Gibraltar-based INX Ltd. (the Company) launched its U.S. initial public offering of INX security tokens (INX Tokens) on August 20, 2020, over two years after the July 2018 confidential filing with the Securities and Exchange Commission of its initial draft registration statement on Form F-1. The INX registration marks the first registered offering of security tokens declared effective by the Commission. Prior to INX, at least two other issuers successfully qualified security token offerings with the Commission under the Regulation A, Tier 2 offering exemption. The 130,000,000 INX Tokens are being offered directly to the public in a self-underwritten offering by officers and directors of the Company, with minimum investment requirements to participate.
Pending satisfaction of a condition requiring minimum sales proceeds, all subscription payments are transmitted to the escrow agent, Tokensoft Transfer Agent LLC. Secondary trading of the INX Tokens is proposed on an INX securities trading platform to be launched once regulatory approvals are received. As is common with any new issuance, the Company’s prospectus cautions there is no trading market for the INX Tokens in any jurisdiction currently, and one may never develop.
According to the Company’s prospectus, the Company intends to establish both a digital currency and a securities trading platform through its subsidiaries, becoming a regulated solution for trading blockchain assets. The Company emphasizes it intends to provide regulatory clarity to blockchain assets by differentiating between security and non-security blockchain asset classes and providing trading opportunities for each class. The Company also states it seeks to obtain money transmitter licenses or become qualified to operate in most U.S. states within nine months after obtaining the minimum offering amount of this offering, in addition to plans to register as a licensed broker-dealer.
Of particular note is that the INX Token (including fractions of INX Tokens) has been structured to provide holders with multiple benefits, including a fixed percentage of the Company’s cumulative net cash flow from operating activities, use of the token for payment of discounted transaction fees on the Company’s intended future securities trading platform, the Company’s proposed platform for the trading of security tokens, and other potential future promotional discounts.
It is not surprising that the proposed structure of the token and the Company’s multifaceted future business operations resulted in a two-year SEC clearance process. Now the test will be the extent to which the offering itself is successful and the platform becomes fully realized. INX Token has, however, paved the way for other tokenized securities, having worked through a number of settlement, custody, and other unique digital assets issues to satisfy concerns from the SEC. More issuers may now be more reluctant to pursue the more conservative Regulation A+ road to the market, which has proven equally as challenging without the attendant benefits of registration.