What is Securities Law?
Securities law encompasses regulations governing the creation, sale, and trading of investment instruments. In the crypto context, many tokens. Particularly those representing real-world assets. May qualify as securities and must comply with these laws.
The Howey Test
US courts use the Howey Test to determine if something is a security:
- Investment of Money: Capital is contributed
- Common Enterprise: Pooled with other investors
- Expectation of Profits: Investor expects returns
- From Others' Efforts: Returns depend on a third party
Tokens meeting all four criteria are likely securities.
Key US Securities Laws
- Securities Act of 1933: Governs new security issuance
- Securities Exchange Act of 1934: Regulates secondary trading
- Investment Company Act of 1940: Rules for investment funds
- Regulation D, S, A+: Exemptions from full registration
Implications for Crypto
Likely Securities
- Tokenized stocks, bonds, fund shares
- Revenue-sharing tokens
- Many ICO tokens
- Tokens with profit-sharing mechanisms
Likely Not Securities
- Pure utility tokens (debatable)
- Governance tokens (context-dependent)
- Stablecoins backed by reserves
- NFTs of actual art (context-dependent)
Regulatory Approaches
- Register: Full SEC registration (expensive, rare in crypto)
- Exempt: Use Reg D, Reg S, or other exemptions
- Compliant Platform: Trade on registered ATS
Global Securities Regulations
- EU: MiCA framework, prospectus requirements
- UK: FCA oversight, security token classification
- Singapore: MAS guidelines, payment vs security tokens
- Switzerland: FINMA token categories
Compliance Strategies
RWA protocols typically work with securities lawyers to structure offerings within legal frameworks, often limiting access to qualified investors.