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SGX lays out guidelines for listed companies issuing initial coin offerings

THE Singapore Exchange (SGX) has outlined guidelines for listed companies planning to conduct an initial coin offering (ICO), which include making sure all relevant disclosures are made.

In a regulator's column, chief executive Tan Boon Gin of Singapore Exchange Regulation (SGX RegCo) highlighted that questions have come up with regard to the regulatory obligations of listed companies when they offer ICOs.

He said: "First off the bat, it is important to make clear that even if an SGX-listed company is the issuer of a digital token, those tokens are not listed on SGX.  Therefore, SGX’s rules would cover only the company and not the tokens nor the holder of the tokens."

Listed issuers that intend to carry out an ICO are first expected to consult SGX RegCo; as part of the process, they are to provide legal opinion on the digital tokens as well as an auditor’s opinion on the ICO’s accounting treatment. The SGX will also provide a checklist to the listed issuer on the compliance matters to be addressed.

When the ICO is announced, the company must also include disclosures so that shareholders of the issuer are informed of the rationale for, and risks, relating to the ICO; the use of funds raised; any impact on existing shareholders' rights; the accounting and valuation treatments for the ICO; and any financial impact on the issuer from the token issuance.

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In addition, the company is to carry out checks to address money laundering and terrorist financing risks.

"The listed issuer must also come to an agreement with its statutory auditors on the scope of the audit which should provide assurance that the ICO has been properly accounted for in their financial statements, and that associated risks have been adequately addressed and milestones on utilisation of funds raised have been adhered to," added Mr Tan.

After the ICO, SGX RegCo expects the listed issuer to keep its shareholders informed of material information, the development of the ICO and digital tokens on a timely basis, as well as the use of ICO proceeds.

Meanwhile, additional measures may apply depending on whether or not the digital tokens offered are construed as securities/capital markets products under the Securities and Futures Act (SFA). For instance, if the digital tokens are considered securities, prospectus registration requirements for offers of securities and licensing issues for dealing in securities would be required under the SFA. In addition, SGX RegCo may require listed issuers to establish a subsidiary to carry out the ICO.

"The main concern when it comes to ICOs and digital tokens that SGX RegCo has is how the issuer safeguards its own interest and that of its shareholders when it conducts an ICO. The issuer’s board is ultimately responsible for maintaining a robust system of risk management and internal controls when doing so," Mr Tan wrote.

"Shareholders are owners of the issuer and have the right to receive clear and accurate material information on a timely basis if an issuer conducts an ICO fundraising. Here our responsibility as the market regulator will be to ensure relevant disclosures are made and that the information is sufficiently clear and complete for a reasonable investor to make an informed decision."

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