Prescriptive Jurisdiction in Securities Regulations: Transformation from the ICO (Initial Coin Offering) to the STO (Security Token Offering) and the IEO (Initial Exchange Offering)

This article examines how the ICO (Initial Coin Offering) has been impacted by the States’ assertion of prescriptive jurisdiction in securities regulations and analyze the STO (Security Token Offering) and the IEO (Initial Exchange Offering) as alternatives to the ICO. The analysis begins with examining the principles underpinning prescriptive jurisdiction such as, in particular, the territoriality principle. It then proceeds to examine the three tests – the conduct test, the effects test and the transactional test - which support the operation of the territoriality principle. Attention is then turned to the impact of the Internet which has facilitated cross-border fundraising. An analysis is given to the way the effects test is interpreted where the Internet is used for the solicitation of investment. More recently, the blockchain technology has given birth to the ICO. It has enabled borderless fundraising, a feature which contributed to the initial popularity of the ICO. While the ICO is technologically borderless, it is legally not so. To illustrate the point, the article examines the way the aforementioned three tests are to be applied in the ICO. With its borderless feature undermined by the fragmented regulatory regimes, the ICO has lately lost popularity. The article concludes by examining the STO and the IEO to see how they differ from the ICO and fit better with the fragmented regulatory regimes.