Taiwan’s landmark security token license issued to Cathay Securities

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Cathay Securities has become the first firm to receive a security token offering (STO) license in Taiwan after months of negotiating with Taiwanese financial regulators.

Local news outlets report that Taiwan’s Financial Supervisory Commission (FSC) issued the STO to Cathay Securities for its “Sunshine Green Benefit Debt STO” bonds. Per the report, the STO bonds are expected to mature in six years, offering interest rates of 3.5% per annum with an expected raise of 30 million yuan ($4,000,000).

Set to launch in early December, the STO, leveraging blockchain technology, will allow subscribers to buy “green electricity” under favorable market conditions as part of their environmental, social, and corporate governance (ESG) goals. Interested investors can access the offering on Cathay’s in-house STO exchange, per the FSC’s license provisions.

For fair interest rate pricing, Cathay Securities announced a collaboration with risk control technology firm Numerix to develop an evaluation model to gauge the probability of defaults. The firm disclosed that the proprietary model has an accuracy level of 95%, allowing companies to raise funds via the platform.

“The approval to launch STO this time is to provide investors with more diverse investment options, and at the same time, it is a fundraising channel for non-listed and emerging companies and new innovative development models,” Cathay Securities stated.

Despite receiving a license from the FSC, Cathay Securities still has to follow certain rules put in place by the regulator, including a fundraising limit of less than $4,000,000. Furthermore, only corporate entities and vetted investors can interact with STOs with a strict investment limit for participants.

Licensed firms can only conduct two STOs per year following the designation of STOs and other tokenized assets as securities.

Chen Chunyi, director of Digital Assets at Cathay Securities, noted that the recent approval by the FSC comes in the wake of rising global interest for STOs in multiple jurisdictions. Chunyi pointed to the newly minted regulations for STOs in the United States, the United Kingdom, Singapore, and Hong Kong.

Tokenization captures global interest

Financial regulators are bracing for an incoming tokenization wave in the coming years, taking preemptive steps to roll out robust legal frameworks. Following the successes of its tokenization pilot, Hong Kong’s Securities and Futures Commission (SFC) issued two circulars urging intermediaries to reduce technology and ownership risks associated with tokenization.

“The SFC sees the potential benefits of tokenisation to the financial markets, particularly in increasing efficiency, enhancing transparency, reducing settlement time and lowering costs for traditional finance, but it is also aware of the new risks arising from the use of this technology,” according to the regulator.

Similarly, Brazil, France, and the U.K. are steeling themselves ahead of a tokenization trend with pilots and public consultations to ascertain the proper regulatory direction to follow.

Watch: Tokenizing processes – Accounting & Mapping Transactions On-chain