the source of the return from such staking. However, in any case, the staking token must not be used to control supply/demand and the price of the tokens.
Allotment of Issuance and Holding by Affiliated Persons
Issuers must not hold ready-to-use utility tokens or allocate ready-to-use utility tokens to affiliated persons in excess of the specified percentage.
Issuers and affiliated persons also must not sell or distribute ready-to-use utility tokens to other people for a specified period of time (silent period).
Amendment of Market Rules of Exchanges
The listing rules, trading rules, and market surveillance supervision of digital asset exchanges will be revised in respect of ready-to-use utilities tokens so that they are suitable for the related risks and to prevent information asymmetry among investors, as well as liquidity risks and unfair treatment.