If you are involved in the emerging market of cryptocurrency and looking to list on the ASX, or if you are already listed and looking to move into this space, it is important that you are aware of the ASX’s approach to cryptocurrency related businesses. As interest in cryptocurrency related business increases among companies, so too does the ASX’s concerns regarding Listing Rule compliance. In the listed companies update from 16 February 2018, the ASX reminded listed entities seeking to move into the cryptocurrency market of their ongoing obligations and the ASX’s key concerns regarding entities involved in this market looking to list.
In this article, Partner Michelle Eastwell and Law Graduate, Frances-Ellen Peek discuss what your company needs to know when considering cryptocurrency related businesses in the ASX listed market.
Is your company affected?
If you are seeking to list a company involved in cryptocurrency related business, or are an existing listed entity looking to expand your current operations into cryptocurrency related business, it is important that you are aware of your obligations once listed on the ASX and the hurdles that may arise when listing. Engaging in a cryptocurrency related business can include where your company develops, trades or makes a market in cryptocurrency, where your company builds, operates or engages in cryptocurrency exchanges, or where you aim to conduct an Initial Coin Offering (ICO). As these activities can raise legal, regulatory and public policy issues, the ASX has to date taken a cautious approach when companies express an interest in the cryptocurrency industry. While the ASX has not prohibited companies becoming involved, it is important to be aware that the ASX will closely consider a move into, or listing involving, cryptocurrency related business.
ASX listing rule reminders and concerns
The ASX has reminded companies looking to list that they must have a structure and operations appropriate for a listed entity (Listing Rule 1.1). Consequently, if you are looking to list and have an ill-defined or underdeveloped proposed business model, your company may not meet this Listing Rule 1.1 requirement. Your company will also need to demonstrate that the proposed business is bona fide and will comply with all applicable legal requirements in Australia and in other jurisdictions that the business may operate in. Your company will also need to inform investors of any risks involved in the proposed business.
If you are looking to list a new listed investment company (LIC), listed investment trust (LIT) or exchange traded fund (ETF) that invests in cryptocurrencies or cryptocurrency derivatives, or if you are looking to hedge using cryptocurrency derivatives, your company will need to provide the following information to the ASX:
- Your company’s investment strategy
- Your understanding of market volatility and the liquidity risks associated with cryptocurrencies, as well as how you will manage these risks (if investing in cryptocurrencies)
- Your understanding of margin risks associated with cryptocurrency derivatives and how you intend to manage these risks (if investing in or hedging using cryptocurrency derivatives)
- The names of those making the investment decisions and managing your company’s investment portfolio as well as a copy of that person’s CV, how their services have been secured and for how long as well as their specific knowledge of cryptocurrencies. This person will also need to provide information on their experience in managing highly volatile asset portfolios (if investing in cryptocurrencies) or information on their experience in managing highly volatile derivative portfolios (if investing in, or hedging using, cryptocurrency derivatives).
If you are already listed on the ASX and are seeking to expand operations in the cryptocurrency industry, you need to be aware of your ongoing obligations, specifically those under Listing Rule 11.1. Listing Rule 11.1 requires listed companies to notify the ASX of a proposed significant change in the scale and nature of the company’s activities, so the ASX can consider whether that company needs to re-comply with the ASX admission and quotation requirements. In addition, listed entities have an ongoing obligation under Listing Rule 12.5 to have a structure and operations appropriate for a listed entity. To avoid any unexpected hurdles and potential suspensions, and given the ASX’s cautious approach to this emerging market, it is imperative to confer closely with your legal adviser and the ASX before deciding to expand operations into cryptocurrency or cryptocurrency related business or making any announcement in this regard.
Given the emerging nature of this market, the ASX is paying close attention to companies intending to be involved in cryptocurrency related business. The ASX has provided some guidance regarding cryptocurrency related business in their updates since October 2017 and we expect to see further guidance provided over the coming months. Ultimately, the ASX wants to ensure that existing listed companies and companies looking to list have a structure and operations appropriate for a listed entity and are operating a bona fide business in a lawful manner.