Entire Section

  • MKT App 7 MKT App 7 Additional Content of a Prospectus for Security Tokens

    • MKT A7.1 MKT A7.1 Additional content of a Prospectus for Security Tokens

      • MKT A7.1.1

        For the purposes of MKT Rules 2.5.1(3)(d), 2.7.1(3) and 6.3.3(3) the Person producing a Prospectus in relation to a Security Token must ensure that:

        (a) the Prospectus contains:
        (i) the additional information specified in MKT Rule A7.1.2; and
        (ii) a statement confirming the matters specified in MKT Rule A7.1.3 made by a suitably qualified independent third party professional, who has given consent under MKT Rule 2.10.2(1) for that statement to be included in the Prospectus; and
        (b) in the case of a Security Token which will be admitted to trading on an Authorised Market Institution, Regulated Exchange, Alternative Trading System or other facility, the Prospectus contains the information specified in MKT Rule A7.1.4.

         

        Derived from DFSA RMI313/2021 (Made 30th June 2021). [VER18/10-21]

      • MKT A7.1.2

        The following information is specified for the purposes of MKT Rule A7.1.1(a)(i):

        (a) the essential characteristics of the Security Token, including the rights and obligations conferred by it and details of the Person or Persons responsible for meeting the obligations and against whom the rights can be exercised;
        (b) the type or types of Investment which the Security Token constitutes and a clear analysis as to how the Security Token meets the definition of the relevant type or types of Investment under GEN App 2;
        (c) details of the Distributed Ledger Technology that is used to issue, store or transfer the Security Token;
        (d) how the holder of a Security Token may exercise any rights conferred by it, such as voting or participation in shareholder actions;
        (e) whether the Security Token will be admitted to trading on an Authorised Market Institution, Regulated Exchange, Alternative Trading System or other facility and, if not, details as to how the Security Token can be transferred or redeemed, how that might impact its liquidity and any resulting risks;
        (f) if the capital to be raised from issuing the Security Token is to be used to fund the creation of a new Token, detailed information about:
        (i) the project or venture to be funded;
        (ii) whether it is the Issuer or a third party who will receive and apply the capital raised towards that project or venture (and if a third party, what rights and obligations a holder of the Security Token has in respect of that third party);
        (iii) the features of that new Token and any rights and obligations attaching to it;
        (iv) the terms and conditions relevant to the delivery or establishment of the project or venture, including any right of a Security Token holder to have their contribution refunded if any funding requirement is not met, the expected timetable for completion, any milestones included in that timetable and an explanation of the consequences if the timetable is not met; and
        (v) the risks associated with the project or venture, including those associated with the technology used to deliver or facilitate its completion or the Token’s ongoing use;
        (g) how title to the Security Tokens is established, certified or otherwise evidenced;
        (h) cybersecurity risks associated with the Security Token or its underlying technology, including whether there is a risk of loss of the Security Token in the event of a cyber attack, and details of steps that have been, or can be taken, to mitigate those risks;
        (i) details of other risks associated with the use of the DLT application, particularly those relating to Digital Wallets and the susceptibility of private cryptographic keys to misappropriation; and
        (j) any other information relevant to the Security Token that would reasonably assist a prospective investor in making an informed decision about investing in the Security Token.

         

        Derived from DFSA RMI313/2021 (Made 30th June 2021). [VER18/10-21]

      • MKT A7.1.3

        The matters to be confirmed in the statement referred to in MKT Rule A7.1.1(a)(ii) are that:

        (a) the DLT application, used to issue, store or transfer the Security Tokens offered under the Prospectus, complies with the requirements of these Rules and, is an authentic, valid and workable solution capable of meeting its intended purpose; and
        (b) the Prospectus accurately describes the architecture, functionality, effect, risks and vulnerabilities of the DLT application, including its compatibility with other technologies, applications and services with which it is intended to interact.

         

        Derived from DFSA RMI313/2021 (Made 30th June 2021). [VER18/10-21]

      • MKT A7.1.4 MKT A7.1.4

        The following information is specified for the purposes of MKT Rule A7.1.1(b):

        (a) details of each facility on which the Security Token is admitted to trading or cleared including:
        (i) the Person responsible for operating that facility and whether it is an AMI, ATS Operator, Regulated Exchange or other Person;
        (ii) details of each DLT application used by the operator to facilitate trading or clearing of the Security Token and the functionality provided by that DLT application;
        (iii) details as to how the operator of the facility meets the technology and governance requirements set out in COB section 14.1;
        (b) details of the custody arrangements for the Security Token that are permitted or required by the operator of each facility, including, for each such arrangement:
        (i) the Person who carries out the function of the Digital Wallet service provider;
        (ii) the Person who is responsible for the safe custody of the Security Token when held in the Digital Wallet; and
        (iii) risks associated with the Digital Wallet, such as the consequences of the loss of cryptographic keys (private and public), cyber security risks associated with Digital Wallets held online, loss, theft or destruction of Digital Wallets held offline, and whether and how such risks are addressed;
        (c) whether smart contracts are being used or executed on the facility and, if so:
        (i) what form those smart contracts take;
        (ii) how the legal rights and obligations arising under the smart contracts are performed, including when contract or settlement finality occurs (whether by the smart contract itself, an underlying natural language contract or a combination of both); and
        (iii) details of the relationship between those smart contracts and any underlying natural language contract.

         

        Derived from DFSA RMI313/2021 (Made 30th June 2021). [VER18/10-21]

        • MKT A7.1.4 Guidance

          (1) The details provided under MKT Rule A7.1.4(b)(ii) should make it clear for each custody arrangement permitted or required on a facility, whether the arrangement involves Self-Custody of Security Tokens, or whether either the operator of the facility is responsible or a Third Part Digital Wallet Service Provider is responsible for safe custody of the relevant Security Tokens (see COB section 14.3).
          (2) The details provided under MKT Rule A7.1.4(b)(iii) should make clear whether a given Digital Wallet is web based, or otherwise connected to the internet (sometimes referred to as a ‘hot wallet’), or whether it is held on hardware that is not connected to the internet (sometimes referred to as a ‘cold wallet’). They should also explain the differing risks associated with hot wallets as opposed to cold wallets, such as those arising from increased risk of hacking attempts being made against hot wallets, and the risk of physical loss or theft associated with cold wallets.

           

          Derived from DFSA RMI313/2021 (Made 30th June 2021). [VER18/10-21]