What is Initial Exchange Offering (IEO) in Malaysia?

I believed everyone of us here already knows what is Initial Public Offering (IPO), especially if you're one of our long-time followers here. 😁 Now, in this new era, we cannot dunno what is Initial Exchange Offering (IEO) lol. Am I correct?

What is IEO?

Initial Exchange Offering (IEO) is an alternative channel for fundraising for innovative businesses through an offering of digital tokens, which can only be conducted via an IEO platform.

In 2020, the Securities Commission Malaysia (SC) has released the Guidelines on Digital Assets that outlines the framework for fundraising through a digital token offering, and the regulatory requirements for registering and operating an IEO platform.

Under the Guidelines, IEO platform operators will be required to assess and conduct the necessary due diligence on the issuer, review the issuer’s proposal and the disclosures in the whitepaper, and assess the issuer’s ability to comply with the requirements within the relevant Guidelines, before helping facilitate the offering.

Who are the IEO operators here?

At the time of writing, SC had announced that it has registered two Initial Exchange Offering (IEO) operators, namely, Kapital DX Sdn Bhd and Pitch Platforms Sdn Bhd, to promote responsible innovation in the digital assets space.

"Fyi, Pitch Platforms Sdn Bhd is the same company that runs the pitchIN equity crowdfunding (ECF) platform in Malaysia, who is the ultimate market leader in the local ECF industry."

What should the IEO operators do?

The registered IEO operators will provide an alternative avenue for eligible companies to raise funds via the issuance of digital tokens in Malaysia. An issuer may raise funds up to RM100 million from retail, sophisticated, as well as angel investors, subject to the investment limits provided in the SC’s Guidelines on Digital Assets.

These new operators will be required to carry out the necessary assessments, among others, to verify the issuer’s digital value proposition, review the issuer’s proposal and disclosures in its Whitepaper, and undertake a comprehensive due diligence on the issuer and its token offering, prior to hosting the issuer’s digital token on their platform.

Image credit to TheEdge

How about the IEO issuer?

In addition, they will be given up to 9 months to comply with all the regulatory requirements before commencing operations, and this includes putting in place a robust and effective Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) process to mitigate Money Laundering and Terrorism Financing (ML/TF) risks.

Wow.

It sounds good to protect the general public 👀

The SC would like to remind members of the public that they are not permitted to offer, issue or distribute any digital assets, which has been prescribed as securities, in Malaysia without obtaining a registration or authorisation from the SC.

In this regard, a person convicted may be liable to a fine not exceeding RM10 million or imprisonment for a term not exceeding 10 years or both.

Members of the public are also advised to be mindful of the risks related to investing in digital assets, including risks of investing on platforms not registered with the SC.

Members of the public may verify the registration status of an IEO platform operator at www.sc.com.my/development/digital/digital-initiatives

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