Guidelines on Security Token Offering

APPROVED by Resolution No 03-188 of the Board of the Bank of Lithuania of 17 October 2019 GUIDELINES ON SECURITY TOKEN OFFERING CONTENTS

SUMMARY
1.1. Introduction
1.2.Objectives of the Guidelines
SCOPE
2.1. Who?
2.2. What?
WIDER CONTEXT
3.1. Key features of Securities Token Offerings
3.2. Crypto-assets, Tokenization and Tokens
3.3. Blockchain: the technology behind Securities Token Offerings
3.4. Types of tokens and their life cycle
LEGAL QUALIFICATION OF TOKENS
4.1. Diversity in legal qualification
4.2. Key concepts for effective qualification of tokens
4.3. Legal qualification under the transposition of MiFID II to the Lithuanian law
4.4. Sample set of six Initial Coin Offerings crypto-assets
REGULATORY IMPLICATIONS WHEN TOKENS QUALIFY AS A FINANCIAL INSTRUMENT
5.1. Definition of public offering
5.2. Obligation to publish a prospectus
5.3. Disclosure of information on the issue of tokens that have features of securities
5.4. Obligation to draw up an information document
5.5. Recommendations on the disclosing of specific information and specific risk factors
in relation to the issuance of tokens and the issuer
5.6. Smart contracts
5.7. Primary trading in tokens that have features of securities
5.8. Secondary trading in tokens that have features of securities
5.9. Accounting of tokens that have features of securities
5.10. Advertising activity relating to tokens qualified as transferable securities
5.11. Application of provisions on the disclosure of periodic information and the
takeover of the issuer’s control
5.12. Market Abuse Regulation
LEGISLATIVE REFERENCES, ABBREVIATIONS AND GLOSSARY
6.1. Legislative references
6.2. Abbreviations
6.3. Glossary of concepts and terms
DISCLAIMER
SUMMARY
1.1 Introduction
Recently, significant and growing attention of investors, markets, governments and
regulators has been focused on businesses and individuals using crypto-assets offerings, such as Initial Coin Offerings (hereinafter – ICOs1 ) or Securities Token Offerings (hereinafter – STOs2 ), to raise capital.
In October 2017, the Bank of Lithuania (hereinafter – the BoL) published the Position of
the Bank of Lithuania on Virtual Assets and Initial Coin Offering (amended on 21 January

(hereinafter ‒ the Bank of Lithuania position) setting forth the regulatory approach
of the BoL to virtual assets and ICOs.

In view of the recent increase in digital tokens (hereinafter – tokens) where tokens have
the features of transferrable securities or other financial instruments, in these Guidelines, the BoL shares with STOs organisers, developers, investors and other market participants its views regarding STOs legal qualification and interpretation in the light of the existing regulatory framework. In particular, the BoL focuses on the cases in which tokens would be considered to be transferable securities or any other financial instruments under transposition of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (OL 2014 L 173, p. 349) (hereinafter – MiFID II) to the Lithuanian law. It also clarifies other regulatory aspects of related STO activity.
Currently, there is no STO-specific regulatory framework in the Lithuanian or European
Union (hereinafter – EU) law3
. This fact leads to numerous questions whether, and if so, what kind of regulation should be applied in relation to STOs, bearing in mind that the existing rules were not designed having these instruments in mind. Noteworthy, some of the EU Member States (i.e. Malta, France) have introduced the ICOs-specific national regulation, while other Member States consider that certain ICOs might fall within the scope of the existing financial markets legislation.
Despite the lack of specific regulation applicable to STOs, depending on the nature of
tokens, the ensuring of compliance with the existing regulatory requirements might be necessary. The BoL is a technology neutral regulator; therefore, the use of new technology alone does not change its regulatory and supervisory framework. Criteria based on economic functions of tokens should be decisive. Whereas tokens issued through STOs are considered to fall within the term of transferable securities or other financial instruments, a full set of the EU and national financial rules, including, but not limited to, Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC (OL 2017 L 168, p. 12) (hereinafter – the Prospectus Regulation), the Law of the Republic of Lithuania on Securities (hereinafter – the Law on Securities), the Law of the Republic of Lithuania on Markets in Financial Instruments (hereinafter – the Law on Markets in Financial Instruments), the Law of the Republic of Lithuania on Crowdfunding

1 Legislative references, abbreviations and the glossary are provided in Section 6 of these Guidelines. 2 For the purposes of these Guidelines, the term ‘ICOs’ shall include STOs. 3 Some EU Member States (i.e. Malta) have the national regulatory regime which caters to the ICO issuing activity.

(hereinafter – the Law on Crowdfunding), Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (the Market Abuse Regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC (OL 2016 L 171, p. 1) (hereinafter – the MAR), Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities settlement in the European Union and on central securities depositories and amending Directives 98/26/EC and 2014/65/EU and Regulation (EU) No 236/2012 (OL 2014 L 257, p. 1), as last amended by Regulation (EU) No 2016/1033 of the European Parliament and of the Council of 23 June 2016 (OL 2016 L 175, p. 1) (hereinafter – the Central Securities Depositories Regulation), and the Law of the Republic of Lithuania on Settlement Finality in Payment and Securities Settlement Systems, are likely to apply to their issuer, crowdfunding or other trading platforms and/or firms providing investment services/activities relating to those instruments4 .
6. Potential market participants are advised to carefully consider whether tokens
constitute a regulated financial instrument in terms of applicable rules and are responsible for making sure they are appropriately authorised for all regulated activities they pursue. The BoL encourages market participants to seek expert advice if they are not sure whether the units they offer fall within the regulatory framework. A case-by-case approach might be required to determine the nature of STOs and their legal classification within the Lithuanian and EU law in some specific cases.
7. Noteworthy, the Guidelines do not create a regulatory regime specific to STOs, but
provide regulatory certainty that they are subject to certain financial markets regulations and certain supervisory requirements depending on their characteristics. The statements expressed in these Guidelines are based on the current rules of the Lithuanian and EU law, the abovementioned Bank of Lithuania position and the Advice ‘Initial Coin Offerings and Crypto-Assets’ (hereinafter – the ESMA Advice) No ESMA50-157-1391, issued by the European Securities and Markets Authority (hereinafter – the ESMA) on 10 December 20185 .
1.2 Objectives of the Guidelines
8. As STOs can create new opportunities for businesses and investors provided that the
appropriate safeguards are in place, the BoL is of the opinion that legal clarity and certainty on the legal status of tokens and the responsibilities of the issuing entity under the current financial markets legislation is highly preferred. Therefore, the BoL aims at achieving that the Guidelines help market participants understand better whether tokens they employ fall within the regulatory and supervisory financial markets framework and clarify the BoL’s expectations for market participants engaged in activities related to tokens qualified as transferable securities or other financial instruments in the Republic of Lithuania.

4 Legislation applicable to tokens qualified as transferable securities and/or other financial instruments is indicated in Section 5 of these Guidelines. 5 https://www.esma.europa.eu/press-news/esma-news/crypto-assets-need-common-eu-wide-approachensure-investor-protection

Meanwhile, there could be benefits in tokens issued through STOs, the risks they are
likely to pose to the objectives of investor protection, financial stability and market integrity should be carefully addressed. These Guidelines also aim to help understand better the tokens issued through STOs market and the potential risks they could face.
SCOPE
2.1. Who?
These Guidelines are relevant to:
 Entities issuing or creating tokens (issuers);  Entities and persons who buy or sell tokens on primary or secondary markets (investors);  Entities advertising tokens and advising on tokens;  Crowdfunding and other trading platform operators;  Investment firms providing investment services/activities related to STOs;  Entities providing offering and accounting services related to STOs.
2.2. What?
In these Guidelines the BoL wishes to consider ‘investment-type’ tokens and hybrids of
‘investment-type’ and/or ‘utility-type’ and/or ‘payment-type’ tokens that are likely to be covered by the existing financial markets regulation and, thus, the supervisory framework. Tokens of pure ‘payment-type’ and ‘utility-type’ nature do not fall within the scope of the Guidelines6 .
In view of the above, in these Guidelines, the BoL identifies comparable characteristics of
‘investment-type’ tokens and hybrids of ‘investment-type’ and/or ‘utility-type’ and/or ‘payment-type’ tokens issued through STOs which imply applicability of relevant legislation of financial markets (the Prospectus Regulation, the Law on Securities, the MAR, etc.).
The Guidelines cover certain activities related to ‘investment-type’ tokens and hybrids, in
particular, the issuance of such tokens, certain aspects of distribution and trading.
Guidelines focus neither on the provision of investment services nor on the regulation of
collective investment undertakings or on anti-money laundering or counter terrorist financing issues. However, the BoL believes that all tokens and related activities should be subject to anti-money laundering and counter terrorist financing (hereinafter – AML/CTF) regulation. Market participants are advised to consult the Financial Action Task Force (FATF) Recommendations on International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation (updated in October 2018)7 .
It should be also mentioned that activities related to tokens that do not fall within the
scope of the Guidelines (i.e. other than tokens that are qualified as financial instruments) should be subject to the relevant legal regulation, if any (e.g., payment services, civil legal regulation).

6 Classification of tokens is suggested in Section 3.4 of these Guidelines. 7 https://www.fatfgafi.org/media/fatf/documents/recommendations/pdfs/FATF%20Recommendations%202012.pdf

WIDER CONTEXT
3.1. Key features of Securities Token Offerings
STOs represent a new method of raising capital. This new method differs from the
existing traditional capital raising mechanisms.
First, the entity seeking to raise capital through STOs does not issue shares, bonds or
any other financial instrument in a traditional way. Instead, it issues cryptographic claims recorded on a public/private ledger, commonly referred to as tokens, which entitle the bearer to a variety of rights equal to or having features of the rights granted to shareholders, owners of bonds or other financial instruments.
Second, the issuance of tokens is not conducted using traditional channel in which the
regulator and third parties, such as intermediaries, need to take part. Instead, it is conducted through a new Distributed Ledger Technology (hereinafter – DLT).
Depending on different possible approaches and interpretations, other key features of
STOs can also be distinguished.
3.2. Crypto-assets, Tokenization and Tokens
There is no single agreed definition of crypto-assets, but generally crypto-assets are a
cryptographically secured digital representation of value or contractual rights that use some type of DLT and can be transferred, stored or traded electronically8 .
These Guidelines refer to the term of crypto-assets in a broad sense, and the term
‘tokens’ is used to denote different forms of crypto-assets.
Tokenization is a method that converts rights to assets into digital tokens.
Tokens are digital assets that are recorded /distributed / acted upon or trigger other
associated activity on a distributed ledger (via smart contracts).
3.3. Blockchain: the technology behind Securities Token Offerings
Blockchain is the technology that enables successful tokenization of real-world assets.
Using blockchain real-world securities are transferred into digital tokens and are usually called tokenized securities.
In order to tokenize securities an issuer will need a smart contract to handle token logic
and also for storage. The issuer must have some way of accounting for tokens distribution; normally, this is accomplished by creating a smart contract that handles the accounting for the token. Due to the smart contract tokens become active. Such tokens have a pre-programmed formula of some behaviour and can independently carry out certain transactions.
3.4. Types of tokens and their life cycle
It should be noted that tokens can have many different features and different life cycles.
There is no recognized unique classification of tokens and it is not clear whether a very
detailed one is needed. For example, a stablecoin designed to minimize the price

8 https://www.fca.org.uk/firms/cryptoassets

volatility of virtual assets in practice might refer to different categories of tokens depending on assets it is backed by (commodities, currency, real estate, securities, etc.). For the sake of clarity and convenience the following non-exhaustive types of tokens depending on their nature, economic function and rights awarded by them can be distinguished (see Figure 1):
 ‘Payment-type’ tokens;
 ‘Utility-type’ tokens;
 ‘Investment-type’ tokens;
 Hybrids of ‘investment-type’ and/or ‘utility-type’ and/or ‘payment-type’ tokens.
28. ‘Payment-type’ tokens may serve as a means of exchange or payment for goods or
services (transfer value). These tokens are not subject of these Guidelines; therefore, ‘payment-type’ tokens are not further discussed in more detail (example: Bitcoin).
29. ‘Utility-type’ tokens provide some ‘utility’ or consumption rights, e.g., the ability to use
them to access or buy some services/products. These tokens are also excluded from the scope of these Guidelines (example: Lympo (LYM utility tokens)).
30. ‘Investment-type’ tokens are tokens with specific characteristics denoting they meet the
definition of transferable securities or other financial instruments like a share or a debt instrument (described in more detail in Section 4.3 of these Guidelines) as set out in the Law on Markets in Financial Instruments to which MiFID II is transposed, and are within the financial regulatory and supervisory framework. ‘Investment-type’ tokens may have some profit rights attached, like equities, equity-like instruments or non-equity instruments (example: Bitbond).
31. Hybrids of ‘investment-type’ and/or ‘utility-type’ and/or ‘payment-type’ tokens confer the
mixture of the above-mentioned rights typical to ‘investment-type’ and/or ‘utility-type’ and/or ‘payment-type’ tokens.
32. There is also a number of activities potentially related to tokens during their life cycle,
such as:
 Issuance;
 Distribution;
 Acceptance, transfer and execution of a buy/sell order;  Trading;  Accounting;  Safekeeping;  Other.
33. The indicative list of market participants, their activities as regards tokens and the
indicative list of authorisations and permits is suggested in Figure 2.
4. LEGAL QUALIFICATION OF TOKENS
4.1 Diversity in legal qualification
34. The regulatory status of STOs is likely to depend on the circumstances of individual
STOs. In order to assess whether a token qualifies as transferable securities or other types of MiFID II financial instruments all features depending on their design and scope of issue should be considered.
35. Considering the cross-border nature of tokens issued through STOs, it should be noted
that the legal status of tokens could differ from one Member State to another depending

on the specifics of the national implementation of the EU law. The outcome of the survey to Member State National Competent Authorities (hereinafter ‒ the NCA, NCAs) in the summer of 2018 with the aim to collect detailed feedback on the possible legal qualification of crypto-assets as financial instruments which was undertaken by the ESMA and presented in the ESMA Advice Annex 1 ‘Annex - Legal qualification of crypto-assets – survey to NCAs’ (hereinafter – the Survey) highlighted the NCAs majority view that some tokens, e.g., those with profit rights attached may qualify as transferable securities or other types of MiFID II financial instruments. The actual classification of tokens as financial instruments is the responsibility of an individual NCA and depends on the specifics of the national implementation of the EU law and the information and evidence provided to that NCA. However, the results of the Survey made clear that the NCAs in the course of transposing MiFID II into their national laws, have defined the term ‘financial instrument’ differently. While some employ a restrictive list of examples to define transferable securities, others use broader interpretations. This creates challenges to both the regulation and the supervision of tokens issued through STOs9 .
4.2 Key concepts for effective qualification of tokens
36. The BoL is of the opinion that those tokens that meet the relevant conditions should be
treated as equivalent to financial instruments and regulated as such, as regulation should be technology neutral. The provision that regulation is technology neutral means that the application of financial markets legislation does not depend on the actual use of any technology or on its kind. Tokens that are qualified as equivalent to financial instruments should be treated as a financial instrument in the light of the existing relevant financial markets legislation despite technology applied to such tokens (e.g., DLT). Equivalence to financial instruments implies that tokens should comply with the legal financial EU and national regulation. In an effort to determine the legal status of tokens and determine possible applicability of the EU and Lithuanian financial markets regulation, the careful evaluation on a case-by-case basis will be conducted. The BoL treats equally tokenized securities and traditional securities without prioritising either of them. In addition to the reasons of efficiency, in both aforementioned cases appropriate consideration should be given to investor protection, financial stability and market integrity.
37. The BoL supports the ‘substance over form’ approach when it comes to qualifying
tokens, including preventing regulatory arbitrage.
38. The BoL presumes that a certain part of tokens may legally qualify as financial
instruments; hence, a detailed analysis whether and how legal and supervisory framework should be applied may be needed as current legal acts were designed without having crypto-assets in mind and some adaptations to legal acts and a new interpretation of the existing rules might be needed.
4.3 Legal qualification under the transposition of MiFID II to the Lithuanian law

9 https://www.esma.europa.eu/press-news/esma-news/crypto-assets-need-common-eu-wide-approachensure-investor-protection

The question whether a token qualifies as a transferable security or other financial
instrument under the national transposition of MiFID II is of high importance as once it is considered as a transferable security or other financial instrument the relevant financial markets regulation shall apply.
‘Financial instruments’ are defined in Article 4(1)(15) of MiFID II. These are inter alia
‘transferable securities’, ‘money market instruments’, ‘units of collective investment undertakings’ and various derivative instruments. Article 4(1)(44) of MiFID II also defines the term of ‘transferable securities’.
The aforementioned provisions defining ‘financial instruments’ and ‘transferable
securities’ have been transposed to the Law on Markets in Financial Instruments (see Articles 3(15) and 3(52)).
‘Financial instruments’ are defined in Article 3 (15) of the Law on Markets in Financial
Instruments as any of the following instruments:

transferable securities;
money market instruments;
securities of collective investment undertakings;
options, futures, swaps, forward rate agreements and other derivative instruments
relating to transferable securities, currencies, interest rates or yields, also allowances issue and other derivative instruments relating to allowances issue, financial indices and other instruments that may be settled in cash or physically;
options, futures, swaps, forward rate agreements and other derivative instruments
relating to commodities that must be settled in cash or may be settled in cash at the option of one of the parties (otherwise than by reason of insolvency and termination events) as well as other financial instruments indicated.

In order to qualify as a transferable security within the meaning of Article 3(52) of the
Law on Markets in Financial Instruments, the token should qualify as:
(a) circulating in the capital market shares in companies and other securities equivalent to shares in companies, partnerships, and other entities, as well as depository receipts representing shares; (b) circulating in the capital market bonds and other forms of non-equity securities, including depositary receipts in respect of non-equity securities; (c) circulating in the capital market other securities conferring the right to acquire or transfer the transferable securities or underlying the cash-settlements determined having regard to the transferable securities, currencies or exchange rates, interest rates, yield of securities, stock exchange commodities, or other indices or instruments.
Article 3(52) of the Law on Markets in Financial Instruments and Article 4(1)(44) of MiFID
II already include a wide list of different types of transferable securities providing for a broad definition of the term and indicating that that ‘substance over form’ should prevail. In addition to traditional and well-known instruments, such as shares in companies, depositary receipts representing shares, bonds, depositary receipts in respect of nonequity securities that are directly named in the list, other instruments could also be qualified as transferable securities. Such instruments shall correspond one of the following characteristics: a) be equivalent to shares in companies, partnerships and other entities, b) be other forms of non-equity securities, c) be other securities conferring the right to acquire or transfer the transferable securities or underlying the cash-settlements determined having regard to the transferable securities, currencies or exchange rates, interest rates, yield of securities, stock exchange commodities or other indices or instruments.

4.3.1 Negotiable shares and other securities equivalent to shares
45. The term of a share is defined in Article 1.102(1) of the Civil Code of the Republic of
Lithuania (hereinafter – the Civil Code). A share is a security certifying the right of its holder (shareholder) to participate in the management of a stock company and, where the laws do not provide for otherwise, to receive a part of the stock company profits in the form of dividend and a part of the remaining property of the stock company in case of its liquidation, as well as certifying other rights established by laws. An analogous definition is provided in the Law of the Republic of Lithuania on Companies (hereinafter – the Law on Companies).
46. Article 3(52) of the Law on Markets in Financial Instruments refers not only to shares,
but also to other securities equivalent to shares in companies, partnerships and other entities. Whereas the legislator has not specified what securities should be treated as equivalent to shares and fall within the definition of a transferable security, a careful assessment on a case-by-case basis analysing the nature of securities and the rights they confer should be carried out. How does this apply to tokens?
47. Tokens that confer to their holders the rights similar or equivalent to the rights conferred
by shares, like participation in the management of company rights, access to a part of company profits, distribution of capital upon liquidation, provided that these tokens are negotiable, are likely to be qualified as transferable securities that have features specific to shares.
48. The BoL believes that there is no ‘one size fits all’ solution when it comes to legal
qualification of tokens. Circumstances must be considered holistically in each individual case.
4.3.2 Negotiable bonds and other forms of non-equity securities
49. Article 1.103 of the Civil Code defines a bond as a security certifying its holder’s right to
receive from the person who issues the bond the nominal value of the bond, annual interest or any other equivalent, or other property rights within the time-limits prescribed in it.
50. All forms of debt securities that are negotiable on capital markets fall within the definition
of transferable securities.
How does this apply to tokens?
51. Tokens representing a debt owed by the issuer to the token holder may be considered a
debenture and fall within the term of transferable securities (provided that tokens are negotiable on capital markets).
4.3.3 Other negotiable securities
52. Examples of other transferable securities defined in point (c) of paragraph 43 of these
Guidelines may include options and warrants, structured bonds where the interest is

linked to any derivative (e.g. selected stock index, interest rate, other derivate or a combination of derivatives), etc. How does this apply to tokens?
53. Accordingly, tokens conferring to their holders the rights similar to those of other
securities shall be considered tokens that have features of securities.
4.3.4 Negotiability
54. To qualify as a transferable security a token must be negotiable. Currently, there is no
legal definition of negotiability in the Lithuanian law. The BoL is of the opinion that a token should be considered to be negotiable generally because it is capable of being transferred or traded on capital markets. The abstract possibility of being transferred or traded on the capital market is deemed sufficient, even if there is no specific market for the product yet or even if there is a temporary lock-up. Meanwhile, it could be argued that if a specific token is designed in a way that it does not allow for any transfer in capital markets, these tokens lack transferability and, thus, do not qualify as transferable securities. In practise, it is also possible to restrict the negotiability of tokens on a contractual basis (by selling restrictions applicable in a specific country for a specified period or by a lock-up agreement between the issuer and its tokens holders or groups of certain persons, etc.). In such cases, in the opinion of the BoL, tokens are still negotiable and remain transferable securities that should fall within the scope of the Prospectus Regulation. Nevertheless, some restrictions may be so broad that they result in transforming transferable securities into non-transferable securities no longer falling within the scope of the Prospectus Regulation. Therefore, the analysis whether tokens that are subject to a contractual restriction are still transferable should be conducted on a case-by-case basis.
55. It could be mentioned that there is no official and unique capital market definition
provided in the EU or Lithuanian law. Generally, capital markets are understood as venues where savings and investments are channelled between suppliers who have capital and those who are in need of capital10 .
56. Noteworthy, negotiability is to be assessed when certain tokens are considered to be a
security, meaning that negotiability should not be assessed on a stand-alone basis.
4.4 Sample set of six ICOs crypto-assets
57. For a better understanding, a sample set of six ICOs crypto-assets mentioned in the
ESMA Advice Annex 111 is discussed below. Sample crypto-assets reflect differing characteristics that range from ’investment type’ to ‘utility-type’ and hybrids of ’investment-type’, ’utility-type’ and ’payment-type’ crypto-assets.
58. As already mentioned, legal qualification of tokens may vary from one Member State to
another. The Current Guidelines provide for the opinion of the BoL on how these six ICOs crypto-assets samples should be legally qualified in the Republic of Lithuania, whereas

10 https://www.investopedia.com/terms/c/capitalmarkets.asp 11 https://www.esma.europa.eu/press-news/esma-news/crypto-assets-need-common-eu-wideapproach-ensure-investor-protection

interpretations of other NCAs may be different. When the issuance of tokens should cover a non-Lithuanian financial market, the issuer is advised to consider the nature of tokens in the light of the regulatory and supervisory framework of both Lithuania and other Member States.

ICOs crypto-assets samples12:
Case
No
Fabula Assessment of the BoL Factors determining the qualification as transferable securities General assessment of other NCAs (the Survey results are discussed in greater detail in the ESMA Advice Annex 1 ‘Annex - Legal qualification of crypto-assets – survey to NCAs’13.) Indicative list of applicable financial markets framework as regards tokens issuance and trading Case FINOM (FIN) uses Blockchain technology to provide fully integrated financial services. The FINOM ecosystem aims at allowing access to crypto-assets to a wide range of users. Other expected benefits include full transparency and traceability of transactions. The issued crypto-assets (FIN) have the following attached rights:

right to receive a portion of company
profit in the form of dividends, 2) right to participate in community management, and 3) right to a portion of company assets. USD 41m were raised through the crypto-asset sale, which ended on 31 December 2017. The funds raised will be used to develop the services that the firm Issued crypto-assets should be qualified as transferable securities under Article 3(52) of the Law on Markets in Financial Instruments. The arguments to support this view are that these crypto-assets have features similar to shares, providing similar rights to shareholders, e.g., dividend rights, the right to participate in the management of the community. Crypto-assets

right to receive a
portion of company profit in the form of dividends;
right to
participate in community management;
right to a portion
of company assets;
The Survey highlighted that most
NCAs assessed that crypto-assets case 1 could be deemed as transferable securities and/or other types of financial instruments as defined in MiFID II. Prospectus Regulation, Law on Securities and their implementing legislation Law on Crowdfunding (where applicable) MAR (where tokens are within the scope of the MAR)

12 In Cases 1–4, elements relating to negotiability on capital markets were also considered. 13 https://www.esma.europa.eu/press-news/esma-news/crypto-assets-need-common-eu-wide-approach-ensure-investor-protection

aims to provide. Crypto-assets have been placed in accordance with Regulation D (Rule 506(c) of Regulation D) of the U.S. Securities Act of 1933, meaning that FINOM crypto-assets could only be acquired by accredited investors from the United States. The crypto-assets are seemingly not traded on crypto exchanges at this point. case 1 should be considered as potential ‘investment-type’ cryptoassets. Law on Settlement Finality in Payment and Securities CSDR14 Case Polybius Bank (PLBT) is a project by Polybius Foundation that aims to offer all the services of a ‘traditional’ bank, without any branches or physical frontoffices and leveraging on digital technologies. The ICO, which ran in June 2017, raised around USD 30m. The funds raised will serve to develop the infrastructure of the bank and its services. The white paper includes a roadmap for the development of the bank. The Polybius crypto-asset (PLBT) comes with the right to receive 20% of the distributable profit of a financial year. Crypto-assets do not provide any decision making power to their holders. As of 7th

November 2018, the PLBT crypto-asset was trading at USD 1.64 (Market Cap:
USD 6,522,615), to be compared with
USD 5.36 (Market Cap: USD 20,468,400)
Crypto-asset case 2 should be deemed as transferable securities and thus subject to the existing financial markets legislation. The existence of attached profit rights, without having necessarily ownership or governance rights attached, is considered sufficient to qualify crypto-assets as transferable securities (provided that such crypto-assets also meet the other conditions to qualify as transferable securities), whether as shares or transferable securities of another type.

the right to
receive 20% of the distributable profit of a financial year Most NCAs expressed their opinion that crypto-asset case 2 could be qualified as transferable securities and/or other types of financial instruments as defined under MiFID II. Prospectus Regulation Law on Securities and their implementing acts Law on Crowdfunding (where applicable) MAR (where tokens are within the scope of the MAR) Law on Settlement Finality in Payment and Securities CSDR

14 Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities settlement in the European Union and on central securities depositories and amending Directives 98/26/EC and 2014/65/EU and Regulation (EU) No 236/2012

as of 1 January 2018.
Case
Crypterium (CRPT) aims to build up a
‘cryptobank’ with vertically integrated services. It claims to be faster and less costly than existing banking solutions and stresses its international scaling opportunities. The crypto-asset sale ended in January and raised USD 51m from 68,125 crypto-asset purchasers. The crypto-assets may be used to pay for transaction fees when using the services of the cryptobank. In addition, they grant the right to receive a monthly share of the revenues derived from the transactions. In addition, services not known yet might be available to cryptoasset holders at a cheaper price or for free in the future. Crypto-asset holders are also granted ‘priority treatment’ (although the white paper does not specify what this priority treatment would entail). In the opinion of the BoL, crypto-asset case 3 potentially suppose hybrid of ‘investment-type’ and ‘utility-type’ crypto-assets. Although these cryptoassets give sole right to receive a portion of the distributable profit (revenues), it is sufficient to qualify the crypto-assets as transferable securities.

the right to
receive a monthly share of the revenues derived from the transactions For crypto-asset case 3, the views among NCAs were split almost equally split. Seven NCAs were of the opinion that the crypto-asset did not meet their national criteria, while six NCAs said it did and, therefore, would qualify as transferable security. Prospectus Regulation, Law on Securities and their implementing acts Law on Crowdfunding (where applicable) MAR (where tokens are within the scope of the MAR) Law on Settlement Finality in Payment and Securities CSDR Case PAquarium (PQT) aims to build the world’s largest aquarium. PAquarium promises to pay 20% of the aquariums operational profit to crypto-asset holders on an annual basis. The whitepaper also mentions the possibility to sell and exchange PQTs. The crypto-assets come with voting rights on the location of the Aquarium and additional voting provisions may be available in the future. In Due to promised profit and voting rights crypto-assets case 4 should be qualified as transferable securities under Article 3(52) of the Law on Markets in Financial Instruments. It should be deemed to be potential ‘investment-
The right for 20%
of the aquariums operational profit to crypto-asset holders on an annual basis
voting rights
The responses of
NCAs for cryptoasset case 4 suggested that the financial instrument features may prevail for hybrid types of crypto-assets, although views could vary depending on Prospectus Regulation, Law on Securities and their implementing acts Law on Crowdfunding (where applicable)

addition, they may be used as a means of payment for goods at the aquarium. Purchasing a certain amount of cryptoassets gives a lifetime free entry to the aquarium. PAquarium put on sale 1.2 billion PQT crypto-assets for a total value of USD 120 million. The funds raised will be used as follows: construction and development (65%), marketing and promotion (20%), operations and legal (15%). It appears that PQTs are not traded on any crypto exchange at the moment. The project is still at a very early stage, e.g., a vote on the location of the aquarium is still underway. type’, ‘utility-type’ and ‘payment-type’ hybrid crypto-assets. the exact circumstances. The NCA's opinion was almost evenly divided, but slightly more NCAs assessed virtual assets as a transferable security. MAR (where tokens are within the scope of the MAR) Law on Settlement Finality in Payment and Securities CSDR Case Filecoin (FIL) is a decentralized storage network that turns cloud storage into an algorithmic market. Filecoins can be spent to get access to unused storage capacity on computers worldwide. Providers of the unused storage capacity in turn earn filecoins, which then can be sold for cryptocurrencies or fiat money. The BoL does not qualify crypto-asset case 5 as a transferable security, due to its utility nature. This fact suggests that pure ’utility-type‘ cryptoassets may fall outside the existing financial regulations (at the same time it does not alter the application of existing civil law or other relevant legislation).

For crypto-asset case
5, which is a ’utilitytype‘ crypto-asset, there were differing opinions among NCAs about the statement that the crypto-asset does not encompass any component that would lead to its classification as a security. - Case AlchemyBite (ALL) aims to provide a crypto-asset that is backed by different crypto-assets. The value of the cryptoasset can be determined by the value of The BoL qualifies cryptoasset case 6 as other financial instruments under the Law on Markets
For crypto-asset case
6, the majority of
NCAs did not support the qualification as
For closed-end type collective investment undertakings:

the crypto-assets it is backed with.
Between 70% and 75% of the cryptoasset are backed by crypto-assets, whereas the rest is backed by cryptorelated assets such as shares in cryptoasset developing companies. in Financial Instruments – units in collective investment undertakings. securities, with some NCAs highlighting that it qualified as units in a collective investment undertaking. Prospectus Regulation, Law on Securities and their implementing acts and/or legal acts of Collective Investment Undertakings MAR (where tokens are within the scope of the MAR) Law on Settlement Finality in Payment and Securities CSDR

Summing up the aforementioned crypto-asset cases it should be highlighted that the BoL
assesses crypto-assets cases 1, 2, 3, 4 and 6 as transferable securities (Cases 1, 2, 3 and 4) or other types of financial instruments (Case 6) as defined under Article 3(15) and 3(52) of the Law on Markets in Financial Instruments. These crypto-assets should therefore comply with the existing EU and national financial markets regulation. Generally, there was a broad agreement among NCAs that the crypto-assets that meet the necessary conditions to qualify as financial instruments should be regulated as such. The crypto-asset case 5 is a pure ’utility-type‘ and thus should not be treated as a financial instrument.
Meanwhile, the issuance of a financial instrument should be clearly distinguished from
the issuance of a non-financial instrument. The BoL notes that ICOs that do not have the characteristics typical of financial instruments should not be treated as STOs and should fall outside the scope of these Guidelines and legislative framework mentioned in these Guidelines. When tokens issued through ICOs do not qualify as financial instruments the risks that remain unaddressed should be also properly assessed by investors. At the same time, the BoL agrees that such tokens depending on their nature and the nature of the activities related to them should be subject to some form of relevant regulation (e.g.,, AML/CTF regulation, civil law regulation).
REGULATORY IMPLICATIONS WHEN TOKENS QUALIFY AS A FINANCIAL
INSTRUMENT
There is a range of approaches to tokens related activities, and the model chosen will
have an impact on which legislation is applicable, and in which way. This section of the Guidelines summarises a range of legal provisions potentially applicable to tokens issued through STOs (when tokens do qualify as financial instruments).
Where tokens qualify as transferable securities or other types of the MiFID II (and also
the Law on Markets in Financial Instruments) financial instruments, a full set of relevant EU and national financial rules, including but not limited to, the Prospectus Regulation, the Law on Securities and their implementing acts, the Law on Markets in Financial Instruments, the Law on Crowdfunding, the MAR, Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities settlement in the European Union and on central securities depositories and amending Directives 98/26/EC and 2014/65/EU and Regulation (EU) No 236/2012 (hereinafter – the CSDR), the Law on Settlement Finality in Payment and Securities Settlement Systems, are likely to apply to their issuer, crowdfunding or other trading platforms and/or firms providing investment services/activities to those instruments.
Where tokens qualify as financial instruments, a number of tokens related activities are
likely to qualify as the type of MiFID II (and also the Law on Markets in Financial Instruments) investment services/activities and the applicable requirements may vary depending on these services/activities and sometimes also depending on the type of the MiFID financial instrument involved: a) a firm that provides investment services/activities in relation to financial instruments as defined by MiFID II and the Law on Markets in

Financial Instruments needs to be authorised as an investment firm15 and comply with requirements of MiFID II and relevant requirements of the Law on Markets in Financial Instruments; b) platforms trading securities tokens with a central order book and/or matching orders under other trading models are likely to qualify as Multilateral Systems and should therefore either operate under Title III of MiFID II and relevant requirements of the Law on Markets in Financial Instruments as Regulated Markets (hereinafter – RMs) or under Title II of MiFID II and relevant instruments of the Law on Markets in Financial Instruments as Multilateral Trading Facilities (hereinafter – MTFs) or Organised Trading Facilities (hereinafter – OTFs). Regulated markets are operated or managed by a market operator, MTFs and OTFs are operated by a market operator or an investment firm; c) platforms dealing on own account and executing client orders against their proprietary capital would not qualify as multilateral trading venues but rather as broker/dealers providing the MiFID II services of dealing on own account and/or the execution of client orders and should therefore comply with the requirements set out in Title II of MiFID II and relevant requirements of the Law on Markets in Financial Instruments. The aforementioned provisions on investment services/activities in relation to tokens that could be qualified as financial instruments under the Law on Markets in Financial Instruments are not discussed further in these Guidelines.
5.1. Definition of a public offering
64. Securities token offering shall be considered to be a public offering as defined in the
Prospectus Regulation. It is a communication to persons in any form and by any means, presenting sufficient information on the terms of the offer and the securities to be offered, so as to enable an investor to decide to purchase or subscribe for those securities. This means that any appeal to persons (communication published on a website of the issuer, or crowdfunding or other trading platform operator, or intermediary or other undertaking, a direct appeal to persons on a social network, communication through mass media channels, direct presentations, etc.) performed under such conditions shall qualify as a public offering.
65. According to the provisions of Article 55(12)-(15) of the Law on Companies, bonds of
private limited liability companies may be offered to the public only when their set of annual financial statements for the last year before the year when the decision to issue such bonds was taken has been audited, and only when they have concluded agreements with financial instrument account managers on handling their personal accounts of securities (bonds) that are offered to the public as it is requested in laws and regulations on securities market. Also, such offerings are subject to the provisions applicable in relation to the publication of prospectuses or information documents. Accordingly, such provisions shall apply to issuers of tokens that have features of bonds.
66. However, notably, under the Article 2(4) of the Law on Companies shares of private
limited liability companies may not be offered and may not be traded in public, unless laws provide otherwise. So, taking this into account, private limited liability companies

15 In the case of Lithuanian investment firms that are financial brokerage firms and credit institutions providing investment services and/or carrying out investment activities.

should not offer to the public such tokens that have features of shares or are equivalent to shares.
67. The same Article 2(4) of the Law on Companies sets out the conditions under which the
offer of shares in private limited liability company shall not be considered as a public offering of securities when shares offered by or in any private limited liability company meet at least one requirement set out in the Law on Securities and/or the Prospectus Regulation by virtue of which the obligation to publish a prospectus shall not apply when securities are offered to the public, shares offered to shareholders, employees, or creditors of such private limited liability companies or professional investors who meet the criteria set out in the Law of the Republic of Lithuania on Markets in Financial Instruments, or informed investors who meet criteria of the Republic of Lithuania Law on Collective Investment Undertakings Intended for Informed Investors shall not be considered to be a public offering.
5.2. Obligation to publish a prospectus
68. If a token is a transferable security and the tokens will either be offered to the public or
admitted to trading on a regulated market, an issuer will need to publish a prospectus unless an exemption applies. The Prospectus Regulation requires publication of a prospectus before the offer of securities to the public or the admission to trading of such securities on a regulated market situated or operating within a Member State. Also it specifies that the prospectus shall contain the necessary information which is material to an investor for making an informed assessment of the financial condition of the issuer and of any guarantor, the rights attaching to the securities and the reasons for the issuance and its impact on the issuer. The information shall be written and presented in an easily analysable and comprehensible form. If a prospectus is required, the specific disclosure requirements will depend on the type of securities (equity, non-equity, other), type of offering (retail, wholesale, secondary issuance, other), type of activity (company, bank, collective investment undertaking), etc. Rules governing the procedure for verifying and approving the prospectus approved by the Resolution No 03-44 of the Board of the Bank of Lithuania of 28 February 2013 on description of the procedure for verifying and approving the prospectus with respect to STOs shall apply mutatis mutandis.
69. When both transferable securities and tokens that have features of transferable securities
are offered to the public or admitted to trading on a regulated market, provisions stipulated in the Prospectus Regulation, delegated regulations, applicable guidelines of European Securities and Markets Authority (ESMA), and the Law of the Republic of Lithuania on Securities, its secondary legislation and recommendations apply. In addition, they may be offered to the public and admitted to trading on a regulated market only when the issuer has published the prospectus. If tokens that have features of transferable securities also have features of financial products stipulated in Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs) (OL 2014 L 352, p. 1), the issuer of such tokens has to draw up for that product a key information document in accordance with the requirements of this Regulation and shall publish the document on its website.
70. Noteworthy, mere admission of securities and, thus, of tokens that have features of
securities to trading on a MTF or OTF without any features of public offering (no primary

trading in securities is being carried out, no package of tokens subject to the obligation of publishing a prospectus is being traded, etc.), or any publication of bid and offer prices on a website of the issuer, an intermediary or a trading system operator is not to be regarded in itself as an offer of securities to the public and is therefore not subject to the obligation to draw up a prospectus.
71. The Law on Securities (Article 5(2) establishes the exemption from the obligation to draw
up and publish a prospectus ― the obligation to publish a prospectus in the Republic of Lithuania shall not apply in the cases where: 1) offers of securities to the public are not subject to notification in accordance with Article 25 of the Prospectus Regulation, and 2) the total consideration of each such offer made by the issuer in Member States does not exceed EUR 8 000 000 calculated over a period of 12 months.
72. The obligation to draw up and publish a prospectus shall also not apply to issues where
total consideration of each offer is above the amount stated in the Law of the Republic of Lithuania on Securities, if at least one exemption set out in Article 1 of the Prospectus Regulation which establishes that the obligation to publish a prospectus shall not apply when securities are offered to the public or admitted to trading on a regulated market is met.
73. For issues where total consideration of each offer is above a monetary amount calculated
over a period of 12 months which shall not exceed EUR 1 000 000, the issuer shall have the right to offer tokens that have features of securities to the public in Member States only having published the prospectus.
74. The Prospectus Regulation does not directly specify who should draw up the prospectus
but requires that the person responsible for the information (being at least the issuer / offeror / person seeking admission to trading / guarantor) is specified in the prospectus. The prospectus cannot be published until it has been approved by the BoL or competent authority of another Member State.
75. Requirements for the content of the prospectus are set forth in Commission Delegated
Regulation (EU) No 2019/980 of 14 March 2019 supplementing Regulation (EU) 2017/1129 of the European Parliament and of the Council as regards the format, content, scrutiny and approval of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Commission Regulation (EC) No 809/2004 (OL 2019 L 166, p. 26) (hereinafter – Commission Delegated Regulation No 2019/980). The prospectus of tokens that have features of transferable securities should be drawn up in accordance with this Commission Delegated Regulation No 2019/980, provisions of Commission Delegated Regulation (EU) No 2019/979 of 14 Mach 2019 supplementing Regulation (EU) 2017/1129 of the European Parliament and of the Council with regard to regulatory technical standards on key financial information in the summary of a prospectus, the publication and classification of prospectuses, advertisements for securities, supplements to a prospectus and the notification portal, and repealing Commission Delegated Regulation (EU) No 382/2014 and Commission delegated Regulation (EU) 2016/301 (OL 2019 L 166, p. 1) (hereinafter ‒ Commission Delegated Regulation No 2019/979), the Resolution No 03-44, taking into account applicable disclosure regime recommendations laid down in Section 5.3 of these Guidelines, the specifics of the token issue and other relevant legislation.
76. The obligation to draw up, approve and publish a prospectus shall also apply to the
admission to trading on a regulated market of already issued tokens that have features of securities, except for the cases where, based on the Prospectus Regulation, at least one of the exemptions laid down in Article 1 of the Prospectus Regulation apply.

5.3. Disclosure of information on the issue of tokens that have features of securities
77. Where applicable, the Law on Securities and the Prospectus Regulation provide that the
prospectus should contain the necessary information which is material to an investor for making an informed assessment of the financial condition of the issuer, the rights attached to the securities and the reasons for the issuance and its impact on the issuer. In the case of tokens, this should include adequate detailed information on the issuer’s venture, the features and rights attached to tokens being issued, the terms and conditions and expected timetable of the offer, the use of the proceeds of the offer and the specific risks related to the underlying technology (Section 5.5 of the Guidelines specifies certain aspects of information in the prospectus and information document).
78. There are no specific schedules in Commission Delegated Regulation No 2019/980 for
STOs. However, issuers should use the existing schedules and, where necessary, disclose adapted information depending on the specific circumstances of the issuer and the characteristics of tokens that qualify as securities. For example, if STOs takes place and a transaction is to be considered as essentially similar to a conventional initial public offering, the issuer should draft information about itself as though it were an issuer of equity securities.
79. Articles 17–18 of the Prospectus Regulation lay down the cases where the prospectus
may not include the information on the final offer price and the amount of securities, also the supervisory authority is entitled to allow the issuer to omit any other information, which is subject to the inclusion in the prospectus, when conditions laid down in the Law are met. Noteworthy, the application for omission of the particular information should be submitted to the BoL together with the application for approval of the prospectus. The application should list the information that is not subject to disclosure and the clauses of the prospectus in which the information is requested. The application should be reasoned. If the information to be disclosed is not characteristic of activities of the issuer of tokens that have features of securities or to the financial instruments issued by the issuer of tokens that have features of securities, firstly, all efforts should be made to submit any equivalent information or data and only when they are not available, the application for omission of the information should be submitted.
80. If tokens are considered akin to equity securities, then a similar logic of application of the
information requirements set out in the equity securities note would apply. The concept of seeking ’adapted‘ information provides reasonable scope for flexibility in terms of framing a transaction in a way which best reflects an existing construct that is known to the market.
81. Often, securities token offerings are made by start-up companies. In general, companies
with less than three financial years of operation in particular economic activities fall under this category. Such companies disclose the information on their actual operation period in their prospectuses.
82. Among other information, the persons responsible for the prospectus of such issuer
should present the issuer’s business plan with a discussion of the issuer’s strategic objectives together with the key assumptions on which such plan is based, in particular with respect to the development of new sales and the introduction of new products and/or services during the next two financial years, a summary of the strengths, weaknesses, opportunities and threats which are relevant for achieving the desired outcome and a sensitivity analysis of the business plan to variations in the major

assumptions. The persons responsible for the prospectus are not obliged to include a business plan with figures. However, they should always describe the main milestones (including a target date) and the amount needed to achieve the milestones.
83. The responsibility for the comprehensiveness and correctness of information given in a
prospectus attaches to at least the issuer or its administrative, management or supervisory body, the offeror, the person asking for the admission to trading on a regulated market or the guarantor, as the case may be. The persons responsible for the prospectus shall be identified in the prospectus. (Article 11 of the Prospectus Regulation), therefore, when disclosing the information, persons responsible for the prospectus, considering the specifics of rights, issuance, trading, accounting, and other aspects of tokens that have features of securities, should carefully evaluate whether the information given in the prospectus is straight and clear, whether the investors are made aware of all basic risks, whether publicly available information has been assessed, and whether the investors will be able to take their informed investment decision based on the information provided and will not be misled.
84. Considering that most of securities token offerings will be the first time in public for their
issuers (often start-up companies) and that often they will constitute a new and a distinctive product, the issuers disclosing the information in a prospectus should:
 evaluate to what group of investors the issue is intended for. Prospectuses for retail investors should contain more explanations, avoid excessive technical or specific concepts, formulas, etc., while prospectuses for professional investors may contain more technical information, although, it should be precise, straightforward, and comprehensive;  clearly indicate the purpose of issue, what raised funds will be used for, what the costs of the issue are and other information which is required to be disclosed;  avoid disclosing too optimistic prognosis and benefits that are not based on particular calculations and assumptions. Expected benefits should not be described in more detail than risks;  comply with other disclosure requirements applicable to the traditional issue of securities.
85. It should be noted that in observance of provisions of Article 23 of the Prospectus
Regulation, every significant new factor, material mistake or material inaccuracy which arises at the time of offering or admission to trading on a secondary market and which has not been disclosed in the prospectus (e.g., when it is necessary to change certain conditions of issue having noticed that significant information on the issuer of tokens or financial instruments themselves has not been publicly disclosed or significant new risk factors arise after the disclosure) shall be mentioned in a supplement to the prospectus which should be drawn up, submitted for approval and published without undue delay. Following the publication of the supplement to the prospectus, investors who have already agreed to purchase or subscribe for tokens that have features of securities before the supplement was published shall have the right, exercisable within two working days after the publication of the supplement, to withdraw their acceptances and recover the amounts paid.
86. When submitting an application for approval of the issue of tokens that have features of
securities and are being issued as an STO, along with the draft prospectus and other documents listed in Commission Delegated Regulation No 2019/980, the issuers are recommended to submit copies of contracts concluded with operators of platforms which will carry out the distribution of tokens that have features of securities in the case of

their issuance and other agreements with persons participating in the issue or making any conclusions thereon (e.g. smart contract auditing) in advance. Where tokens are qualified as bonds as prescribed in Article 55(1) of the Law on Companies, the issuer should also submit copies of contracts concluded between the issuer and the trustee, if applicable under the Law of the Republic of Lithuania on the Protection of Interests of Holders of Bonds of Public and Private Companies. Where tokens have features of bonds and binding rules to conclude the aforementioned contract with the trustee do not apply, the issuer is recommended to conclude such contract.
5.4. Obligation to draw up an information document
87. The Prospectus Regulation shall not apply to public offering of securities where total
consideration of each offer in the EU is less than the monetary amount calculated over a period of 12 months which shall not exceed EUR 1 000 000. Laws of the Republic of Lithuania do not provide for any specific requirements on the disclosure of information where a legal entity intends to offer securities to the public when their total consideration is less than the indicated amount. The same provisions apply to offers of tokens that have features of securities. However, considering the complexity of the product (token), specifics of any offering and the fact that often they are issued by start-up companies, issuers are recommended to always draw up and make available to investors a description of the main terms and conditions applicable to the issue in question, rights attached to tokens in question and potential risks (like STO Terms and Conditions or similar) which inter alia should reveal material risks associated with the acquisition of such tokens.
88. As already mentioned, based on provisions of Article 3(2) of the Prospectus Regulation, a
Member State may decide to exempt public offers of securities from the obligation to publish a prospectus, where the supervisory authority, whose issuer intends to make public offering, is not obliged to inform other Member States about the intended issue in accordance with the procedure laid down in the Prospectus Regulation and where total consideration of each such offer in the EU is less than the monetary amount calculated over a period of 12 months which shall not exceed EUR 8 000 000. This provision of the Prospectus Regulation is implemented by provisions of the Law on Securities (Article 5) that must be followed when offering tokens that have features of securities.
89. Issues of securities with a total consideration between EUR 1 000 000 and the amount
set in the Law on Securities calculated over a period of 12 months (EUR 8 000 000) shall be considered to be medium-sized issues. Prior to the public offer of such securities in the Republic of Lithuania, it is mandatory to draw up and publish an information document (hereinafter – the information document). The preparation and publication of the information document shall not be required when at least one of the conditions laid down in the Prospectus Regulation is met where the obligation to publish a prospectus does not apply to public offers of securities (Article 7 of the Law on Securities). Equivalent provisions of medium-sized issues apply to tokens that have features of securities. Where a company issues in Lithuania tokens that have features of transferable securities (equity, non-equity or other) with a total amount of EUR 1 000 000 – 8 000 000 and none of the exemptions laid down in the Prospectus Regulation is applicable, it has to draw up and make available to persons intending to acquire such instruments the information document, specifying information on the company and the

tokens that have features of securities and the persons intending to acquire these instruments must be given access to it.
90. The content of the information document is explicitly detailed in the Resolution No 03-45
of the Board of the Bank of Lithuania of 28 February 2013 on the description of the procedure for drawing up and publishing the information document mandatory in the cases of public offering in medium-sized issues of securities and medium-sized crowdfunding transactions. The information document should be published and made available to potential investors before the beginning of any public offering.
91. Legal acts do not provide for any duty of the Bank of Lithuania to approve information
documents for medium-sized issues or documents on terms and conditions of issues drawn up at discretion of issuers. A ’whitepaper‘ or other issue terms documents (in the case of STOs – for offers up to EUR 1 000 000) are not standardised and often feature information considered to be exaggerated or misleading. Given the lack of clear information, consumers may not understand that many of these projects are high-risk and at an early stage, and, therefore, may not suit their risk tolerance, financial sophistication or financial resources.
92. The information document or another similar document drawn up with regard to terms
and conditions of the issue in question should contain accurate, straightforward, true, and non-misleading information, so that investors could appropriately assess the issuers of tokens that have features of securities and their operation perspectives and take informed investment decisions. In addition, in order to protect investors from unreasonable expectations, it is recommended to specify clearly in the preamble to such document that it is not a prospectus within the meaning of the Prospectus Regulation and the Law of the Republic of Lithuania on Securities and has not been approved by the Bank of Lithuania.
5.5. Recommendation on the disclosure of specific information and specific risk
factors in relation to the issuance of tokens and their issuers
93. Depending on the specificity of tokens, the content of the offering document (prospectus,
information document, etc.) of tokens that have features of securities, is recommended inter alia:
93.1. To clearly indicate the payment and settlement currency when describing the payment
order for tokens that have features of securities. The currency of payment provided in the prospectus shall be the national currency of the Republic of Lithuania. However, if, without prejudice to the requirements laid down in the Bank of Lithuania position, there is access to the settlement of tokens that have features of securities (payment for tokens that have features of securities, payment of interest, redemption of tokens, etc.) in a crypto currency and this method of payment is chosen, the offering document should indicate clearly and precisely what currency is to be settled or could be settled, where and when the transfers to be made. It should also be specified how it will be ensured that the quantity of tokens submitted to the investor will be equivalent to the amount of money paid by him in terms of the euro or the amount of the crypto currency equivalent to the euro (e.g., the calculations are made on the basis of the euro and crypto currency exchange rate published on the publicly accessible and recognised website (e.g., www.cryptocompare.com.). For the purposes of calculations it is recommended to use the exchange rate of the nearest actual settlement date (such as

the average published exchange rate of the last calendar day, the published exchange rate of the calendar day on which the payment is received).
93.2. Where the terms of issue provide for the payment of interest, the redemption or
payment to investors in virtual currency, the manner in which they will be paid (e.g., the issuer will make payments on the corresponding payment days at 12:00 CET).
93.3. To describe the specific nature of a transfer of a token of securities, namely that the
assignment takes place on a normal basis, the intermediary has made entries in the personal securities accounts or they will be made available on the DLT platform. How, in such case, the identification of tokens will be ensured, who will produce the proof of ownership of the licensee’s assets, whether the investors/issuer are entitled to advance redemption (where tokens have indications of debt securities), in what cases and how this would be ensured, other specific investor rights or obligations.
93.4. For enabling payments in virtual currencies to draw attention of potential investors to
the obligation to hold ‘virtual cash’, to specify other relevant requirements (e.g., to provide the issuer with a virtual wallet, if any, or a provider of this service, to warn investors that they assume responsibility for safe custody of their virtual cash private keys.
93.5. To provide the information specified in Chapter 5.6 of these Guidelines on performing
the audit of a smart contract, if any, other significant conditions.
93.6. To indicate specific risk factors to be used, to disclose specific risk factors for tokens
specific to securities (see paragraphs 94-97 of the Guidelines).
94. In order to enable investors to take informed investment decisions when acquiring
tokens that have features of securities from any particular issuer, the appropriate disclosure of information on all material and most likely risks attached to specific issuers and tokens that have features of securities issued by them is important.
95. In addition, adherence to equivalent risk disclosing principles and the consideration of
below-listed specific risks in relation to tokens that have features of securities is recommended when disclosing risk factors in the information document and prospectus. The description of risk factors should inter alia:
95.1. Identify clear and straightforward relation between risks and issuers or tokens issued by
them, avoid generic phrases of declarative nature;
95.2. Present only material risks that might affect investor decision and are most likely to
occur or might have the most negative impact without overloading the document with general information;
95.3. Present risks grouped by categories (e.g., risks associated with issuers (project owners)
and their financial position, risks associated with public offerings of tokens, token records, rights attached to them, etc.) and significance (low, medium, high) according to requirements of the Prospectus Regulation;
95.4. Include clear and straightforward information avoiding artificially diminishing or
elevating any risks.
96. Beyond traditional risks associated with the offerings of securities, it is recommended to
consider whether the issuers of tokens that have features of securities do not face risks characteristic to this specific product and its offering, and if such risks are faced disclose them to the investors in the document on terms and conditions of the issue.
97. Considering that the issuance of tokens involves the use of DLT, any specific risk
associated with the nature of tokens that have features of securities, issuing undertakings, trading platforms or other relevant risks should be assessed and made

available to potential investors (taking into account that technologies are not static, they are always subject to change and so is the content and scope of risk), e.g.:
97.1. Most businesses raising capital through STOs are at the initial stages of development,
often not even operating businesses, but just ideas, even if some larger companies start issuing tokens. The likelihood that they fail is therefore high and investors are exposed to a great risk of losing their capital.
97.2. Although many tokens may be available for trading on specialised trading platforms
after issuance, their liquidity is typically shallow and investors may have a limited possibility of liquidating an investment. The information about the project and the issuer may also be limited considering that they are usually at a very early stage of development.
97.3. Many issues pertaining to platforms trading tokens essentially do not differ from the
existing ones applicable to trading venues for traditional securities, even if they may arise in a different way. These include: whether the platform has the necessary resources to effectively conduct its activities and address the risks that may arise from them; whether it has established and maintains adequate arrangements and procedures to ensure fair and orderly trading; whether it has adequate measures to prevent potential conflicts of interest and whether it provides access to its services in an undiscriminating way.
97.4. Price discovery mechanisms and market integrity – whether pre- and post-trade
information made available by the platform is sufficient to support market efficiency, fair and orderly trading and whether the platform has adequate rules. High price volatility and often low liquidity. Investors typically access tokens trading platforms directly, without an authorised intermediary being involved, which raises the issue of whether the platforms are in the position to and effectively do conduct checks on those clients.
97.5. There are business continuity issues of the trading platforms, which although not unique
may be exacerbated in the case of tokens platforms because they are still relatively new and with limited resources. As an example, investors could face difficulties recovering their funds in times of financial distress.
97.6. Centralised crypto trading platforms typically take control of client tokens (e.g., they
hold clients’ private keys on their behalf or keep clients’ tokens in a single DLT account under the platform’s own private key) and may also hold fiat money on their behalf; the issue is therefore whether the platform has the necessary measures in place to segregate and safeguard these assets (crypto and fiat).
97.7. On centralised crypto trading platforms, transaction settlement is made in the books of
the platform and is not necessarily recorded on DLT. In those cases (off-chain settlement), confirmation that the transfer of ownership is complete lies solely with the platform (no trusted third party involved); investors, therefore, face material counterparty risks vis-à-vis the platform, e.g., in case it is malevolent or does not function properly.
97.8. With decentralised crypto trading platforms, investors remain in control of their tokens
and transaction settlement is made on DLT (on-chain), using smart contracts or other tools. While this set-up helps mitigate counterparty risks vis-à-vis the platform, it also has some drawbacks. Decentralised platforms also have the same vulnerabilities/issues as the DLT on which they are built, e.g., there may be delays in the processing of the transactions or governance issues.

97.9. Investors may choose to hold their tokens themselves, i.e., they remain in full control
of their private keys, using hardware or software wallets. Despite the main advantage of this approach – the investor remains the sole owner of its private keys at all times, which reduces the risk of a hack, not all investors may have the necessary expertise and equipment for the proper safekeeping of their private key. In addition, this model may be ill-suited to certain types of investors, e.g., multi-signature wallets could be used for institutional investors, where several individuals and not just one need to have control of tokens.
97.10. Other investors entrust the custody of their tokens to custodial wallet providers who
hold tokens (e.g., private keys) as an agent on behalf of the investor and has at least some control over these tokens. The issue, therefore, is whether the custodial wallet providers have the necessary measures in place to segregate and safeguard these tokens.
97.11. There may be flaws in relation to the technology itself, e.g., in the protocols or smart
contracts that come on top. While DLT supporters generally see DLT as more secure than many existing systems, it may still be possible to tamper with the records or the technology may not always function properly, e.g., during peaks of activity. Also, smart contracts may not work as intended, e.g., in case of coding errors. Furthermore, the risks related to a functioning of the smart contract where its auditing was not undertaken are to be seen as feasible.
97.12. Risks associated with a new or recently formed network. Where widely used and wellknown DLT networks (often permissionless) enjoy the reputation of reliable
technologies, which they prove and strengthen over time, the manifestation of new, or recently formed, permissioned (or permissionless) network might request additional assessment of its safety.
97.13. Tokens may raise specific technology and cyber security risks because of their very
nature and also the fact that DLT is still a nascent technology and largely untested in financial markets. Also, the fact that few people have the necessary skill set to understand the intricacies of the technology may exacerbate operational risks and the risk of fraud. Technology is a dynamic phenomenon, it constantly changes and therefore might be subject to new DLT safety risks, e.g., 51% attack risk or radically increasing computing power after the development of quantum computing. Consequently, it is important to remember that any system, network or functionality that are (or reasonably look) safe today, might become more vulnerable to technological risks over time.
97.14. Other risks stemming from the underlying technology – for example, the distributed
nature of DLT, including the use of consensus to validate transactions and the use of self-executing pieces of codes, implies that establishing clear responsibilities and liabilities, e.g., in the case of errors or malevolent activities, may be a challenge in the absence of clear rules established at the outset. Another related issue that is particularly relevant to permissionless DLTs has to do with the role of miners, as they provide the necessary ’fuel‘ to verify and make transactions final. Unless they receive the proper incentive to continuously mine transactions, they may suspend their activities, in which case transactions would be left pending. Meanwhile, the concentration of mining activities in a few hands may raise pricing and competition issues.
97.15. Ensuring DLT safety, an important role is played by network community. Therefore,
safety of any public or private network directly depends on what persons are

permissioned to join it, how many members and of what community are present in the network, and whether they have any agreements. In addition, public networks are maintained by their communities, and if the community does not meet a consensus on any matter, the network might go into a hard fork which will result in risk that one branch becomes less popular and loses its maintenance; then tokens circulating in this branch would become rather vulnerable.
97.16. The distributed nature of DLT also implies some form of publicity, namely, that all
participants share the same records, which, if not handled carefully, could raise privacy issues, e.g., in relation to client data. There is also the risks that some participants misuse the information that may be available to them, e.g., to front run transactions of others, unless proper safeguards are in place.
97.17. Also, in the absence of adequate controls, because of the anonymity attached to
private/public keys, tokens may be prone to the risk of fraud or other illicit activities, including money laundering.
97.18. Applicable legal acts do not provide for any specific safety measures that would
guarantee any coverage of loss suffered in result of virtual currency transactions in case of malfunction or termination of operation in virtual currency exchange that performs virtual currency exchange operations or holds virtual currencies (as, e.g., a deposit insurance system). Virtual currency exchange might be subject to hacking and taking over funds from private virtual wallets having stolen public and/or private keys.
97.19. Payments for goods and services made in virtual currencies, including the acquisition
of tokens that have features of securities, are not protected by any legal compensations provided for in the legal acts of the EU that might be applied, e.g., when making a transfer from a traditional bank or other payment account. The recovery of illegal or false collection of funds from virtual wallets most often is impossible.
97.20. Noteworthy, no legal practice has been formed yet in regard to the assessment of
tokens that have features of securities, their offering, trading and recording in DLT environment, smart contracts, and other specific aspects of such relationship, as well as legal power towards them, therefore it might result in some legal uncertainty.
97.21. Other.
5.6. Smart contracts
98. When issuing tokens that have features of securities, all characteristics of rights given to
the holders of tokens, obligations of the issuer of tokens, and other terms and conditions of issue should be described in a document drawn up on the issue in question (prospectus, information document, white paper, or else). In a DLT environment, the issuance of tokens shall be implemented using smart contracts. Considering the fact that any smart contract concluded when issuing tokens shall be irrevocable and immutable and that any execution of rights given by the acquired tokens basically depends on the content of the smart contract, particular attention should be paid by both undertakings issuing tokens and undertakings investing in tokens to the analysis and the assurance of reliability in the processes of development and execution of smart contracts.
99. Smart contract is a piece of encoded computer software operating in a DLT environment
and containing a set of rules which have been agreed between the parties to the contract. Smart contracts automatically apply terms and conditions coded in them. They function autonomously, without any interference of the third parties or intermediaries.

When two (or more) parties conclude a smart contract and one party fulfils its obligations coded within the contract, obligations of the counterparty shall be fulfilled automatically based on the formula contained in the smart contract.
100. Usually, smart contracts are developed by the third persons, not by the parties to the
contract. Therefore, aiming to ensure the reliability of smart contracts, on one hand, the issuers of tokens (smart contract initiators) should make sure that smart contracts were developed by competent persons with good reputation, while, on the other hand, investors should be careful and pay adequate attention to ascertain themselves of quality and reliability of the smart contract that is being offered.
101. By their content, smart contracts should accurately and explicitly represent the
information contained in the published document on the issue of tokens. However, in practice, the probability of making any internal logic mistake, intentionally or by negligence, exists when developing a program code (e.g., after some time tokens may be returned to a certain wallet or made inactive). In order to avoid such circumstances, the following recommendations are noteworthy.
101.1. Any smart contract will be really ‘smart’ only when it is developed by persons whose
competence and experience enable them to assess all significant information when coding the contract. The issuers of tokens (smart contract initiators) are recommended to employ smart contract development service providers with particular care, taking into account their reputation, competence and experience in the development of smart contracts, as well as the history of smart contract projects developed by them when such information is available.
101.2. In order to make the information coded within any smart contract available to all
potential investors, not only to those with specific education (e.g., computation or technical), terms and conditions coded in any smart contract should be translated into traditional language and delivered in a paperless format, or a smart contract scheme should be added. In cases when the translation into traditional language or the smart contract scheme is absent, investors without specific knowledge, which would enable them to identify what is significant for taking their informed decision based on coded information only, are recommended to seek for professional advice.
101.3. The longer the execution of any smart contract, the less ‘smart’ the contract, since its
execution might be aggravated or made completely impossible due to the change of circumstances, e.g., the amendment of laws, adoption of court decisions, etc. The likelihood of such circumstances is recommended to be assessed when developing any smart contract.
101.4. Article 23(2) of the Prospectus Regulation provides that where the prospectus relates
to an offer of securities to the public, investors who have already agreed to purchase or subscribe for the securities before the supplement is published shall have the right, exercisable within two working days after the publication of the supplement, to withdraw their acceptances, provided that the significant new factor, material mistake or material inaccuracy arose or was noted before the closing of the offer period or the delivery of the securities, whichever occurs first. Such right of investors to withdraw their acceptances would be equally exercisable where drawing up the prospectus related to the offer of tokens that have features of securities. Within this context noteworthy is the fact that any smart contract concluded until the closing of the offer period or the delivery of securities, whichever occurs first, should include the clause which would allow the investors to exercise their right to withdraw their acceptances. If such condition was not included, considering the immutable and the irrevocable

nature of smart contracts, investors would have faced difficulties aiming to exercise such their right. Also, smart contracts should include the possibility to restrict transfer, exchange or similar actions of persons in regard to tokens, if needed.
101.5. Having developed any smart contract, it is recommended to involve third parties for
its assessment (hereinafter in these Guidelines – smart contract auditing). The purpose of such smart contract auditing should be to check whether the smart contract is free from internal logic or technical coding mistakes, whether it is technologically safe and secured, whether the conditions coded in it are in line with the terms and conditions laid down in the document on the issue, and whether it ensures the exercise of token holders’ rights as described in the document on the issue, and provide a report on such aspects as how the smart contract operates and what its functions and risks are. Persons, who perform smart contract auditing, are recommended to avoid the engagement in any relationship with the issuers of tokens/smart contract development service providers in question and should declare their independence from the issuers of tokens/smart contract development service providers. Declaring the competence and experience in the auditing of smart contracts is also recommended.
101.6. For increased transparency and reliability, persons, who perform smart contract
auditing, are recommended to disclose the content and the scope of smart contract auditing and reveal what was audited and what conclusions were made. Such general wordings as ‘the smart contract has been developed properly’ or ‘the smart contract is in line with the document on issue in terms of all significant aspects’ may provide no material information to potential investors; therefore, it is recommended to precisely identify the assessed aspects and the issued findings.
101.7. It is recommended that conclusions, following the smart contract auditing, be drawn
up for each smart contract separately and included into the prospectus (or another document on issue) as the expert opinion and delivered to the supervisory authority attached to the application for approval of the prospectus.
102. Noteworthy, smart contracts can turn legal obligations into automated processes;
guarantee a greater degree of security provided that the creation process is secured and reliable; reduce reliance on trusted intermediaries; lower transaction costs. However, they are also likely to contain internal logic or technical coding mistakes that might be made in the development process; automated execution of smart contracts may be interrupted due to flaws in a platform where the contract runs on, cyber-attacks, or external factors when the execution of a smart contract must be confirmed by third parties, e.g., a public register, notary or another institution. Therefore the reliability of any smart contract is always noteworthy.
5.7. Primary trading in tokens that have features of securities
103. Provisions of Article 8 of the Law on Securities shall apply to primary trading in tokens
that have features of securities. This means that any primary trading in tokens that have features of securities may be conducted in several ways: where the issuers offer tokens themselves (e.g., are the issuers themselves) or under an agreement with intermediaries, including primary trading through crowdfunding platforms when they operate as intermediaries. Tokens can also be offered by organizational-technical means of any operator of the regulated market, MTF or OTF, and/or the settlement system in

accordance with rules approved by them, if operators provide such services. Tokens can also be sold (purchased) on relevant DLT platforms.
104. As already mentioned in these Guidelines, following the provisions of the Law of the
Republic of Lithuania on Securities, where public offering of tokens that have features of securities is intended to take place solely in the Republic of Lithuania, the obligation to publish the prospectus shall apply in the cases where total consideration of each offer of tokens made by the issuer in Member States is above EUR 8 000 000 calculated over a period of 12 months. However, where tokens that have features of securities when total consideration of each offer is equal to or above EUR 1 000 000 calculated over the period of 12 months are intended for cross-border trading and exemptions laid down in Article 1 of the Prospectus Regulation are not the case, the prospectus should be published before starting the primary trading.
105. Where public offerings of tokens that have features of securities are intended under their
terms and conditions not only for the Republic of Lithuania, but also for other Member States, the prospectuses submitted to the Bank of Lithuania for approval should be supplemented with the request to transfer the approved prospectus to competent authorities of Member States where the public offering of (trading in) tokens is to take place (host Member States) (Article 42 of Commission Delegated Regulation No 2019/980). Having approved the prospectus, the Bank of Lithuania shall, in accordance with applicable procedures, inform competent authorities of host Member States and ESMA about such approval and shall transfer the approved prospectus.
106. The approval of prospectus by the Bank of Lithuania or the supervisory authority of the
other Member State shall enable the issuers to offer tokens that have features of securities to the public in Member States listed in the prospectus.
107. When publishing the prospectus, any intermediary, issuer, operator of platform where
the public offering of tokens that have features of securities is taking place, or other distributor must explicitly and unambiguously name where (in which states) in particular the offering is taking place and that the prospectus is not intended for residents of other EU Member States. However, residents of other EU Member States or other countries are not prevented from subscribing for the tokens on their own initiative if they are not prevented under the terms and conditions of the particular offering or legislation of that country.
108. Where terms and conditions of the issue of tokens that have features of securities
provide for that the public offering will take place only in certain Member States, the issuers are recommended to have particular arguments (evidence) that the offer was not intended for Member States other than those listed in the prospectus and their residents (e.g., the prospectus and the information on its approval or on the offering was not published in other languages than those of the Member States which the offering was intended for (or the English language which is universally recognised in financial markets), no agreement (contract) on the distribution of advertisements in other Member States or third countries was concluded, contracts on the distribution of advertisement explicitly state that advertisements should be distributed in listed states, etc.
109. The Law of the Republic of Lithuania on Securities provides for the opportunity to have
different terms and conditions of public offering for different groups of investors (e.g., the subscription price, subscription priority) in the course of primary trading in securities where equal terms and conditions shall be ensured for all persons belonging to the same group of investors. Considering this, public offerings of tokens that have features of

securities may also be intended for different groups of investors; however, the issuers should define explicit, straightforward and measurable criteria for the attribution of investors to a particular group and disclose them in the document on terms and conditions of the issue (an information document, a prospectus, etc.) as well as encode in the smart contract.
110. All investors, either grouped or ungrouped, should be provided with equal rights to
acquire the information. All material information related to the public offering of tokens or the issuer should be disclosed in the document on terms and conditions of the issue published and made available by the issuer to all investors free of charge (a prospectus or an information document, etc.), and the information in the advertisements should be in line with that contained in the document on terms and conditions of the issue. Even where the prospectus or the information document is not required, the information should be made available to all potential investors under the same conditions.
111. Noteworthy, based on the Bank of Lithuania position on virtual assets and initial coin
offering, financial market participants providing financial services should not use virtual currency when buying or selling tokens that have features of securities. When defining target groups of investors it should be taken into account that persons providing financial services may be able to acquire tokens that have features of securities if it would be in line with the aforementioned Bank of Lithuania position.
112. Also noteworthy is the fact that the procedures of primary (and secondary) trading in
tokens that have features of securities must ensure restrictions to acquire tokens for persons listed in Council Regulation (EU) No 960/2014 of 8 September 2014 amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine (OJ 2014 L 271, p. 3), and other persons under respective sanctions or prohibitions.
5.8. Secondary trading in tokens that have features of securities
113. Broadly speaking, all issues discussed above follow the principles that there is no STOsspecific legal regime and that once a token is classified as a particular type of financial
instrument, the regulatory implications would follow in ordinary course. For tokens that are classified as financial instruments and are admitted to trading and traded on a regulated market, multilateral trading facilities or another market defined by laws, the respective provisions applicable to securities should apply.
114. Where tokens qualify as financial instruments, platforms trading tokens with a central
order book and/or matching orders under other trading models are likely to qualify as Multilateral Systems and should therefore either operate under Title III of MiFID II and relevant requirements of the Law on Markets in Financial Instruments as RMs or under Title II of MiFID II as MTFs or OTFs. RMs are operated or managed by a market operator. MTFs and OTFs are operated by a market operator or an investment firm.
115. Where operators of those platforms are dealing on own account and executing client
orders against their proprietary capital, they would not qualify as multilateral trading venues but rather as broker/dealers providing the MiFID II services of dealing on own account and/or the execution of client orders and should, therefore, comply with the requirements set out in Title II of MiFID II.

Trading platforms that are used to advertise buying and selling interests and where there
is no genuine trade execution or arrangement taking place may be considered as bulletin boards and fall outside of MiFID II scope, as per recital 8 of Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No 648/2012 (OL 2014 L 173, p. 84), as last amended by Regulation (EU) No 2016/1033 of the European Parliament and of the Council of 23 June 2016 (OL 2016 L 175, p. 1).
Detailed provisions in regard to legal requirements applicable to the marketplaces in the
EU are submitted in ESMA Advice document.
5.9. Accounting of tokens that have features of securities
Where tokens that have features of securities are being issued, accounting principles of
traditional financial instruments and requirements applicable to the opening, management and closing of traditional financial instrument accounts shall apply depending on the legal form of the issuer, characteristics of tokens that have features of securities, distribution methods and other conditions. Tokens that have features of securities, likewise traditional financial instruments, shall be recorded by entries in financial instrument accounts managed in accordance with the procedure laid down in the Law on Markets in Financial Instruments.
For tokens that have features of securities (no matter what kind of securities) which are
offered to the public (or traded privately) by companies, accounting principles applicable to shares, bonds and other financial instruments of the issuers and requirements for the opening, management and closing of accounts of shares, bonds and other financial instruments of the issuers shall apply. It means that such financial instruments shall be recorded by entries in financial instrument accounts managed in accordance with the procedure laid down in Chapter VI of the Law on Markets in Financial Instruments. The same requirements apply to tokens that have features of bonds or derivatives of private limited liability companies.
Tokens that have features of securities shall be recorded by entries in financial
instrument accounts managed in accordance with the procedure laid down in the Law on Markets in Financial Instruments. Such tokens that have features of securities shall be accounted within the accounting system of financial instruments consisting of interrelated higher and lower level financial instrument accounts, legal acts regulating their management and accounting principles of financial instruments. The issuers and other undertakings, whose issue of tokens that have features of securities or other financial instruments had been registered within central securities depository, must inform the depository about the major events of financial instruments according to the terms and procedures set by the depository and provide related documents and information necessary for the execution of such events.
Considering the specifics of tokens that have features of securities, managers of such
accounts should be capable of handling the accounting of tokens in a DLT network when this enables to ensure adherence to the accounting principles of financial instruments (including, but not limited to, separate accounting, separability of funds, transparency), accounting requirements and traceability of transactions.
Accounting entries of tokens that have features of securities in a DLT network may be
considered as entries in financial instrument accounts only when entries in a DLT network are made in accordance with the requirements of the Law on Markets in Financial Instruments ensuring the integrity of the accounting system of financial instruments at higher and lower levels and the fulfilment of terms and conditions of the issue, respectively. Central securities depositories and managers of such accounts should apply certain reconciliation measures in order to ensure the integrity of the issue of tokens that have features of securities as required by laws. Where other undertakings participate in the reconciliation of a certain issue of tokens that have features of securities, the central securities depository and each of such undertakings should agree on respective mutual cooperation and information exchange measures in order to ensure the integrity of the issue.
The DLT which qualifies as the securities settlement system may be managed only by
central securities depository which is in line with requirements of the Central Securities Depositories Regulation.
The accounting of tokens that have features of transferable securities which have been
issued by private limited liability company and are traded privately may be managed in accordance with provisions of Article 41(3) of the Law on Companies.
5.10. Advertising activity relating to tokens qualified as transferable securities
Under Article 22(1) of the Prospectus Regulation any advertisement relating either to an
offer of securities to the public or to an admission to trading on a regulated market shall comply with the principles stipulated in the Prospectus Regulation. Where tokens are qualified as transferable securities the provisions on advertising activity similar to provisions that are likely to be applied to advertisement related to securities shall apply.
‘Advertisement’ under Article 2(k) of the Prospectus Regulation means a communication
with both of the following characteristics:
126.1. relating to a specific offer of securities to the public or to an admission to trading on a
regulated market;
126.2. aiming to specifically promote the potential subscription or acquisition of securities.
In the event that material information is disclosed by an issuer or an offeror and
addressed to one or more selected investors in oral or written form, such information shall, as applicable, either:
127.1. be disclosed to all other investors to whom the offer is addressed, in the event that a
prospectus is not required to be published; or
127.2. be included in the prospectus or in a supplement to the prospectus, in the event that a
prospectus is required to be published.
Where the issuer, the offeror or the person asking for admission to trading on a
regulated market is subject to the obligation to draw up a prospectus, advertisements shall be clearly recognisable as such. The information contained in an advertisement shall not be inaccurate or misleading and shall be consistent with the information contained in the prospectus, where already published, or with the information required to be in the prospectus, where the prospectus is yet to be published. Advertisements shall state that a prospectus has been or will be published and indicate where investors are or will be able to obtain it. All information disclosed in an oral or written form concerning the offer of securities to the public or the admission to trading on a regulated market, even where

not for advertising purposes, shall be consistent with the information contained in the prospectus.
129. As the provisions concerning advertisements laid down in the Prospectus Regulation are
without prejudice to other applicable provisions of the EU law (Article 22(11) of the Prospectus Regulation), those other relevant provisions shall be also taken into account, for instance, see Directive 2006/114/EC of the European Parliament and of the Council of 12 December 2006 concerning misleading and comparative advertising (OL 2006 L 376, p. 21) and the Law on Advertising of the Republic of Lithuania that transposes the abovementioned Directive 2006/114/EC).
130. Noteworthy, the provisions of the Prospectus Regulation related to advertising activity
are to be further specified in the Commission Delegated Regulation No 2019/979.
5.11. Application of provisions on the disclosure of periodic information and the
takeover of the issuer’s control
131. Directive 2004/109/EC of the European Parliament and of the Council of 15 December
2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC 15 December 2004 (OL 2013 L 294, p. 13) (hereinafter – the Transparency Directive) aims to provide the disclosure of accurate, comprehensive and timely information about issuers whose securities are admitted to trading on a regulated market situated or operating within a Member State. In particular, it requires disclosure of periodic and ongoing information about these issuers, e.g., annual financial reports, half-yearly reports, quarterly reports (if applicable), acquisition or disposal of major holdings and any changes in the rights of holders of securities. The Transparency Directive applies only were instruments are transferable securities, as defined in Article 4(1)(44) of MiFID II.
132. Where tokens are transferable securities admitted to trading on a regulated market
situated or operating within a Member State, issuers will have to comply with the periodic and ongoing disclosure requirements set in the Transparency Directive. Provisions of this Directive have been transposed into the Law on Securities; therefore, the issuers, whose tokens are listed on regulated market, must comply with the provisions of this Law.
133. Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on
takeover (OL 2014 L 173, p. 190) (hereinafter – the Takeover Directive) provides for requirements applicable to official offerings and squeeze-out and sell-out procedures. The respective provisions of the Takeover Directive applicable to securities of the issuers incorporated in the Republic of Lithuania are provided for under Section IV of the Law of the Republic of Lithuania on Securities. Provisions of this section shall apply to the holders of tokens that have features of securities where tokens that have features of securities are considered equivalent to shares or having features of equity securities and enable to take over the issuer’s control.
5.12. Market Abuse Regulation
134. The MAR prohibits the insider dealing, the unlawful disclosure of inside information and
market manipulation (market abuse) in relation to the following instruments: (a) financial

instruments admitted to trading on a regulated market or for which a request for admission to trading on a regulated market has been made; (b) financial instruments traded on MTFs, admitted to trading on MTFs or for which a request for admission to trading on MTFs has been made; (c) financial instruments traded on OTFs; and (d) financial instruments not covered by point (a), (b) or (c), the price or value of which depends on or has an effect on the price or value of a financial instrument referred to in those points’ (Article 2 of the MAR). The above prohibitions apply to any person (Article 14 of the MAR).
135. Where tokens qualify as financial instruments and provided they are traded or admitted
to trading on a trading venue (or where they are not traded on a trading venue and their price or value depends or has an effect on the price or value of a financial instrument traded on a trading venue), the MAR would become applicable. In addition, the trading platforms would need to have in place effective arrangements, systems and procedures aimed at preventing, detecting and reporting market abuse (Article 16 of the MAR). Issuers would need to disclose inside information as soon as possible (Article 17 of the MAR) and to maintain an insider list (Article 18 of the MAR). Managers at issuers would need to notify the competent authority of every transaction conducted on their own account (Article 19 of the MAR). Persons who produce or disseminate investment recommendations would also need to ensure that such information is objectively presented (Article 20 of the MAR), which may be particularly pertinent for tokens markets where limited trading volumes and / or concentrated ownership of certain tokens may raise greater risks of conflicts of interest.
136. Also, the novel nature of the tokens market could mean that some new abusive
behaviours may arise which are not directly captured by the MAR or current market monitoring arrangements. For example, new actors may hold new forms of inside information, such as miners and wallet providers, which could potentially be used to manipulate the trading and settlement of tokens.
137. The application of the MAR might also raise specific issues in the case of decentralised
trading platforms, as there may be a lack of clarity as to the identity of the market operator.
138. It should be noted that where tokens do not qualify as financial instruments trading in
them would in principle be out of the scope of the MAR.
6. LEGISLATIVE REFERENCES, ABBREVIATIONS AND GLOSSARY
6.1. Legislative references
Commission Delegated Regulation No 2019/979 - Commission Delegated Regulation (EU) No 2019/979 of 14 Mach 2019 supplementing Regulation (EU) 2017/1129 of the European Parliament and of the Council with regard to regulatory technical standards on key financial information in the summary of a prospectus, the publication and classification of prospectuses, advertisements for securities, supplements to a prospectus and the notification portal, and repealing Commission Delegated Regulation (EU) No 382/2014 and Commission delegated Regulation (EU) 2016/301 Commission Delegated Regulation No 2019/980 - Commission Delegated Regulation (EU) No 2019/980 of 14 March 2019 supplementing Regulation (EU) 2017/1129 of the European Parliament and of the Council as regards the format, content, scrutiny and approval of the

prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Commission Regulation (EC) No 809/2004 CSDR – Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities settlement in the European Union and on central securities depositories and amending Directives 98/26/EC and 2014/65/EU and Regulation (EU) No 236/2012, as last amended by Regulation (EU) No 2016/1033 of the European Parliament and of the Council of 23 June 2016 MiFID II – Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU MAR – Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC Prospectus Regulation – Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC Takeover Directive – Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids Transparency Directive – Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC Law on Companies – Law of the Republic of Lithuania on Companies Law on Crowdfunding – Law of the Republic of Lithuania on Crowdfunding Law on Markets in Financial Instruments – Law of the Republic of Lithuania on Markets in Financial Instruments Law on Securities – Law of the Republic of Lithuania on Securities Law on Settlement Finality in Payment and Securities Settlement Systems ‒ Law of the Republic of Lithuania on Settlement Finality in Payment and Securities Settlement Systems Bank of Lithuania position – Position of the Bank of Lithuania on Virtual Assets and Initial Coin Offering (amended on 21 January 2019) ESMA Advice – Advice ‘Initial Coin Offerings and Crypto-Assets’ No ESMA50-157-1391, issued by European Securities and Markets Authority on 9 January 2019 Resolution No 03-44 – Resolution No 03-44 of the Board of the Bank of Lithuania of 28 February 2013 on description of the procedure for verifying and approving the prospectus Resolution No 03-45 – Resolution No 03-45 of the Board of the Bank of Lithuania of 28 February 2013 on the description of the procedure for drawing up and publishing the information document mandatory in the cases of public offering in medium-sized issues of securities and medium-sized crowdfunding transactions Resolution No
03-127 – Resolution No 03-127 of the Board of the Bank of Lithuania of 22 August 2017 on information disclosure rules.
6.2. Abbreviations
AML/CTF – Anti-Money Laundering/Counter Terrorist Financing DTL – Distributed Ledger Technology

ESMA – European Securities and Markets Authority EU – European Union ICOs – Initial Coin Offerings BoL – Bank of Lithuania MTFs – Multilateral Trading Facilities NCA – National Competent Authority OTFs – Organised Trading Facilities RMs – Regulated Markets STOs – Securities Token Offerings Survey – survey of Member State National Competent Authorities undertaken by ESMA in the summer of 2018 with the aim to collect detailed feedback on possible legal qualification of crypto-assets as financial instruments
6.3. Glossary of concepts and terms
Crypto-assets – a cryptographically secured digital representation of value or contractual rights that use some type of DLT and can be transferred, stored or traded electronically. Tokens – digital assets that are recorded on a distributed ledger and can be transferred without intermediaries.
7. DISCLAIMER
These Guidelines are not a new specific STO law; they are rather a guide to interpretation of the existing legal and supervisory framework. These Guidelines should not be treated as an official interpretation of the legislation. The BoL makes decisions taking into account the entirety of actual circumstances which may differ on a case-by-case basis. These Guidelines should not be regarded as a decision in a specific case. They describe only some aspects examined by the BoL. In the case of any discrepancy between these Guidelines and positions of the BoL, the latter shall prevail. Please note that the instruments mentioned in the Guidelines are still in the process of evolution. Therefore, their legal qualification and interpretation are liable to changes. Due to novelty of this sector, the relevant legal framework can also change in response to the supranational (EU) and (or) national legislative initiatives. The BoL reserves the right to amend these Guidelines or any part thereof at any time.

Figure 1. Classification of tokens

Tokens issued through
ICOs
Grant their owner the right to receive a portion of profit (revenues) and/or governance rights (‘investment-type’ tokens) Do not promise any profits or monetary claims Qualify as transferable securities (shares, bonds, etc.) Qualify as other financial instrument (for instance, units in collective investment undertakings) Provisions on public offering stipulated of the Prospectus Regulation), the Law on Securities and their implementing acts, provisions on market abuse prohibition under the MAR, provisions on transparency, when tokens are admitted to trading on a regulated market, under the Law on Securities and the BoL Resolution No 03- 127 apply ‘Payment-type’ tokens – payment instrument for products/services ‘Utility-type’ tokens – grant access to a platform/system or a right to use a product/service Not subject for public offering, market abuse prohibition, transparency legislation Not subject for public offering, market abuse prohibition, transparency legislation In case where the closedend type fund units are issued provisions on public offering of the Prospectus Regulation), the Law on Securities and their implementing acts, provisions on market abuse prohibition under the MAR, provisions on transparency, when tokens are admitted to trading on a regulated market, under the Law on Securities and the BoL Resolution No 03- 127 apply

Figure 2. Tokens market participants
Market participants Potential activities Authorisation requirements Issuers of tokens Issuance of tokens. The entity does not need any authorisation or permissions provided that it acts as the issuer of its own tokens. Nevertheless, the issuance and trading of tokens shall comply with the financial markets regulation, such as the Prospectus Regulation, the MAR, the Law on Securities and other relevant legislation. Financial Intermediaries (Advisers and Brokers) Provide investment services related to the purchasing of tokens, investment recommendations, admission to a regulated market, accounting services and other investment services set out in the Law on Markets in Financial Instruments. Permissions stipulated in the Law on Markets in Financial Instruments are needed. Exchanges and trading platforms Facilitate transactions between market participants. Permissions stipulated in the Law on Markets in Financial Instruments and the Law on Crowdfunding, where applicable, are needed. Wallet providers and custody service providers (Financial Intermediaries and Central Securities Depository) Provide the safekeeping of tokens. Permissions stipulated in the Law on Markets in Financial Instruments and Central Securities Depositories Regulation are needed. Payment providers Enable investors to use for payment a cryptoasset or transfer fiat currency via a cryptoasset. Permissions stipulated in the Law on Electronic Money and Electronic Money Institutions of the Republic of Lithuania or the Law on Payment Institutions of the Republic of Lithuania where payment providers enable transferring fiat currency via a crypto-asset are needed. Investors Natural persons and entities that make investments in tokens. -

Guidelines on Security Token Offering

Lineage: In force

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