Perspectives on Digital Securities — Interviews with South East Asia Legal Experts

3 Jun 2020 — Amidst the current pandemic where it has caused an unprecedented global economic downturn — stock markets crashing, oil prices plunging and IPOs dwindling, I managed to catch up with the FinTech and Capital Markets legal experts from South East Asia (S.E.A.) to find out whether digital securities, the new form of private placement may be the potential solution to address the current financial doldrums.

Since its inception, a lot of promises from STO to be the next frontier of capital markets have not been realised. Although with all the advantageous, the numbers of STOs remained quite small. Some experts put the blame on the central banks, for being too slow and rigid in their regulatory process while others believe that liquidity is the main concern. Find out what’s their expectations for the future of digital securities in S.E.A and beyond, and whether there will there be an explosion of STO adoption in the near future or merely an anticlimactic implosion otherwise?

(Answers according to alphabetical order of country; Details on lawyers and law firms are listed at the end of interviews)

Do you think that STO is going to take off in your country and the APAC region in 2020, especially with the current COVID 19 pandemic going on?

Serina Abdul Samad: In Malaysia, an issuer must only carry out an offering of digital tokens through an Initial Exchange Offering (IEO) platform and not through any other means and the trading of a digital asset must be done on electronic platform called Digital Asset Exchanges (DAX), operated by a DAX operator duly registered under the Guidelines on Recognized Market. On 4th June 2019 the Securities Commission Malaysia (SC) had registered three (3) Recognized Market Operators (RMOs) to establish and operate DAX in Malaysia. To date, there has been no news report on any one of the three (3) RMOs/IEO operators processing application for offering of digital tokens by potential issuers.

The current COVID 19 pandemic would contribute to the lack of news on potential STOs from the IEO operators or the issuers themselves. However, this does not mean that no STO is expected to take off in 2020. As for the APAC region, Ernst & Young (EY) states that given the COVID 19 outbreak and its negative impact on global economic activities, IPO markets are not expected to quickly rebound in Q2 2020. However, while Q3 is typically a slower time of the year, there may be increased IPO activity as the market attempts a reset and the global pipeline looks for the next IPO window. Likely, any STO activity will mirror the above sentiment as well.

Paul Rodulfo B. Imperial: I believe STOs are likely to take off in the APAC region this year. The COVID-19 pandemic has resulted in the loss of jobs and stable income for many. This has made people realize that it is essential to have a source of income other than their daily wages. At the same time, given the uncertainties in the global economy, people are more careful with their savings and investments. STOs are more affordable and practical for individuals with limited funds for investment. STOs involve fewer intermediaries, as potential investors can purchase tokens on their own from a digital exchange without having to go through a brokerage or investment bank. The costs for post-offering administration in STOs are also much lower, as regulatory restrictions can be coded into the tokens. Simply, an investor’s money theoretically goes a longer way in an STO.

As to the Philippines, this will depend on whether the Draft DAE Rules will be approved anytime soon. If the Draft DAE Rules are promulgated before the year ends, I believe it will take off as well, provided that there is a functional and efficient digital asset exchange. STOs are appealing to the Philippines’ growing population of young professionals who prefer to make smaller investments that cut out fees for middlemen but are wary of the integrity of ICOs. If a digital exchange that allows for real-time, 24–7 settlement in the Philippines is set up, STOs will definitely take off, as this allows investors to liquidate immediately when necessary.

Grace Chong: Many investors are now facing liquidity challenges in this period, and there has been a flight to cash during this period with greater turbulence in global markets. Calastone reported that HK funds saw a net outflow of HK$13.5 billion in March 2020, as Covid-19 has caused a crisis of confidence. As such there may be challenges in the next year given ongoing economic challenges.

Brandon Tee: Whether STOs will take off will depend on the infrastructural support for such offerings. Currently, there are no exchanges in Singapore that are licensed to support retail offerings of security tokens. One of the reasons for tokenisation is to improve liquidity through fractionalisation of traditional assets and facilitate cost-efficient microtransactions, and confining security token offerings accredited/institutional investor will inhibit this purpose and therefore adoption. Until the regulatory infrastructure reaches a certain level of maturity, large scale adoption will probably not happen.

Archaree Suppakrucha & Wichittra Pholphrueksa: Securities Token Offering (STO) has caught Thai investors and authorities’ attention for a while. Thai authorities, especially, the Securities and Exchange Commission (SEC) is positive about adopting STO. Also, SEC is planning to amend securities and exchange laws to recognize STO. Therefore, it is possible that STO will be treated as securities in the future. However, 2020 might not be a start for STO since the pandemic, COVID 19, causes economic suppression in Thailand and this would definitely have some impacts on investment sector.

Why do you think the growth of STO for the past two years doesn’t seem to match up to the hype around STOs?

Serina Abdul Samad: In the past two (2) years, the regulation for STO was still being developed by our local authority. Apart from the three (3) RMOs mentioned above, SC on 4th July 2019 instructed that no other online platforms are permitted to establish and operate a DAX in Malaysia currently. As such, all other DAX operators are required to immediately cease all activities related to the trading of digital assets and return all monies and assets collected from investors.

The bad reputation of some initial coin offerings (ICO) for various problems related to scams and fraud etc. may have affected the potential STO too. Besides, financial advisors have cautioned their clients from investing in early stages of STO as well as digital assets are still very new in the country, so they will most likely be considered as riskier assets.

Paul Rodulfo B. Imperial: STOs have been hailed as the practical, safer cross between ICOs and IPOs — they’re asset-backed and, hence, less speculative, but, in theory, more efficient than IPOs, as processes and intermediaries are reduced significantly. However, the growth of STOs has been slow because the integrity, liquidity and efficiency of many token exchanges and the platforms used to access them remain unproven. The COVID-19 pandemic is a good test — if these exchanges are able to prove that, despite the economic upheavals, they are liquid and able to facilitate real-time transactions, STOs will grow exponentially.

Grace Chong: There are concerns about quality of assets and secondary market liquidity, as it is still a burgeoning market.

Brandon Tee: As discussed in 1 above, the growth is muted in part due to the lack of a regulatory framework to support retail offerings. The largest offering of security tokens on iStox to date is $10 million which is a miniscule fraction of the equity capital markets. Large offerings will need to be able to tap into the retail market in order to be viable, both from a fundraising perspective as well as a post-offering liquidity perspective.

Archaree Suppakrucha & Wichittra Pholphrueksa: Yes. One possible reason is that STOs are well-known to a limited group of people, especially those who are specifically interested in the field of Fintech, Blockchain technology or those who have made investment in ICOs or Bitcoins before, and the STO legislation has not yet been issued and enforced.

Do you think that capital markets lawyers should play a more active role in pushing digital securities adoption to the issuers? Who do you think is the weakest and strongest link in the determination of its success?

Serina Abdul Samad: Capital markets lawyers can play more active role in pushing for digital securities adoption by the issuers. They are familiar with the listing criteria for companies in the various markets of the Malaysian Stock Exchange and can bring the attention of their existing corporate clients who are seeking to raise funds but will not make the cut for the stock exchange, to consider raising funds through STO.

The strongest links in determining the success of the digital securities offering would be the DAX operators and also the issuer itself. The role of the DAX operators in selecting and approving the best or most viable STO that can be presented by an issuer would be very important. This reduces investment risk among the mass market and raises the industry’s standards, apart from safeguarding investors from scams, which have happened in ICO projects.

A well-managed issuer also will ensure the success of digital securities offering as they would be able to present a strong business model, a working product and its potential for undergoing development, the ability to prepare the necessary documentation, the token growth justification (in economics sense), strong existing community or client-base, reputable management team and advisors, strong social media and public relations for marketing. Lack of these vital components may result in underperformance of the STO project and the subsequent reputational damages for the relevant DAX operator. Therefore, a DAX operator shall have an interest in quality companies offering STOs on their platform. Hence, well-managed issuer, reputable, credible and responsible DAX operator and regulated STO platforms are important in determining the success of the digital securities offering.

While the weakest link in determining the success of the digital securities offering would be the issuers as well. The tokens issued to the investors represent a share of an underlying asset. These can be shares of a company or any asset that is expected to turn into a profit, including a share in the ownership of a property, fine art, investment funds, etc., therefore the issuers must be able to convince the investors that the expected profit, dividend and/or any return are attractive enough for the investors to subscribe for the tokens. If there is lack of any vital components on the part of the issuer which has been discussed in the paragraph above, it will reduce the attractiveness of the digital securities offering or marketing power of the issuer or DAX operator to persuade investors to subscribe for the issuer’s digital securities offering.

Paul Rodulfo B. Imperial: Yes, capital market lawyers should play a more active role in pushing for digital securities adoption. While the lower barrier for entry and the reduction of post-offering administration means lesser involvement for lawyers in setting up the offering and in subsequent regulatory compliance, STOs give clients access to quick capital that will allow them to embark on more projects and grow their business — as a client’s business grows, the lawyer/s servicing the business become more and more indispensable. As it is, companies are relying more and more on their in-house counsel for standard regulatory compliance because stock exchanges and regulators have developed streamlined processes for compliance that require the involvement and specialized expertise of external counsel less and less. Law firms will have to adapt to this development and assist the client in capital-raising, which STOs supplement, for the client to afford projects and ventures that external counsel can facilitate.

Grace Chong: I think that issuers are also watching the market to see the pickup and whether STOs will have greater adoption from the market, rather than necessarily legal solutions alone.

Brandon Tee: There has to be actual tangible benefit to an issuer in adopting one type of offering over another. Some of the benefits of a token offering are discussed above in 1, and if these remain theoretical until proper regulatory infrastructure is put in place, it will be difficult for capital markets lawyers, or any other professional for that matter, to push an issuer to consider a security token offering over a traditional securities offering.

Archaree Suppakrucha & Wichittra Pholphrueksa: Yes. Capital markets lawyers as ones who link private sectors, investors, and government authorities should play a more active role, e.g. by communicating the STO need, concerns, and feedback of their clients to the competent government authorities. By this means, practical considerations would also be conveyed to the for efficient STO adoption. SEC is the government authority who will play the most important part in determining the success of STO in Thailand. Since STO is possibly be treated as securities, SEC would be the main government agency in charge of the amendment of securities and exchange laws to support STO.

What is the current state of STOs and have you seen more interests from your clients / issuers towards exploring STO in raising funds during the recent months?

Serina Abdul Samad: As at today, there is no publicly available information on any STO having been launched by the said three (3) DAX operators in Malaysia. We also do not have any corporate clients enquiring or exploring STO to raise funds in recent months.

Paul Rodulfo B. Imperial: Interest in STOs in the Philippines was generated largely by the release of the Draft DAE Rules. The Bangko Sentral ng Pilipinas has been very wary of ICOs, so the SECs release of the Draft DAE Rules is a show of confidence in the trading of digital assets and implies that they are a much safer investment vehicle. The interest in STOs, however, will largely remain limited until the Draft DAE Rules are finalized and a working digital asset exchange with an efficient platform is in place.

Grace Chong: We have had interest in STOs in terms of long run adoption from ecosystem players in the industry who are exploring setting up custodian and other solutions in the market.

Brandon Tee: Personally, I’ve seen quite a fair bit of interest in tokenising private equity assets. But most of these have underlying assets with valuations in excess of $10 million by a factor of more than 10, the current state of the market and the regulatory infrastructure may not be conducive for such tokenised offerings yet.

Archaree Suppakrucha & Wichittra Pholphrueksa: At this moment, STO is attractive to a limited group of investors and companies, especially those interested in ICOs which were earlier recognized by digital asset laws. During these few months, no interests from our clients have come to our attraction. This may be due to the economic suppression caused by COVID-19 which delays investors’ interests in investment.

Are we consciously exaggerating the potential liquidity for STOs today, from peer-to-peer private markets, broker syndicates, and security token exchanges that supposedly have a supply of interested buyers of security token based assets?

Serina Abdul Samad: So far there is no publicly available information on any STO having been launched in Malaysia by the DAX operators, it is still too early to say whether there has been an exaggeration of the potential liquidity for STO in Malaysian market. In financial markets, liquidity is not something that just happens, it is something that market players and regulators have to build for. As trust is the most significant element in investing, issuers and exchange operators need to address the security concerns of potential investors and regulators have to put in place regulations of such market. In essence, the challenge is to create a professional investment ecosystem, having regulated exchanges and operating in jurisdictions that provide legal certainty.

The introduction of the Guidelines on Digital Assets and registration of the three (3) DAX operators by SC would address the above concern as angel investors and sophisticated investors that will bring the bulk of the liquidity to the STO market are hesitant to participate in unregulated STO. Furthermore, to achieve the desired liquidity, the issuers and exchange operators must raise awareness of fund raising and help to create the pool of interested and potential investors for the STO. It will require an industry effort as well as for the issuers themselves to promote their products and to create real demand for their assets, which in turn will create liquidity for their security tokens.

Paul Rodulfo B. Imperial: I believe it’s more optimism than exaggeration, but I have to emphasize that a digital asset exchange’s liquidity is crucial for STOs to be seen as stable vehicles of investment in a country. One of the major differences between an IPO and an STO is that the latter allows for quicker settlement — in order to do this, the exchange must be very liquid. It’s too early to tell whether there are enough interested buyers to give token exchanges the level of liquidity necessary to allow for quick, no-fuss settlements.

Grace Chong: No particular comment for this one.

Brandon Tee: It will be interesting to see how many of these claims will hold up once we start dealing with larger and more meaningful offerings. But I think that liquidity will be enhanced given proper regulatory infrastructure as well as investor education — it’s difficult enough to explain to a layman how to subscribe for shares in an IPO via the ATM, much less what a virtual wallet is and how to set one up.

Archaree Suppakrucha & Wichittra Pholphrueksa: We view that it is not all exaggerated. Due to digitalization, there is much possibility for STO liquidity. Also, STOs, backed-up by Blockchain technology, would help reduce time and cost for investment transactions. This is rather a matter of time for investors to become familiar with digital securities.

To what extent do you think that Blockchain will disrupt the legal industry as legal documents can be changed, but smart contracts are immutable?

Serina Abdul Samad: Smart contracts will only work for transaction of subject matter of small value and not regulated by laws. The novelty of the technology still brings a lot of questions to the table such as how will the government decide to regulate such contracts? How will they be taxed? What happens if the contract cannot gain access to the subject matter of the agreement or transaction, or anything unexpected happen to it? It remains to be seen whether the usage of cryptocurrencies, blockchain or smart contract will gain traction among the local population and if so, how prevalent. Therefore it is still too early to predict whether blockchain or smart contract will disrupt the legal industry.

Paul Rodulfo B. Imperial: The immutability and irreversibility of smart contracts, as opposed to regular legal documents, leaves less room for disputes, as transactions become fully automated and triggered by codes, rather than the judgment of regulators or other individuals. Smart contracts will result in more cross-border transactions for capital markets lawyers. The immutability of smart contracts is what allows for STOs to be cross-border instead of limited to a country the way regular stock exchanges are. There is the assurance that the coding, already approved by the regulators prior to the offering, will automatically trigger particular transactions without having to be bogged down by human error or judgment. This makes token exchanges less uncertain, especially in countries with volatile political environments.

Grace Chong: The immutability of smart contracts is highly beneficial for audit and tracking purposes, and can add substantial value and add trust to the system.

Brandon Tee: Not in any significant way. Not everything in a contract can be broken down into a series of self-executing protocols.

Archaree Suppakrucha & Wichittra Pholphrueksa: Blockchain technology’s security, transparency, and traceability has disrupted the legal industry. Blockchain technology has changed the way share ownerships are recorded, the way that contracts are formed and performed and etc. Though smart contracts are immutable, we believe that there would be Blockchain or other technology development and advancement to circumvent the limitation in the future.

Any other last words to encourage digital securities adoption among the players in the ecosystem?

Serina Abdul Samad: Digital securities offering can provide another alternative fundraising avenue for early stage entrepreneurs. It allows a company with an innovative business proposal to raise capital before it is able to do so through venture capitalists, without selling their equity or taking out a debt while developing their innovative ideas. Therefore, companies that cannot afford or want to avoid the abovementioned can consider STO offerings to raise funds in the future.

Paul Rodulfo B. Imperial: Digital securities are the way forward. It’s inevitable that digital securities will take over traditional securities — it may take longer in developing countries like the Philippines, but it will happen. If we don’t want to get left behind, we have to invest in legal and technical infrastructure for digital securities.

Grace Chong: Digitalisation is a key theme in the industry and financial institutions are looking to build capabilities so as to expand private capital markets access for investors. Participants should ensure that their offerings need to be structured in a way that is compliant with local laws and regulations.

Brandon Tee: I think everything will have to start somewhere, and we’ve seen regulated market operators like iStox and 1Exchange taking the first step. It will take some time but I believe we will see a retail market for security tokens in the future.

Archaree Suppakrucha & Wichittra Pholphrueksa: We view that the adoption of STO will no longer be far from investors’ expectations since the benefits of the technology behind STO and digitalization have come to the attention of government sector, especially the SEC who plays the most important part as a regulator for capital market. We foresee the expectations of STO being legally recognized will become reality in the near future.

About the Lawyers and Law Firms (Countries in Alphabetical Order)

Serina Abdul Samad — Head of Capital & Debt Market practice group

Azmi & Associates

Azmi & Associates, a full-service law firm with 76 lawyers and 21 trainee lawyers, provides legal services in various matters involving corporate & commercial, mergers & acquisitions, Islamic banking, financial services & banking, capital & debt markets, venture capital/private equity, litigation & alternative dispute resolution, inbound and outbound investments, intellectual property, information technology, technology, communication & media, data protection, pharmaceutical/life sciences, energy/renewable energy, oil & gas, mining & natural resources, real estate & property related ventures, projects & concessions, construction, fundraising & debt restructuring, competition law, project finance, insurance, international trade, admiralty & shipping, transportation & logistics, employment & labour, industrial relations, wealth management/succession planning, trust/endowment, compliance, China-related work, aviation, anti-trust and others.

Paul Rodulfo B. Imperial — Partner

Villaraza & Angangco

Villaraza & Angangco, was founded in 1980 under the leadership of young lawyers including now retired Supreme Court Justice Antonio T. Carpio and F. Arthur L. Villaraza. Our partners and associates contribute their capabilities and work as one Firm in providing our clients with a full range of legal services drawn from our collective experience and expertise in areas such as Corporate & Commercial Law, Litigation & Dispute Resolution, Intellectual Property Law, Labor & Immigration, Taxation, Power & Energy, Mining & Natural Resources, Mergers & Acquisition, Foreign Investments, Property & Development, Infrastructure, Transportation and Public Utilities, Capital Markets, Securities Regulation and Finance, and Immigration. With lawyers recognized by their peers to be at the top of the legal profession and with highly trained non-legal staff, the Firm offers professional service of the highest caliber. Through the years, we have practiced law with an intimate knowledge of the issues that corporate decision makers face and deliberately employed tailored strategies that help our clients see opportunities in adversities. With decades of experience in serving a full spectrum of our client’s interests, our lawyers are equipped to skillfully handle the most intricate problems and provide comprehensive solutions that deliver results.

Grace Chong — Of Counsel

Simmons & Simmons JWS

Simmons & Simmons’ market leading FinTech team combines specialist experience across practices and offices with insights resulting from its focus on the TMT, Financial Institutions, and Asset Management and Investment Funds sectors. The FinTech team works for some of the largest, most well-respected payments companies and crypto wallets / exchanges in the world, and have assisted on the setup of their complex business models and products.

Brandon Tee — Head of Corporate Law Practice

WMH Law Corporation

WMH Law Corporation is an award-winning medium sized boutique law firm founded by a group of enterprising next-generation lawyers who were previously practising at a Big 4 law firm in Singapore with the goal of delivering big firm quality legal work in a cost-effective manner. WMH Law Corporation’s corporate law practice advises on a range of specialised and general corporate law matters, with a particular focus on asset management, start-ups, fintech and financial services regulatory compliance and corporate finance. Owing to their differentiated backgrounds, the strength of WMH Law Corporation’s corporate law advisers lies in their ability to combine solid legal know-how with business acumen to help clients navigate the regulatory landscape while also achieving their commercial goals.

Ms. Archaree Suppakrucha — Partner and Ms. Wichittra Pholphrueksa — Associate


ZICO Law was established in Thailand as a full-service law firm and has been operating since 2006. Based in Bangkok, the firm advises private and public companies, government agencies, partnerships, international energy companies, and high-net worth individuals in Thailand and internationally. ZICO Law is the first network of leading independent local law firms with a full presence in 18 cities across all 10 ASEAN member countries.

– by Ian Fong, Director of Marketing & PR, Propine

Originally published at

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