Government amends definition of “digital token” for purposes of securities law
10 January 2025
| 1) |
Replacing the definition of “digital token” in paragraph 2 of the Principal Order with the following:
""digital token” means a digital representation which is recorded on a distributed digital ledger whether cryptographically-secured or otherwise but does not include—
- debentures, stocks or bonds issued or proposed to be issued by any government;
- shares in or debentures of, a body corporate or an unincorporated body; or
- units in a unit trust scheme or prescribed investments, and includes any right, option or interest in respect thereof.”
Prior to this amendment, “digital token” was defined in paragraph 2 of the Principal Order as follows:
"digital token" means a digital representation which is recorded on a distributed digital ledger whether cryptographically-secured or otherwise.” |
| 2) |
Deleting Paragraph 5 of the Principal Order which provides as follows:
“5. For the purpose of securities laws, a digital currency and digital token that are prescribed as securities under this Order that is offered or traded on or through a recognized market is not—
- a share in or debenture of, abody corporate or an unincorporated body; or
- a unit in a trust scheme or prescribed investments scheme.".
|
The principal effect of the amendments made under the Amendment Order is that a digital token (as defined in the Amendment Order) which satisfies the conditions set out in paragraph 3(2) of the Principal Order is a prescribed security for the purposes of securities laws regardless of whether it is offered or traded on a recognized market
1.
The conditions set out in paragraph 3(2) of the Principal Order are that the digital token must represent a right or interest of a person in any arrangement made for the purpose of, or having the effect of, providing facilities for the person, where:
| 1) |
the person receives the digital token in exchange for a consideration;
|
| 2) |
the consideration or contribution from the person, and the income or returns, are pooled;
|
| 3) |
the income or returns of the arrangement are generated from the acquisition, holding, management or disposal of any property or assets or business activities;
|
| 4) |
the person expects a return in any form from the trading, conversion or redemption of the digital token or the appreciation in the value of the digital token;
|
| 5) |
the person does not have day-to-day control over the management of the property, assets or business of the arrangement; and
|
| 6) |
the digital token is not issued or guaranteed by any government body or central banks as may be specified by the Securities Commission Malaysia (“SC”). |
The amendments will facilitate the implementation of the initiatives announced by the SC in October 2024 to encourage securities tokenisation on a wider scale. Our Alert on these initiatives is available
here.
Alert by Lee Ai Hsian (Partner) of the Fintech Practice of Skrine.
1 A “
recognized market” is a stock market or a derivatives market operated or maintained by an operator registered by the SC under section 34 of the Capital Markets and Services Act 2007 and the SC’s Guidelines on Recognized Markets.
This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.