According to a draft prospectus statement filed with the U.S. Securities & Exchange Commission (“SEC”) on August 19, cryptocurrency trading platform INX Limited aims to raise between $5 million and $129.5 million through their proposed initial public offering (“IPO”). A historic first as most security token transactions have not been registered with the SEC, the transaction would also be one of the blockchain industry’s largest and among a small handful of fully-developed IPOs within the market. Looking to stand out from the several competing and up-and-coming regulated trading platforms,1 INX’s proposal states:
“When fully operational, we expect to offer professional traders and institutional investors trading platforms with established practices common in other regulated financial services markets, such as customary trading, clearing, and settlement procedures, regulatory compliance, capital and liquidity reserves and operational transparency.”
Envisioned with the goal of creating two trading platforms and a security token, INX’s intends to provide regulatory clarity to the blockchain and crypto-asset industry through said new systems. To accomplish this, the company notes five key tactics
- Determine the differences in security and non-security blockchain asset classes and offer class-specific trading opportunities.
- Obtain necessary US broker-dealer licensing and applicant tracking system (“ATS”) registration.
- Issue INX security tokens paired with a sustained INX Registry of token holders.
- Require Know Your Customer (“KYC”) and Anti-Money Laundering (“AML”) procedure compliance from INX Token holders.
- Offer specific benefits to INX Token holders.
Further in the document, INX’s prospectus highlights acquiring money transmitter licenses and other necessary documentation necessary to operate within eight separate states in 2019. Beyond that, INX hopes to expand its crypto trading platform nationwide by the end of next year. Requiring a minimum investment of $1,000.00, the sale of INX tokens is said to be contingent on the company’s successful crossing of the minimum $5 million threshold within a one-year deadline. Additionally, the accumulated IPO proceeds will be distributed across a variety of business operations such as research and development, sales and marketing, and regulatory/legal expenses.
One of the most significant steps towards more transparent blockchain operations to date, the INX prospectus contains many of the required standard disclosures for publicly listed companies – such as executive employment contracts – a rare occurrence in the regulatory ambiguity often attributed to cryptocurrency markets.2 The likelihood of the IPO’s success, however, still remains to be determined, as cryptocurrency systems still look to prove their legitimacy within the finance sector. Just earlier this summer, reports of fraudulent cryptocurrency listings caused Nasdaq and the New York Stock Exchange to reconsider their Regulation A – an exemption from standard public offering registration – requirements.3 That said, INX’s advisory board is comprised of multiple blockchain and investment experts ranging from Samson Mow of Blockstream, to Nasdaq former vice-chairman David Weild, which may produce more confidence in INX’s initiative.4
Registered in Gibraltar, INX will need SEC approval to deem their prospectus “effective” before any tokens can be sold. Upon becoming available, interested investors will be able to purchase INX tokens with US Dollars, as well as via Bitcoin (“BTC”) or Ether (“ETH”).
- Helms, Kevin. “US Exchanges Race to Launch Regulated Physically-Delivered Bitcoin Futures.” Bitcoin News. August 8, 2019. Accessed August 22, 2019. https://news.bitcoin.com/us-exchanges-race-launch-regulated-physically-delivered-bitcoin-futures/
- Hochstein, Marc. “Crypto and Security Token Exchange INX to Raise $130 Million in Landmark IPO.” CoinDesk. August 20, 2019. Accessed August 22, 2019. https://www.coindesk.com/crypto-and-security-token-exchange-inx-to-raise-130-million-in-landmark-ipo
- Osipovich, Alexander. “Exchanges Shy Away From Mini-IPOs After Fraud Concerns.” The Wall Street Journal. June 10, 2019. Accessed August 22, 2019. https://www.wsj.com/articles/exchanges-shy-away-from-mini-ipos-after-fraud-concerns-11560177205?shareToken=staf6e9c07199c412d9d7d280afe31f971
- Hochstein, Marc. “Crypto and Security Token Exchange INX to Raise $130 Million in Landmark IPO.”