Suggested Searches
Currently, section 2 of the CMSA sets out the definition of “capital market products” which includes securities, derivatives, private retirement schemes, etc.
A “tokenised capital market product” refers to a digital representation of any of the capital market products (including the rights attached to it). This involves the adoption of distributed ledger technology (“DLT”) to create a digital representation of the capital market product, usually in the form of a token. However, this is provided that the fundamental characteristics of the underlying capital market product are retained and not varied.
Following the above, tokenised securities would then refer to the digital representation of securities in a token form such as tokenised shares, tokenised unit trust fund and tokenised debenture or sukuk (again, assuming all characteristics are retained and not varied). The tokenised securities would be considered as a capital market product.
As such, investors and issuers must remain cognisance of the specific rights attached to the tokens given the token architecture, smart contract functionality and governance mechanisms. Where these rights vary from the traditional underlying asset, the legal characterisation may shift and hence, the token may no longer qualify as securities within section 2 of the CMSA.
In this regard, the SC encourages issuers of tokenised capital market products to engage the SC prior to offering tokenised capital market products to ensure its compliance with the relevant securities laws and SC’s guidelines.
No, tokenised capital market products and digital assets are two entirely separate products. The only commonality between the two is the adoption of DLT. Hence, these two products would be subjected to separate frameworks.
In the case of digital assets, the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019 (“PO”) sets out that certain types of digital currencies and digital tokens that fulfil the specific criteria under the PO are prescribed as securities. These digital assets are subject to the Guidelines on Digital Assets and the Guidelines on Recognized Markets (under the Digital Asset Exchange framework).
Whereas in the case of a tokenised capital market product, as mentioned above, it refers to a token representation of a capital market product. Where a capital market product is tokenised, a person who intends to offer or deal in the said tokenised capital market product must ensure compliance with the existing requirements relating to such capital market product as specified under the relevant securities laws and SC’s guidelines.
For example, a person who wishes to offer tokenised bonds must ensure compliance with the Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework. Similarly, a person who wishes to offer a tokenised unit trust scheme must ensure compliance with the Guidelines on Unit Trust Schemes.
As mentioned above, if you intend to offer any tokenised capital market products, you are required to ensure compliance with the existing requirements relating to such products as specified under the relevant securities laws and SC’s guidelines.
However, given the inherent risks of tokenisation, the SC encourages capital market intermediaries to engage the SC prior to offering tokenised capital market products to ensure its compliance with the relevant securities laws and SC’s guidelines.
As part of the engagements, capital market intermediaries are expected to demonstrate operational readiness and technical clarity regarding how these products interface with the existing regulatory framework. Intermediaries must clearly identify, assess and have plans to address risks, which includes but are not limited to the following:
