compliance

Securitization is the procedure where an issuer designs a marketable financial instrument by merging or pooling various financial assets into one group. The issuer then sells this group of repackaged assets to investors. Securitization offers opportunities for investors and frees up capital for originators, both of which promote liquidity in the marketplace.

Continuous securitization is the  procedure allowing combination and instant adding of small amounts of assets into an economically feasible pool for securitization

Tokenization of assets is the process of issuing a blockchain token (specifically, a security token) that digitally represent a real tradable asset – in many ways similar to traditional process of securitization, with a modern twist. These security tokens are created through a type of initial coin offerings (ICO) sometimes referred to as security token offering (STO) to distinguish it from other types of ICOs, which can produce different tokens such as equity, utility or payment tokens. An STO can be used to create a digital representation – a security token – of an asset, meaning that a security token could represent a share in a company, ownership of piece of real estate, or participation in an investment fund. These security tokens can be traded on a secondary market

Compliance as a general term means acting according to a set of rules or regulations. 
In the context of financial services, compliance can be split into two: 
1.     Compliance with external rules imposed on the firm or business by a regulator. 
2.    Compliance with internal rules and systems that have been developed to comply with the external regulations. 

Financial services compliance is when a business follows the federal and state rules, laws, and regulations that govern financial institutions. Financial compliance might involve, for example, observing rules set forth by the 1970 Bank Secrecy Act(BSA), commonly known as the Anti-Money Laundering (AML) law. When cryptoassets become institutionalized, they will likely also be traded in other markets similar to assets like commodities. In many cases, cryptoassets may have different regulators (e.g.,SEC, FINRA, CFTC, etc.) depending on what type of specific asset they are considered.

Full Lifecycle Compliance security token support – maintaining security token compliance thought an entire security lifecycle and regulated events, such as issuance, initial offering, ownership change, secondary trading, dividends disbursement, etc.

1. Issuer, counsel and investment bank draft the offering documents including a private placement memorandum (PPM) and a subscription booklet

2. Platform publishes a customized smart contract for the issuers’ ERC-20 digital securities

3. Platform publishes a white-label KYC/AML app for the issuer to on board investors

4. Bank (or other regulated entity) verifies an investors KYC submission and run AML checks using the Platform portal

5. Investor funds the offering with ACH or wire transfer into escrow

6. The bank issues the digital securities to the investors Ethereum wallet and automatically custodies them with an SEC regulated Transfer Agent smart contract

7. Transfer Agent releases legitimate digital securities from custody to an SEC regulated ATSsmart contract for compliant secondary trading

1. Downloads KYC/AML onboarding app through Google Play Store or Apple App Store

2. Goes through a KYC/CIP process with the app auto-adjusting depending on investor’s jurisdiction and regulatory requirements (Ethereum wallet can be created directly in app for simplicity)

3. Once cleared, email is sent to investor with the account to send money to

4. After investment amount arrives, banker approves and bank will issue digital securities tokens to investor’s wallet

5. Securities must be held the statutory period before resale can occur and may be subject to additional restrictions

6. Once holding period is complete, investor simply transfers their digital securities to an SEC regulated ATS (Alternative Trading System) for secondary trading

7. Investor places on Offer to sell their securities on the exchange or ATS in exchange for US Dollars

8. Investor withdraws US Dollars from the exchange or ATS to their personal bank account

An alternative trading system (ATS) is one that is not regulated as an exchange but is a venue to match the buy and sell orders of its subscribers. ATS account for much of the liquidity found in publicly traded issues worldwide. They are known as multilateral trading facilities in Europe, electronic communication networks (ECNs), cross networks, and call networks. Most ATS are registered as broker-dealers rather than exchanges and focus on finding counterparties for transactions.

A sophisticated investor is a classification of investor indicating someone who has sufficient capital, experience and net worth to engage in more advanced types of investment opportunities.
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In the U.S., the Securities and Exchange Commission (SEC) defines rules under which a company may make private offerings available in Regulation D. These rules include classifications for sophisticated and accredited investors.
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In Rule 506(b) of Regulation D, for example, private offerings are restricted to an unlimited number accredited investors and a limited number of non-accredited sophisticated investors, defined as those investors with sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment.

Rule 501 of Regulation D indicates that for an individual to be an accredited investor, they must have a net worth of more than $1 million, excluding the value of their primary residence, or they must meet certain annual income benchmarks. Individuals who have made more than $200,000 per year for two years, and with an expectation of continuing to do so qualify as accredited investors. Married persons can be considered accredited if their combined income is at least $300,000 per year.

Under this rule, other entities may be considered accredited investors as well, including banks and insurance companies, as well as companies, charities, trusts, and employee benefit plans with assets in excess of $5 million.

Qualified institutional buyer (QIB) is an investor that requires less regulatory protection thanunsophisticated investors. QIB's can be a corporation that the Securities and Exchange Commission’s (SEC) Rule 501 of Regulation D classifies as an accredited investor, banks, trust funds, pension plans or any entity comprised of sophisticated investors.

The qualified institutional buyer designation is often conferred upon entities comprised of sophisticated investors. Essentially these individuals or entities, due to their experience, assets under management (AUM), and/or net worth, are considered not to require the type of regulatory oversight when purchasing securities that unsophisticated, regular investors often need.

Financial service provider means a person/organization engaged in the business of providing financial services in terms of authorisation issued or registration granted by a financial sector regulator. Financial services include banking, investment services, insurance, tax&accounting services.

Price continuity (continuous pricing) is a characteristic of a liquid market in which the bid-ask spread, or difference between offer prices from buyers and requested prices from sellers, is relatively small. Price continuity reflects a liquid market, for which there are many buyers and sellers for a given security.

A continuous audit is an internal process that examines accounting practices, risk controls, compliance, information technology systems, and business procedures on an ongoing basis. Continuous audits are usually technology-driven and designed to automate error checking and data verification in real-time. A continuous audit driven system generates alarm triggers that provide notice about anomalies and errors detected by the system.

Programmable security security issued through automated technolgial procedure (specifically, Continuous Securitization procedure). Interacts in real time with othervariables including pricing, payments and interest rates and so on (includingprepayment risk for mortgage backed securities).
Generally programmable securities have such benefits as Continuous Audit and Continuous Pricing.

Smart assets – securitized assets created as a result of implying Continuous Securitization procedure to traditionally non tradable assets, such as Movies, VC portfolio, Commercial Real Estate renovations, IP rights, etc. This technology process involves industry oracles – pricing and scoring models, similar to well-known almost 100-years old Kelly Blue book used for vehicle valuation in California. For both new and used automobiles, Kelley Blue Book provides a Fair Market Range and Fair Purchase Price, based on actual transactions of what others are paying for a vehicle and adjusted regularly as market conditions change.