The last time, Oliver Völkel and Julia Heinisch from the Austrian law firm Stadler Völkel discussed cryptocurrencies from a private law perspective. In the blog post below, Oliver Völkel and his colleague Leyla Farahmandnia have a look on coins and tokes from a capital markets law perspective. Enjoy the read!
Capital Markets Law Perspective on Coins and Tokens
by Oliver Völkel & Leyla Farahmandnia
Coins and Tokens as Securities?
There is no legal definition of the term ‘security‘ in the sense of capital markets law in Austria. The term is only covered typologically. The capital market concept of ‘security‘ essentially covers transferable securities as defined in Article 4 of Directive 2004/39/EC (MiFID). In short, this definition covers shares, debt securities or certificates representing shares or profit participation certificates. A security in the sense of the capital markets law in Austria is basically everything comparable to the role-models of shares and bonds. A securitization in the legal sense is not required—meaning that it is not necessary to have a physical copy, e.g., of a global certificate of the security. Rather it is sufficient for a security to be registered in a ‘public register‘. Blockchains could possibly also be used as such a register.
For the assessment of whether Coins or Tokens qualify as securities, it must be examined whether their concrete form can be compared with shares or bonds. Coins do not grant rights vis-à-vis third parties. Per definitionem, Coins cannot be securities in the sense of the capital markets law. If Tokens grant their holders rights that are usually associated with shares or debt securities, they may qualify as securities in the sense of the capital markets law. If Tokens are not comparable with shares or debt securities, they are excluded from the capital market concept of securities.
In particular the granting of voting rights, shares in profit, the promise of interest payments or the repayment of the collected principal at the end of a certain term do speak in favor of the qualification of certain Tokens as securities.
Do Coins and Tokens qualify as Investments?
The Austrian capital market regime does not only cover securities but also ‘investments’. The term ‘investments‘ covers five criteria.
- Only certain rights such as debt claims, membership rights or rights in rem are covered by the definition.
- No security may have be issued representing these rights.
- The capital of several investors must be invested, directly or indirectly.
- The investment must be based on the investor’s collective account or collective risk.
- The administration of the capital invested is not overseen by the investors themselves.
Any civil or corporate law classification is irrelevant. For example, ‘investments‘ include securitized participation rights, limited partnership interests as well as silent participations.
For the assessment of whether Coins or Tokens qualify as investments, it must be examined whether they grant their property rights to their holders such as debt claims, membership rights or rights in rem. Coins do not grant such rights—thus, per definitionem, Coins cannot be investments in the sense of the law. If Tokens grant their holders such rights, they may qualify as investments, if the other four requirements are fulfilled.