New York-based blockchain company Prometheum said it formed a partnership with Manorhaven Capital, a registered broker-dealer, as part of its effort to become the first legal initial-coin-offering trading platform.
Additionally, to fast-track this plan, the company said it had filed with the Securities and Exchange Commission for registration as a so-called Alternative Trading System.
Entering into a strategic partnership with a registered broker-dealer and forming our own ATS are core elements of creating a legal ICO trading platform, said Aaron Kaplan, co-founder and COO of Prometheum in a statement. Were excited to work with the Manorhaven Capital team to help clients conduct their own legal ICOs.
An ATS is a marketplace that matches buyers and sellers. Even though they arent traditional exchanges, like the New York Stock Exchange, they are required to register with the SEC and comply with federal securities laws, according to the SEC website.
The trading of ICOs remains a gray area for both regulators and investors and the scrutiny of this unregulated crowdfunding tool has increased in recent times. On May 21, the North American Securities Administrators Association, in collaboration with U.S. and Canadian state officials, sent close to 70 cease-and-desist letters to entities they believes were operating fraudulent crypto or ICO scams.
Hoping to legitimize this alternative method of capital raising, Prometheum is aiming to create the first platform that passes muster with regulators allowing companies to issue tokens through a regulatory-compliant Reg A+.
A Reg A+ is akin to a mini initial public offering, or IPO, that allows companies to raise fundsup to $50 millionfrom all investors. Before the Reg A+ legislation came into law in 2012, private companies could only raise capital from investors considered accredited, based on income and net-worth criteria.
The company is in the process of filing for its own Reg A+ token, Ember, which will be the base currency when trading tokens on its platform. Additionally, Ember will be used when an ICO is in the issuance phase on its platform. We are essentially the guinea pig for our own platform, said Kaplan of its own token.
Read: Nearly half of all 2017 ICOs have failed
The company will facilitate both Reg A+ tokens, which are compliant tokens for retail investors and Reg D or SAFTs (Simple Agreement for Future Tokens), which are limited to accredited investors. Through smart contract technology, the platform will have automated compliance, meaning retail investors will be unable to trade tokens that are limited to accredited investors.
Read: What is a SAFT? A crypto fundraising method drawing regulatory scrutiny
Kaplan said the company would allow tokens that werent issued on its platform to trade on its exchange, assuming they were listed and issued compliantly.
A fully regulated ICO trading platform would alleviate any risks that may arise should regulators at the SEC or CFTC (Commodity Futures Trading Commission) deem ICOs to be securities. Kaplan said that if regulators do categorize ICOs as securities, then all exchanges that list these tokens have been operating as unregistered broker-dealers.
Read: Bitcoin and Ether rally after SEC official says they arent securities
Kaplan said that his company will be responsible for due diligence and background checks for every company wishing to launch and trade on the Prometheum platform, adding that the company hopes to list its first tokens in the first-quarter of 2019.
Read: Heres the blueprint for how ICOs are getting off the ground without SEC vetting