[The Securities and Exchange Commission (SEC) issued a notice, requesting for comments on the updated Proposed Rules on Initial Coin Offering (ICO). According to the SEC, ICOs will help raise capital and resources for small and local businesses start-ups or ventures, and provide alternative investment opportunity for the investing public. While the deadline for submission of comments has passed, we are reproducing the full text of the Proposed Rules on Initial Coin Offering for future reference.]
ARTICLE ONE: GENERAL PROVISIONS
CHAPTER ONE: Definitions
Section 1. Applicability and Coverage. These Rules shall be known as the “Rules and Regulations Governing Initial Coin Offerings (ICOs)”. These Rules shall primarily govern the conduct of ICOs wherein convertible security tokens are issued by start-ups and/or registered corporation organized in the Philippines, and start-ups and/or corporations conducting ICOs targeting Filipinos, through online platforms. Initial coin offerings conducted through other means or media other than online electronic platform is not within the coverage of these Rules; hence, the usual requirements under the SRC shall apply.
Section 2. Definition of Terms. For purpose of these Rule, the following definition of terms shall apply, unless the context otherwise requires:
- 2015 SRC Rules – refers to the 2015 Implementing Rules and Regulations of the Securities Regulator Code.
B. Advisors – are persons who act as mentors to the Issuer, and announced as such by the issuer through distributed documents, websites and other media, that provide assistance and advice to the Issuer from time to time or as needed or required by the agreement.
C. Asset Tokens – are tokens that represent assets such as a debt or equity claim on the issuer.
D. Blockchain –is a decentralized, distributed ledger that records transactions in a particular token or tokens, in chronological order.
E. Coin – is a unit of value employed as a means of exchange within the blockchain to incentivize the network of participants to use the blockchain. It has functions limited to exchange of value.
For purposes of these Rules, the terms “coins” shall not include legal tender, unless the context otherwise provides.
F. Commission – refers to the Securities and Exchange Commission.
G. Convertible and/or open virtual currency –is a virtual currency that has an equivalent value in real currency and can be exchanged back-and-forth for real currency.
H. Crowd sale/ Token Generation Event – is the main token sale of the ICO. It is more widely promoted and advertised than presale.
- Evidence of financial capabilities – evidence of funds to conduct his proposed business which may include but not limited to a document from a bank which attests that the applicant has sufficient funds,
J. Fiat Currency – is the coin and paper money of a country that is designated as its legal tender circulates and is customarily used and accepted as a medium of exchange in the issuing country.
K. Hard cap – refers to the maximum amount of capital that the ICO project aims to gather.
L. Initial Coin offerings (ICO)/ Token sale – are distributed technology fundraising operations involving the issuance of tokens in return for cash, other cryptocurrencies or other assets. They involve coins (or “tokens”) being issued in order to raise money from the general public. Once the project reaches a certain stage, benefits to tokenholders may include, but is not limited to, any of the following:
- Gains through profits or increase in the value of tokens which can be sold if the project is successful;
- Voting or governance rights; or
- Usage rights.
For purposes of these rules, initial coin offering shall include follow-on offerings or issuance of tokens, the previous issuance of which have been registered in accordance with these Rules.
M. Investor – is person that puts money into financial schemes, property etc. with the expectation of achieving a profit.
N Issuer – is the originator, maker, obligor, or creator of the token.
O. Lock up-period – is a window of time when investors and/or issuer, team members and advisors are not allowed to redeem, trade or sell their tokens.
P. Non-convertible and/or closed virtual currency – is a virtual currency intended to be specific to a particular virtual domain or world, and cannot be exchanged for fiat currency.
Q. Payment Tokens – are tokens which are intended to be used, nor or in the future, as a means of payment for acquiring goods or services or as a means of money or value transfer.
R. Pre-Sale-a token sale conducted before main crowd sale, as set by the issuers.
S. Private Sale / Institutional Round – is a sale of tokens to early investors that is not open to the public or not announced.
T. Prospectus – is the document made by or on behalf of an issuer, underwriter or dealer to sell or offer securities for sale to the public through registration statement filed with the Commission.
U. Soft cap – refers to the minimal amount of funds needed and aimed by the project to proceed as planned.
V. SRC – is the Securities Regulation Code under Republic Act No. 8799.
W. Securities – are shares, participation or interest in a corporation or in a commercial enterprise or profit making venture evidenced by a certificate, contract, instruments, whether written or electronic in character, It includes: (a) Shares of Stock, bonds, debentures, notes evidence of indebtedness, asset-backed securities (b) Investment contracts, certificates of interest or participation in profit sharing agreement, certificates of deposit for future subscription; (c) Fractional undivided interests in oil, gas or other mineral rights; (d) Derivatives like options and warrants ; (e) Certificates of assignments, certificates of participation, trust certificates, voting trust certificates or similar instruments; (f) Proprietary or nonproprietary membership certificates in corporations; and (g) Other instruments as may in the future be determined by the Commission, as defined under Section 3 of the Securities Regulation Code (SRC).
X. Security Tokens – are payment, utility and/or asset tokens that satisfy the definition of securities under the SRC, its implementing rules and regulations, and other issuance of the SEC.
Y. Smarty Contract – is a contract written in programming code that is able to execute itself given certain specified conditions.
Z. Start-up – refers to a venture or project which is at initial phase of business.
AA. Team – refers to the board, chief executive, controller, and any other persons who are primarily responsible for the operations of the issuer and/or the developers of the ICO project.
BB. Tokens – refers to a virtual currency that vests certain rights, including a digital representation of value that—
- is used as a medium of exchange, unknit of account or store of value;
- is intended to represent assets such as debt or equity in the promoter;
- is otherwise intended to represent any assets or rights associated with such assets; or
- is intended to provide access to an application or service or product;
but does not include—
- a transaction in which a person grants value as part of an affinity or rewards program, which value cannot be taken or exchanged with the person for legal tender, bank credit or any digital or cryptoasset; or
- a digital representation of value issued by or on behalf of the publisher and used within an online game or game platform sold by the same publisher or offered on the same game platform.
- Utility Tokens – are digital instruments that grant their bearer access to a decentralized platform or service.
- Virtual Currency – refers to a financial value recorded by electronic means on electronic devices;
- which may be used to pay the price of goods purchased or borrowed or services received and which may be purchased from and/or sold; or
- which may be exchanged reciprocally, with person(s), with any financial value as defined (a) above,
either of which may be transferred via electronic data processing system.
For purposes of these rules, virtual currency shall not include fiat currency and electronic money
EE. Wallet – is a software applications or other hardware mechanism/medium for holding, storing and transferring virtual currencies.
- Whitepaper – is a document that states the technology behind a project, including among oth ers a detailed description of the system architecture and interaction with the users, description of the project and use of proceeds, information on the market cap, anticipated growth, other technical details and the team and advisors behind the project. It does not represent an offer to sell the tokens and is not interchangeable with a prospectus.
ARTICLE TWO: INITIAL ASSESSMENT OF TOKENS
CHAPTER ONE: Initial Assessment Request
Section 3. Submission of Initial Assessment Request. Except in cases of follow-on offerings as defined under these Rules, all start-ups and/or corporations organized in the Philippines and/or duly registered tithe the Commission who proposes to conduct, conducting or conducted an ICO, and start-ups and/or corporations who conducted, conducting or who will conduct ICOs targeting Filipinos must submit an initial assessment request including the attachments required under these Rules to the Commission in the form and manner directed under these Rules not later than ninety days before the start of the pre-sale period.
Section 4. Contents of the Initial Assessment Request. Any Initial Assessment Request that lacks any of the following may be rejected motu proprioby the Commission:
- Duly accomplished application form as stated in Appendix I hereof;
- Certificate of Incorporation, Articles of Incorporation and By-Laws, and certified true copy of other permits and licenses, or equivalent;
- Comprehensive curriculum vitae of all team members with clear recent photographs, containing the following information in the minimum:
- Names, ages and citizenship of each team member;
- List of positions and offices the team member held or will hold in the issuer company, term of office if applicable;
- Brief description of the business experience of each team member for five years from receipt of initial assessment request by the Commission or start date of pre-sale of corresponding tokens, whichever is earlier;
- Identification of other companies where each team member held or is currently holding any other executive position, directorship position or acts as advisor; and,
- Description 1) any bankruptcy petition against the team member or any corporation to which the team member is the Chairman of the Board within five years from receipt of initial assessment request by the Commission or start date of pre-sale of corresponding tokens, whichever is earlier, (2) any conviction by final judgment against the team member by any competent judicial or administrative body or having his license or permit revoked or suspended by such body; (3) revocation or suspension of membership of the team member form any self-regulating organization; or, (4) any violation of the commodities, securities, banking, real estate or insurance laws;
- NBI clearances, Police Clearances and other documents to prove the good repute of the members of the ICO team;
- Description of the ICO project, in accordance with these Rules;
- Proposed whitepaper, the contents of which abides by that provided in these Rules;
- In case of ICOs conducted for projects already in operation,Operations Manual detailing the system architecture documentations and the corresponding source codes and commands, including detailed flowcharts of the process;
- In case the project is to be instituted in a later date, detailed flowcharts showing how the project will operate, including the corresponding documentations and timeframes for each process;
- Notarized undertaking by the duly authorized representative of the Issuer attesting that the Issuer will report any listing made of the tokens in any virtual currency exchange within five days from the date of approval of the application for listing;
- Legal Opinion on whether or not the tokens sold or will be sold through the ICO are securities, including sufficient justifications; and
- Payment of the application fees, amounting to ten thousand pesos (P10,000.00).
Section 5. Description of the ICO Project. The description of the ICO project as required under the above Section musty contain the business plan and feasibility study outlining proposed ICO project. It must include the following:
- Brief description of business of issuer;
- The problems in the Filipino market that proposed ICO project aims to solve, the nature and brief description of the ICO project, and a comprehensive discussion on how it will solve the identified problem;
- Brief description of the ICO tokens, including but not limited to the tapped blockchain technology, the value of each token, lock-up period, if any and the returns, profits, bonuses, rights and/or other privileges to the buyer of the token, both monetary and non-monetary;
- Brief description on the use if proceeds from the sale of the tokens, including percentage of allocation to each usage category;
- Target market, including respective percentages, number and reasonable demographical descriptions;
- Description of the currency, other cryptocurrency and/or other assets that will be received as payment for the tokens;
- Soft cap and hard cap for each kind of token;
- Price per token, including amounts of discount and/or premiums; and
- Timeline including identification of the determined or determinable date for each major phase in the ICO project.
Section 6. Form of the Initial Assessment Request. The initial Assessment Request and all the required supporting documents as specified under Article Two – Initial Assess Request and additional documents information as may be required under the above Sectionshall be submitted in the form required under rule 72.1.2 of the 2015 SRC Rules.
CHAPTER TWO: Action on the Initial Assessment Request
Section 7. Review by the Commission. The Commission will review the initial assessment request to determine whether the token is a security. To do so, the Commission will, within 20 days form receipt, extendable to another 20 days and as soon as reasonably practicable, after it has received a complete initial application assessment request, assess the nature and business model, the team members, and of the products and services which the issuer proposed to offer.
Section 8. Result of Review. The determination of the token as a security by the Commission shall be communicated in writing to the issuer within five days from conclusion of the review. If the token is determined to be a security, the issuer must register the said tokens under these rules.
CHAPTER THREE: Whitepaper
Section 9. Contents of the Whitepaper.The whitepaper should contain relevant, complete and timely information regarding the ICO project which are understandable users with reasonable knowledge on blockchain technology. The contents of the whitepaper must include but is not limited to the following information:
- name, address, contact details and brief description of the corporate background of the issuer, including any of its subsidiary in the Philippines territory;
- Names, addresses, contact details and brief description of the corporate background of the team members and advisors, with clear recent photographs;
- The problems in the Filipino market that the proposed ICO project aims to solve, the nature and brief description of the ICO project, and a comprehensive discussion on how it will solve the identified problem;
- The hard cap and soft cap of the ICO project;
- The use of the funds generated from the sale of the ICO tokens, including percentage and amount allocation to each proposed usage;
- Brief description of the ICO tokens, including but not limited to the tapped blockchain technology, the value of each token, lock-up period, if any, and the returns, profits, bonuses rights and/or other privileges to the buyer of the token, both monetary and non-monetary;
- Brief description of the tokens that will be held by issuer, team members and/or advisors, including but not limited to information on the type, quantity, lockout period, discounts, and the returns, profits, bonuses rights and/or other privileges to the buyer of the token, both monetary and non-monetary;
- Timeline and duration of the ICO campaign, including identification of the determined or determinable date for each major phase in the ICO project;
- Brief description of the currency, other cryptocurrency and/or other assets that will be received as payment for the tokens;
- Price per token, including amounts of discounts and/or premiums;
- Target market, including respective percentages, number and reasonable demographical descriptions;
- Brief description of the risks present in investing in the tokens, including risks that the price can and does fluctuate and any individual token may experience upward or downward movement, and may even become valueless, that there is an inherent risk that losses may be incurred rather than profit as a result of buying and selling tokens, and technological and other risks brought by the nature of virtual currencies;
- In the case of Whitepapers of ICOs pending initial assessment by the Commission, disclaimer that (1) the whitepaper does not represent an offer to sell, and (2) a statement in bold letters that “THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THESE TOKENS OR DETERMINED IF THE TOKENS ARE SECURITIES AND THUS, MUST BE REGISTERED, OR THAT THE CONTENTS OF THE WHITEPAPER ARE ACCURATE AND COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE AND SHOULD BE REPORTED IMMEDIATELY TO THE SEUCITIES AND EXCHANGE COMMISSION”;
- In the case of Whitepapers of security token ICOs pending approval of the Registration Statement by the Commission, disclaimer that (1) the whitepaper does not represent an offer to sell, and (2) a statement in bold letters that “THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THESE TOKENS OR DETERMINED IF THE PROSPECTUS AND WHITEPAPER ARE ACCURATE OR DETERMINED IF THE PROSPECTUS AND WHITEPAPER ARE ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE AND SHOULD BE REPORTED IMMEDIATELY TO THE SECURITIES AND EXCHANGE COMMISSION”; and
- Other information necessary to make the whitepaper understandable to users with reasonable knowledge blockchain technology and ICOs.
Section 10. Consistency of Whitepaper. The contents of the whitepaper must be consistent and not deviate from the contents of the application form, certificate of incorporation, business model, curriculum vitae and other documents and information in the initial assessment form.
Section 11. Access to the Whitepaper. The latest available version of the whitepaper should be made available to members of the target market through online platform as identified under these Rules.
Section 12. Amendments initiated by the Issuer. The Issuer may amend the contents of Whitepaper or other documents submitted during the initial assessment and registration proper stage at any time before the Commission determines whether the tokens are security tokens or approves the tokens for registration, respectively, Provided,the consistency of the Whitepaper and other documents are maintained in accordance with Section 10 of these Rules; and Provide further,that the amendments shall be submitted for approval of the Commission and automatically renew the twenty-day period for review under Section 7 hereof.
Section 13. Power of the Commission to Require Amendment of the Whitepaper, or other Documents Submitted with the Initial Assessment Request. The Commission may order amendments to be made to the Whitepaper or other documents submitted by the Issuer with the Initial Assessment Request in order to include information that may be necessary for the reasonable understanding of the readers.
ARTICLE THREE: QUALIFICATIONS AND DISQUALIFICATIONS OF ISSUER AND ADVISORS
CHAPTER ONE: Qualifications and Disqualifications of Issuers
Section 14. Qualifications of Issuer. Any start-up or existing corporation duly registered with the Commission who has an innovative project for a security token ICO for which there is no hindering law may file an application for registration with the Commission.
Section 15. Issuer with Principal Office Outside the Philippines. Registration of security of tokens pursuant to these Rules by a nonresident foreign startup or corporation shall be conditioned upon there being an information sharing arrangement in place between the Commission and the competent regulator in the jurisdiction under the laws of which issuer is organized or where it has its principal place of business, that is applicable to the issuer, and is subject to reciprocity; Provided that, the security tokens are registered in another jurisdiction and the issuer provides sufficient proof of such registration and regulatory framework of the jurisdiction where registered.
In the absence of any of the requirements in the above paragraph, the Issuer must establish a branch office within Philippines jurisdiction in accordance with the Securities Regulation Codeandits Implementing Rules and Regulations
Section 16. Incorporation of Start-ups Conducting Security Token ICOs. Start-ups that are conducting or will conduct an ICO involving security tokens, as found by the Commission during the initial assessment shall register as corporation under the Securities Regulation Code.
Section 17. Disqualification of Issuer and Team Members. A start-up or corporation or any of its team members that had or is committing any of the following acts shall be disqualified from conducting a security token ICO:
- Willfully violating any provision of these Rules, the SRC and its implementing rules and regulations, any rule, regulation or order made hereunder, or any other laws administered by the Commission;
- Willfully made or caused to be made false or misleading statement in any application for registration or report filed with the Commission or a self-regulatory organization, or has willfully omitted to state any material fact that is required to be stated therein;
- Failed to satisfy the qualifications for registration prescribed under Section 13 hereofand any related provisions under the SRC and its rules;
- Been convicted by a competent judicial or administrative body of an offense involving moral turpitude, fraud, embezzlement, counterfeiting, theft, estafa, misappropriation, forgery, bribery, false oath, or perjury, or of a violation of securities, commodities, banking, real estate, or insurance laws;
- Been enjoined or restrained by a competent judicial or administrative body from engaging in securities, commodities, banking, real estate or insurance activities or from willfully violating laws governing other such activities;
- Been subject to an order of competent judicial or administrative body refusing, revoking or suspending any registration, license or other permit under these Rules, the SRC and its Rules, and any other laws administered by the Commission.
- Been subject to an order of a self-regulatory organization suspending or expelling him from membership or participating therein or from an association with a member or participant thereof;
- Been found by a competent judicial or administrative body to have willfully violated any provisions of securities, commodities, banking, real estate or insurance laws, or has willfully aided, abetted, counseled, commanded, induced or procured such violation; or
- Been judicially declared insolvent, or being Chairman of the Board a corporation which have been declared insolvent or undergone bankruptcy within five years from receipt of initial assessment request by the Commission or start date of pre-sale corresponding tokens, whichever is earlier.
For purposes of this subsection, the terms “competent judicial or administrative body” shall include a foreign court of competent jurisdiction and a foreign financial regulator.
CHAPTER TWO: Qualifications and Disqualifications of Advisors
Section 18. Qualifications of Advisors. Any natural persons with vast knowledge on a specific security token ICO project may file an application for registration with the Commission.
Section 19. Disqualification of Advisors. Any person who had or is committing any of the following acts shall be disqualified from being an advisor in a security token ICO project;
- Willfully violating any provision of these Rules. The SRC and its rules, any regulation or order made hereunder, or any other laws administered by the Commission;
- Willfully made or caused to be made false or misleading statement in any application for registration or report filed with the Commission or a self-regulatory organization, or has willfully omitted to stated any material or fact that is required to be stated therein;
- Failed to satisfy the qualifications for registration prescribed under Section 16 hereofand any related provisions under the SERC and its rules;
- Been convicted by a competent judicial or administrative body of an offense involving moral turpitude, fraud, embezzlement, counterfeiting, theft, estafa, misappropriation, forgery, bribery, false oath, or perjury, or of a violation of securities, commodities, banking, real estate, or insurance laws;
- Been subject to an order of a self-regulatory organization, suspending or expelling him from membership or participating therein or from an association with a member or participant thereof;
- Been found by a competent judicial or administrative body to have willfully violated any provisions or securities, commodities, banking, real estate or insurance laws, or has willfully aided, abetted, counseled, commanded, induced or procured such violation.
For purposes of this subsection, the term “competent judicial or administrative body” shall include a foreign court of competent jurisdiction and a foreign financial regulator.
ARTICLE FOUR: REGISTRATION OF SECURITY OF TOKENS
CHAPTER ONE: Registration of ICOs
Section 20. Submission of the Registration of Form. Upon issuance of a ruling of the SEC that the tokens offered in an ICO is a security token in accordance with Section 8 hereof,and in case of follow-on offerings of tokens previously registered in accordance with these Rules, and unless the ICO falls into Exemptions under Article 4 Chapter 2 hereofor is conducted exclusively through crowdfunding intermediary falling under the Rules on Crowdfunding, the issuer must register the ICO in accordance with these Rules not later than 45 days before the start of the pre-sale period.
Section 21. Contents of Registration Statement. The registration statement of a security token ICO must include the following:
a. Cover Page, which includes information on the following:
i. the name ticker of the tokens;
ii. the amount to be registered;
iii. the price per token;
iv. the number of tokens to be sold; and
v. the registration fees.
b. Prospectus, in the form and manner required under these Rules;
c. Exhibit tables listing in chronological order Sub-sections d to s hereof, including the proper exhibit number(s)
d. Operations Manual detailing the system architecture, documentations and corresponding source codes and commands, including detailed flowcharts of the process, and code audit over the same;
e. KYC/AMLA procedures, Disaster Recovery Plan and Risks and Security Protocols, and corresponding audit code reports;
f. Written request for ocular inspection and system walkthrough of the company operating system, including specified date and time for the conduct of inspection;
- A notarized undertaking that the issuer will publish the notice of filing of the registration statement in its website for two consecutive weeks, and stating that:
i. a. registration statement for the sale of the security tokens has been filed with the Commission;
ii. the registration statement and the documents attached thereto are open for inspection at the Commission during the business hours by interested parties; and
iii. copies of the registration statement and the documents attached thereto can be obtained at the Commission at a reasonable charge.
f. Certificate of Incorporation duly issued by the Commission, Articles of Incorporation and By-Laws;
g Comprehensive curriculum vitae of all team members, with clear and recent photographs, and including the information listed under Section 4(c) of these Rules in a minimum;
- Comprehensive curriculum vitae of all advisors with clear recent photographs, containing the following information in the minimum:
i. Names, ages and citizenship of each advisor;
ii. List of positions and offices the advisor held or will hold in the issuer company, and term of office, if applicable;
iii. Brief description of the business experience of each advisor for the last five years;
iv. Identification of other companies where each advisor held or is currently holding any other executive position, directorship position or acts as advisor; and
- Description of (1) any conviction by final judgment of the advisor by any competent judicial or administrative body or having the license or permit of such advisor revoked or suspended by any competent judicial or administrative body; (2) revocation or suspension of membership of the advisor by any self-regulating organization; or (3) any violation of the commodities, securities, banking, real estate or insurance laws.
- Notarized Affidavit executed by authorized signatory of the Issuer attesting that the advisors have all the qualifications and none of the disqualifications under Chapter II Article III of these Rules;
- Whitepaper, including all the information listed under Section 9 of these Rules;
- Legal opinion on (1) the legality of the security tokens being registered, indicating whether they will when sold can be legally issued and transferred, and (2) that all applicable permits and licenses required for the issuer has been secured, including copies of such permits and licenses;
- Copy of the escrow agreement with reputable independent escrow agent, in accordance with Article VII Chapter One hereof, unless the proponents can prove that the purpose of the escrow requirement can be met by other means;
- Copies of the material contracts entered into by the Issuer;
For purposes of these Rules,material contracts shall refer to contracts entered into by the Issuer or not in the ordinary course of business and/or contracts in the ordinary course of business which are entered into with the team members or advisors as the other party, contracts upon which the Issuer’s business is substantially dependent, contracts of acquisition or sale of property, plant and equipment of the issuer amounting to at least 15% of its property, plant and equipment account, material lease agreements, and other contracts deemed material by the issuer;
- Code audit report issued by an independent code auditor, including but not limited to testing of the source code KYC/AMLA framework, technology risks and security protocols;
- Power of attorney in the name of the person signing the registration statement executed by the issuer;
- Annual audited financial statements for the immediately preceding year and dated within 135 days from the date of filing of the Prospectus, in case the Issuer has been doing business for at least one year, which shall include the following documents:
i. Audit Report of the Independent Accountant, which must be dated, signed by the certifying independent accountant, identify the financial statements covered, state the signing accountant’s license, TIN and PTR numbers and registration number with the BOA including its expiration date, complete mailing address of the client and the auditor, and, in case of an auditing firm, signature of the certifying partner with his name printed in the form and an indication that is signing for the firm;
ii. Statement of management responsibility on the financial statements signed under oath;
iii. Balance sheet or statement of financial position;
iv. Statement of changes in equity;
v. Statement of cash follows;
- Notes to the financial statements; and
- Supplementary schedules of (1) reconciliation of retained earnings available for dividend declaration, (2) a map showing the relationship between and among the issuer, its ultimate parent company, middle company, subsidiaries or co-subsidiaries, and associates; (3) in case the security tokens are previously traded in a virtual exchange, a schedule containing the gross and net proceeds of such in the previous prospectus, actual gross and net proceeds was used, and balance of the proceeds as of the end of the reporting period; (4) schedule of financial assets; (5) schedule of accounts receivable from the directors, officers, employees, related parties and principal stockholders; (6) schedule of amounts receivable from related parties which are eliminated during the consolidation of financial statements, if applicable; (7) schedule of long-term debts; (8) schedule of indebtedness to related parties; (9) schedule of security of tokens and capital stocks; and (9) supplementary audit report in the said schedules;
For purposes of this requirement, the issuer must submit the audited annual report in a consolidated basis n case the business has been of existence for more than one year; Provided that, in case the prospectus is filed more than 135 days from the date of the audited financial report, interim financial statements must be submitted in addition to the same;
- Corporate income tax return for the immediately preceding year, in case the Issuer has been doing business for at least one year;
r. Copy of the board resolution approving the ICO and the filing of the Registration Statement has filed under these Rulesand assuming liability for the information contained therein; and
- Duly verified resolution of the Board of Directors of the issuer approving the disclosures in the Registration Statement file under these Rulesand assuming liability for the information contained therein; and,
- Manual on Corporate Governance with corresponding Secretary’s Certificate as to its adoption by the Board, including information on the following:
i. Evaluation system established to measure the level of compliance with the Manual of Corporate Governance;
ii. Measures being undertaken to fully comply with the adopted leading practice on good corporate governance; and,
ii. In case the Issuer has been doing business for at least one year on the date of the registration statement, (1) any deviation from the Manual of Corporate Governance, including the names and positions of the person involved and the sanction(s) imposed; and (2) any plans to improve corporate governance.
u. Payment of the applicable application fees.
Section 22. Contents of the Prospectus. The prospectus as required under Section 21 hereof must contain the following Parts as detailed under Appendix II hereof.
Section 23. Form of the Registration Statement.The Registration Statement and all the required supporting documents as specified under Article Four – Registration of Security Token and additional documents and information as may be required under the above Section shall be submitted in the form required under Rule 72.1.2 of the 2015 SRC Rules.
Section 24. Schedule for Ocular Inspection and System Walkthrough. Upon submission of the registration statement under Section 21,the Commission or its duly authorized representatives shall conduct an ocular inspection of the Philippine office of the Issuer and office of the Issuer and system walkthrough of the operating system for the ICO within reasonable time upon written approval of the ocular inspection request.
Section 25. Deviation or Adjustment on the Planned Use of Proceeds. In the event of any deviation or adjustment on the planned use of proceeds as stated in the prospectus in accordance with Section 22 hereof, the Issuer shall inform the token holders and the Commission in writing at least 30 days before such deviation or adjustment is implemented. Any material or substantial adjustment on the use of proceeds, as indicated above, should be approved by the Issuer’s Board of Directors and disclosed the Commission.
Section 26. Granting of the Application for Registration. Upon finding that the issuer substantially complied with the requirements for registration under these Rules and satisfaction of the Commission that the issuer with at all times comply with the regulatory principles, the Commission may grant registration to the security token ICO through the issuance of the Order of Registration and Permit to Sell.
Section 27. Power of the Commission to Require Amendment to the Prospectus and Other Documents Submitted with the Registration Statement.The Commission may order amendments to be made to the Prospectus or other documents submitted by the Issuer with the Registration Statement in order to include information that may be necessary for the reasonable understanding of the readers.
Section 28. Rejection of the Application for Registration. The Commission by order may reject the project outright if the latter is of opinion that the proposed activity infringes public policy, injures investors or violates these Rulesor any of the laws, rules and regulations implemented by the Commission.
CHAPTER TWO: EXEMPTION FROM REGISTRATION OF SECURITY TOKENS
Section 29. Eligibility for Exemption from Registration of Security of Tokens.An issuer may offer or sell security tokens without the need for registering said securities under these Rules, provided that the same is made:
- At any judicial sale, or sale by an executor, administrator, guardian or receiver or trustee in insolvency or bankruptcy.
- By or for the account of a pledge holder, or mortgagee or any of a pledge line holder selling of offering for sale or delivery in the ordinary course of business and not for the purpose of avoiding the provision of this Rules, to liquidate a bona fide debt, a security pledged in good faith as security for such sale or offer for sale, subscription or delivery not being made in the course of repeated and successive transaction of a like character by such owner or representative.
- An isolated transaction in which any security token is sold, offered for sale, subscription or delivery by the owner therefore, or by his representative for the owner’s account, such sale or offer for sale, subscription or delivery not being made in the course of repeated and successive transaction of a like character by such owner or representative.
- The sale of security tokens by an issuer to fewer than twenty (20) persons in the Philippines during any twelve-month period.
- The sale of security tokens to any number of the following qualified buyers:
ii. Registered investment house;
iii. Insurance company;
iv. Pension fund or retirement plan maintained by the Government of the Philippines or any political subdivision thereof or managed by a bank or other persons authorized by the Bangko Sentral to engage in trust functions;
v. Investment company or;
- Such other person as the Commission may rule by determine as qualified buyers, on the basis of such factors as financial sophistication, net worth, knowledge, and experience in financial and business matters, or amount of assets under management, or
- Transactions exempted by the Commission upon finding that the requirements of registration under this Code is not necessary in public interest or for the protection of the investors, such as by the reason of the small amount involved or the limited character of the initial coin offering.
ARTICLE FIVE: ADVERTISING
CHAPTER ONE: Allowed Advertising
Section 30. Allowed Media for Advertisements.Aside from the whitepaper, the issuer may advertise the security token ICO through any of the following media:
- company websites and webpages;
- magazines and newspapers;
- radio and television;
- outdoor advertising, including billboards, signs at public venues, and transit advertising;
- the internet, including webpages, banner advertisement, video streaming (e.g. YouTube), and social networking and microblogging (e.g. Twitter);
- social media and internet discussion sites;
- mobile phone messages (e.g. SMS, MMS, text messages);
- product brochures and promotional fact sheets;
- direct mail (e.g. by post, facsimile or email);
- telemarketing activities and audio messages for telephone callers on hold;
- presentations to groups of people, seminars and advertorials; and,
- any other reasonable means available to the issuer.
Section 31. Contents of the Advertisements. The advertisements of the security token ICO should contain the following information:
a. a balanced description of the returns, features, benefits and risks;
b. sufficiently prominent statements of warnings, disclaimers, qualifications and fine prints which are, if applicable, read or presented at a speed comprehensible to an average listener;
c. a realistic impression of overall fees and costs;
d. past performance with warning that past performance is not indicative of future performance; and,
e. Forecast based on reasonable assumptions and warning that such forecast is not a guarantee.
Section 32. Form of Advertisements. The advertisements must be in such form that can be clearly understood by targeted audience and presented in an accurate, balanced and helpful manner.
Section 33. Ability to Keep Record. The public should be able to keep a record of the advertisements, including the disclaimers and warnings.
Section 34. Consistency with the Whitepaper and Other Documents. The advertisements should be consistent with the information in the whitepaper, prospectus and other documents submitted to the Commission.
CHAPTER TWO: Prohibited Advertising
Section 35. Forms of Prohibited Advertising. The following advertising activities are prohibited:
- deceptive advertising;
- advertisements with false or misleading statements;
- advertisements containing comparison with other products, except—
i. comparison with products that have sufficiently similar features or when the differences are made clear in the advertisement;
ii. comparison about returns if the information used is current, complete and accurate; or
iii. Comparisons using ratings which should are properly explained in the advertisement itself or with details on where the investor can obtain further information;
- advertisements with photographs or images that contradict, detract form or reduce the prominence of any warnings, disclaimers or qualifications; and
- advertisements made in violation of Chapter One – Allowed advertising hereof.
ARTICLE SIX: Reportorial Requirements
CHAPTER ONE: Continuing Compliance to the Law and Rules
Section 36. Compliance with the Law and Rules. A security token issuer must at all times comply with the Rules, the provisions of the SRC, implementing rules and regulations and other laws implemented by the Commission.
Section 37. Possible Non-compliance with the Law and Rules.A security token issuer must promptly inform the Commission of any event which the said issuer knows or is reasonably expected to know that may affect its compliance with these Rules,the provisions of the SRC,implementing rules and regulations and other laws implemented by the Commission.
CHAPTER TWO: Ongoing Reportorial Requirements
Section 38. Annual Reports. The security token issuer must submit the following reports to the Commission every fiscal year starting from the year the order of registration and permit to sell is issued by the Commission, and for each fiscal year thereafter, within one hundred five (105) days after the end of the fiscal year and using the form:
- Audited Financial Statements; and
- Code Audit Report.
Section 39. Quarterly Report. The security token issuer must submit the on a quarterly basis the unaudited interim financial statements to the Commission within forty-five (45) days after the end of each of the first three quarters of each fiscal year.
The first quarterly report of the issuer shall be filed either within forty-five (45) days after the issuance of the order of registration and permit to sell by the Commission or on or before the date on which such required would have been required to be filed if the issuer had been required previously to file the quarterly report, whatever is later, and in the form.
Section 40. Other Interim Reports. The security token issuer must submit the semi-annual report to the Commission for every six-month period ending June 30 and December 31 of every fiscal year starting from the year the order of registration and permit to sell is issued by the Commission, and for each fiscal year thereafter, within forty five (45) days after June 30 and December 31, containing the following information:
- Status update on the implementation of the business plan and the ICO, including relevant dates and brief descriptions and justifications from the business plan;
b. problems encountered, and the procedures applied or will be applied to manage and resolve such problems;
c. risk control mechanism and efficiency; and,
d. table of safeguards and conditions with status of compliance for each.
Section 41. Submission of the Progress Report to the Commission.The Escrow agent of the Issuer should submit to the Commission the original copy of the Progress Reports of the Issuer on the project funded by the initial coin offering of security tokens.
Section 42. Other Reports that may be Required by the Commission. Other reports as may be from time to time required by the SEC.
ARTICLE SEVEN: Miscellaneous Provisions
CHAPTER ONE: Escrow Agent
Section 43. Escrow Agent.Unless the issuer can prove to the Commission that other mechanisms will be employed to satisfy the purposes of an independent escrow agent, the issuer of the security token sale and the private key of the issuer wallet.
Section 44. Release of proceeds to the Issuer.The issuer and the escrow agent shall enter into an escrow agreement with provisions, among others, on the schedule of release of proceeds, the progress reports that will be required before each release of proceeds, and provisions (1) that the proceeds shall be withdrawn only upon the presentation of the Issuer’s work progress report, and (2) that the Escrow Agent will return the said proceeds to the investors in case the soft cap of the project is not reached or in a pro rata basis in case the project is abandoned by the issuer before the completion.
Copies of the escrow agreement should be submitted to the Commission in accordance with Section 20of these Rules.
Section 45. Dissolution of the Issuer-Escrow Relationship. The contract shall be dissolved upon full usage of the proceeds, unless the initial coin offerings failed to meet the soft cap or the project has been abandoned by the issuer with notification to the escrow agent and the Commission.
Section 46. Return of Funds if the Soft Cap is not Reached.If an ICO does not reach the soft cap as set in the Registration Statement, the independent escrow agent must within five business days therefrom:
- Give or send each security token investor a notification of the same and refund the amount that the investor paid for the tokens; and
b. Report the refund made, the cancellation of the ICO and the failure to reach the soft cap to the Commission.
A copy of the notice of abandonment executed by the issuer must be forwarded to the Commission together with the abovementioned Report.
CHAPTER TWO: Transitory Provisions
Section 48. Application on existing ICOs. This regulation applies to persons and/or corporations who, immediately before the day on which these Rules comes into operation, conducted an ICO.
Section 49. Registration of Existing ICOs. A person or corporation falling under the immediately preceding Section who is intends to continue its ICO operations or who completed ICOs prior to operation of these Rulesmust file an initial assessment request with the Commission within three months form the day on which these Rulescome into operations.
Section 50. Status of ICO Conducted Prior to Effectivity. An Issuer who files an initial assessment request in accordance with this Chaptermay continue to its ICO process until the application has been determined and, in so doing, is not regarded as carrying on the ICO activity in contravention to these Rules.
Section 51. Suppletory Application of the 2015 SRC IRR.In the absence of applicable provisions in these Rules, the 2015 Implementing Rules and Regulations of the Security Regulation Code shall apply in a suppletory manner, unless otherwise stated herein.
CHAPTYER THREE: Penal Clause
Section 52. Sanctions. If the Commission finds that there is a violation of any provisions of this Rule or any applicable rules under the SRC, or that any person, in a registration statement or its supporting papers and the prospectus, as well as in the periodic reports required to be filed with the Commission h as made any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or refuses to permit any lawful examination into its corporate affairs, the Commission shall, in its discretion impose additional sanctions in addition to the existing sanctions and/or penalty fees approved and published by the Commission through its official publications such as the SRC Section 54, memorandum circulars, resolutions website and other issuances.
CHAPTER THREE: Repealing Clause
Section 53. Repealing Clause. All rules and regulations, circulars, orders, memoranda, or any part thereof and the rules and regulations previously promulgated by the Commission and/or by persons required to be registered under the Code or any part thereof, in conflict with or contrary to these Rules.
CHAPTER FOUR: Separability Clause
Section 54. Separability Clause. If any portion or provisions of these Rulesis declared unconstitutional or invalid, the other portions or provisions hereof, which are not affected shall thereby continue in full force and effect.
CHAPTER FIVE: Effectivity Clause
Section 55. Effectivity Clause. These rules shall take effect fifteen (15) days after the date of the last publication in two (2) newspapers of general circulation.
_____ December 2018, Pasay City
EMILIO B. AQUINO