I have already written a bunch about ICOs here on Continuations, including earlier this week about the Chinese ban. Regulators are approaching this, not surprisingly, by focusing on their own country. While that’s understandable, it undermines one of the most promising aspects of using tokens as equity: a global capital market that’s readily accessible to everyone. 

If you are a wealthy investor or if you are a large corporation you already have access to a global capital market today. For example, a few years back I called my broker at Morgan Stanley and asked them to buy some Japanese robotics stocks for me that are only listed in Japan. Morgan Stanley took care of everything for me including figuring out how to buy Yen, place the trade, custody the securities and make the holdings show up in my account.  Or take Apple, a company that already sits on a huge cash pile. Nonetheless, the company has been issuing Euro, Yen and Canadian dollar denominated bonds for the last few years tapping into global capital markets.

If you are a smaller company though or an individual investor with a smaller account you tend to be restricted to your local capital market. In many countries those local markets are relatively illiquid and/or suffer from other problems. In the US, for example, we have made it difficult for companies to go public through both overregulation and through a broken IPO process. Combined with ongoing M&A activity, here in the US the number of publicly listed companies has be declining substantially.

Now the end goal probably shouldn’t be a global free for all capital market with scams everywhere you look and people losing their life savings overnight. But conversely I don’t think the right answer is trying to stuff everything back into country-by-country securities regulation, much of which dates back to pre-Internet days and doesn’t at all account for how much more data can be shared today by a company on an ongoing basis. For instance, the bulk of US securities regulation dates back to the 1930s and the aftermath of the stock market crash. 

So directionally what could be done? As a starting point companies themselves could embrace high standards of transparency and could limit how much exposure individual investors can buy. The latter could either a fixed number or be based on suitability tests (eg if you can prove you hold a lot of say BTC or ETH you can invest more). As a next step there could be a global self regulatory body. People sometimes rightly scoff at the notion of selfregulation but there are great examples of where this has worked well and better than government standards, such as Demeter (for organic food). There doesn’t need to be a single one of these but there can be multiple which allows for some degree of experimentation.

One important question that comes up is how rights would be enforced in such a world. As a US shareholder in a US corporation, I have certain statutory rights. In practice though, the primary mechanism in the capital market is not voice but exit. If I don’t like what a company is doing my general recourse is to sell their shares. That mechanism also exists in the token world. The right approach to voice would be through the selfregulatory bodies I mentioned above, which could then be supported by traditional government regulators.

All said then, I believe that there is an opportunity here for a new system to emerge and it would be a shame if we shoved it back into the existing boxes before we have given that a thorough shot.

I have already written a bunch about ICOs here on Continuations, including earlier this week about the Chinese ban. Regulators are approaching this, not surprisingly, by focusing on their own country. While that’s understandable, it undermines one of the most promising aspects of using tokens as equity: a global capital market that’s readily accessible to everyone. 

If you are a wealthy investor or if you are a large corporation you already have access to a global capital market today. For example, a few years back I called my broker at Morgan Stanley and asked them to buy some Japanese robotics stocks for me that are only listed in Japan. Morgan Stanley took care of everything for me including figuring out how to buy Yen, place the trade, custody the securities and make the holdings show up in my account.  Or take Apple, a company that already sits on a huge cash pile. Nonetheless, the company has been issuing Euro, Yen and Canadian dollar denominated bonds for the last few years tapping into global capital markets.

If you are a smaller company though or an individual investor with a smaller account you tend to be restricted to your local capital market. In many countries those local markets are relatively illiquid and/or suffer from other problems. In the US, for example, we have made it difficult for companies to go public through both overregulation and through a broken IPO process. Combined with ongoing M&A activity, here in the US the number of publicly listed companies has be declining substantially.

Now the end goal probably shouldn’t be a global free for all capital market with scams everywhere you look and people losing their life savings overnight. But conversely I don’t think the right answer is trying to stuff everything back into country-by-country securities regulation, much of which dates back to pre-Internet days and doesn’t at all account for how much more data can be shared today by a company on an ongoing basis. For instance, the bulk of US securities regulation dates back to the 1930s and the aftermath of the stock market crash. 

So directionally what could be done? As a starting point companies themselves could embrace high standards of transparency and could limit how much exposure individual investors can buy. The latter could either a fixed number or be based on suitability tests (eg if you can prove you hold a lot of say BTC or ETH you can invest more). As a next step there could be a global self regulatory body. People sometimes rightly scoff at the notion of selfregulation but there are great examples of where this has worked well and better than government standards, such as Demeter (for organic food). There doesn’t need to be a single one of these but there can be multiple which allows for some degree of experimentation.

One important question that comes up is how rights would be enforced in such a world. As a US shareholder in a US corporation, I have certain statutory rights. In practice though, the primary mechanism in the capital market is not voice but exit. If I don’t like what a company is doing my general recourse is to sell their shares. That mechanism also exists in the token world. The right approach to voice would be through the selfregulatory bodies I mentioned above, which could then be supported by traditional government regulators.

All said then, I believe that there is an opportunity here for a new system to emerge and it would be a shame if we shoved it back into the existing boxes before we have given that a thorough shot.