Identity Matters for a U.S. STO

Secondary trading with U.S. retail traders requires STO’s to be compliant from day-one.

While it may sound obvious, an investors identity really matters in the context of a U.S. Security Token Offering “STO”.

Marketing a security offering pursuant to an SEC registration or exemption mandates that investors are verified using Know Your Customer “KYC” processes and their source of funds is checked for Anti-Money Laundering “AML” purposes.

Such regulatory compliance is now a fact of life for U.S. security token issuers, their financial intermediaries, their custodian service providers and their secondary trading exchanges.

However, the validation of investors personal details by a regulated intermediary only needs to be done once to participate at the time of the offering but must be done for each subsequent offering. Valid identities should be digitally signed on the blockchain in order for the signature to be securely used by other downstream intermediaries involved in a U.S. STO.

Identity documents must be safeguarded pursuant to SEC Regulation S-P and stored offline by the issuer-appointed licensed broker-dealer and/or transfer agent, and only the immutable digital signature published on the blockchain for other parties to rely upon.

Issuers looking for a liquid secondary market for their tokens amongst U.S retail investors should compliantly market their token offering with a licensed broker-dealer, then secondly compliantly custody tokens with a registered transfer agent before, thirdly, allowing for token transfers to a U.S. regulated secondary trading market.

In summary, managing token holder identities is a requirement throughout the entire token lifecycle if an STO issuer is ever going to list its tokens on a U.S. retail securities exchange.

Check out for a high tech., high touch regulatory-aligned KYC/AML compliance platform and for a registered transfer agent custody solution.

Horizon licenses and operates global securities exchanges.

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