⚖️ SEC REGULATORY FRAMEWORK ANALYSIS
OTCM Protocol Token Classification and Compliance
✅ SEC CATEGORY 1 COMPLIANT | Issuer-Sponsored Tokenized Securities pursuant to SEC Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets Joint Statement dated January 28, 2026
I. EXECUTIVE SUMMARY
⚖️ Critical Regulatory Framework Update
On January 28, 2026, the SEC's Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets issued a Joint Statement establishing a comprehensive framework for tokenized securities. This guidance provides definitive regulatory clarity for ST22 Tokenized Securities.
🚨 Key Classification Determination
OTCM Protocol operates two fundamentally different token types subject to different regulatory frameworks:
Token Type | Classification | Applicable Guidance | Primary Authority |
|---|---|---|---|
📜 ST22 Tokenized Securities | SECURITIES | SEC Category 1 (January 2026) | Joint Statement on Tokenized Securities |
🎫 OTCM Utility Token | Utility Token | Utility token analysis | Standard Howey analysis |
⚠️ CRITICAL: The February 2025 Meme Coin Statement does NOT apply to ST22 Tokenized Securities. ST22 tokens are securities under federal securities laws pursuant to SEC Category 1 guidance.
📋 Regulatory Framework Summary
Framework | Date | Applies To | Core Principle |
|---|---|---|---|
SEC Category 1 | January 28, 2026 | ST22 Tokenized Securities | "Format does not affect application of securities laws" |
SEC Category 2 | January 28, 2026 | Third-party tokenization (NOT used by OTCM) | Intermediary-based tokenization |
Meme Coin Statement | February 27, 2025 | Meme coins without utility or backing | "Akin to collectibles" |
Howey Test | 1946 (ongoing) | All digital assets | Four-prong investment contract test |
Regulation D 506(c) | Ongoing | Private offerings to accredited investors | Accredited investor exemption |
🔑 Key Conclusions
Conclusion | Regulatory Basis |
|---|---|
⚖️ ST22 = Securities | SEC Category 1 Joint Statement (January 28, 2026) |
🏦 Category 1 Compliant | All seven Category 1 requirements satisfied |
📜 Reg D 506(c) | ST22 offered under accredited investor exemption |
🎫 OTCM Utility = Not Securities | Lacks equity backing, genuine utility functions |
🚫 Meme Coin Guidance Inapplicable | ST22 explicitly excluded as securities |
II. SEC CATEGORY 1: TOKENIZED SECURITIES FRAMEWORK
A. 📅 January 28, 2026 Joint Statement
The SEC's Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets issued a landmark Joint Statement establishing clear guidance for tokenized securities.
💡 Core Principle
"The format in which a security is issued or the methods by which holders are recorded does not affect application of the federal securities laws to the security or to transactions in the security."
This statement establishes that tokenized securities remain securities regardless of the blockchain technology used for issuance and trading.
🏛️ Regulatory Significance
Significance | Description |
|---|---|
⚖️ Definitive Classification | Ends ambiguity about tokenized securities status |
🏦 Institutional Pathway | Creates clear framework for institutional participation |
🛡️ Investor Protection | Confirms securities law protections apply |
📋 Compliance Roadmap | Provides specific requirements for compliance |
B. 🏛️ Category 1 vs. Category 2 Taxonomy
The Joint Statement establishes two categories of tokenized securities:
Category 1: Issuer-Sponsored Tokenized Securities ✅ (OTCM Model)
Characteristic | Description | OTCM Implementation |
|---|---|---|
🏛️ Issuer Involvement | Direct issuer authorization | Board resolution required |
🏦 Custody | Regulated custodian | Empire Stock Transfer (SEC-registered) |
💎 Backing | True equity ownership | 1:1 Preferred Series "M" shares |
📋 Registration | Official shareholder register | Certificate of Designation filed |
🛡️ Investor Protection | Issuer-implemented protections | 42 Transfer Hook controls |
Category 2: Third-Party Tokenized Securities ❌ (NOT OTCM Model)
Characteristic | Description | Applicability |
|---|---|---|
🏢 Issuer Involvement | No direct issuer participation | Not applicable to OTCM |
🏦 Custody | Intermediary holds securities | Not applicable |
💎 Backing | Derivative or contractual claim | Not applicable |
⚠️ Risk | Counterparty and intermediary risk | Not applicable |
C. 📋 Seven Category 1 Requirements
The SEC guidance establishes seven key requirements for Category 1 compliance:
# | Requirement | Description | OTCM Implementation | Status |
|---|---|---|---|---|
1 | 🏛️ Direct Issuer Authorization | Token created with issuer board approval | Board resolution required before tokenization | ✅ |
2 | 📝 Official Shareholder Register | Issuer maintains/acknowledges token as ownership record | Certificate of Designation filed with Wyoming SOS | ✅ |
3 | 🏦 Regulated Custody | Backing assets held by regulated custodian | Empire Stock Transfer (SEC-registered transfer agent) | ✅ |
4 | 💎 True Equity Backing | Token represents actual ownership, not derivative | 1:1 Preferred Series "M" shares with conversion rights | ✅ |
5 | 🔗 Clear Ownership Chain | Unambiguous path from token to underlying asset | CUSIP assignment + Golden Medallion Guarantee | ✅ |
6 | 🛡️ Investor Protection | Appropriate safeguards for token holders | 42 Transfer Hook controls + protective conversion | ✅ |
7 | 📜 Token Standard Compliance | Technical standard supports compliance | SPL Token-2022 with Transfer Hook extensions | ✅ |
D. ⚖️ Securities Law Application
Federal Securities Laws Apply to ST22 Tokens
Law | Application to ST22 | Implementation |
|---|---|---|
📜 Securities Act of 1933 | Registration requirements apply | Regulation D 506(c) exemption |
📊 Securities Exchange Act of 1934 | Trading and reporting requirements | Transfer agent coordination |
🚫 Anti-Fraud Provisions | Rule 10b-5 applies | Full compliance required |
📋 Beneficial Ownership Rules | Apply to ST22 holders | Wallet tracking per Transfer Hooks |
🏦 Transfer Agent Regulations | Empire Stock Transfer compliance | SEC-registered custodian |
Key Statement Language
"Tokenizing a security does not change its fundamental nature as a security, nor does it exempt the security or related transactions from the federal securities laws."
III. ST22 TOKENIZED SECURITIES: DETAILED ANALYSIS
A. ⚖️ Classification: SECURITIES
Definitive Classification
ST22 Tokenized Securities are securities under federal securities laws. This is the explicit design of the instrument pursuant to SEC Category 1 guidance.
Analysis Factor | ST22 Status | Rationale |
|---|---|---|
🏛️ Issuer Authorization | ✅ Securities | Board resolution required |
💎 Equity Backing | ✅ Securities | 1:1 preferred share backing |
🔄 Conversion Rights | ✅ Securities | Convertible to common stock |
🏦 Regulated Custody | ✅ Securities | SEC-registered transfer agent |
📈 Investment Purpose | ✅ Securities | Equity investment in underlying company |
💰 Economic Rights | ✅ Securities | Shareholder rights per Certificate |
B. 🔍 Howey Test Application (Confirmatory)
While Category 1 guidance directly establishes securities treatment, the traditional Howey test confirms this classification:
Four-Prong Analysis
Prong | Question | ST22 Answer | Analysis |
|---|---|---|---|
1️⃣ Investment of Money | Is there an investment of money? | ✅ Yes | Investors pay USD or SOL for ST22 tokens |
2️⃣ Common Enterprise | Is there a common enterprise? | ✅ Yes | Horizontal commonality: all ST22 holders share in underlying company |
3️⃣ Expectation of Profits | Is there expectation of profits? | ✅ Yes | Equity investment inherently carries profit expectation |
4️⃣ Efforts of Others | Are profits from efforts of others? | ✅ Yes | Underlying company management drives value |
Conclusion
⚖️ ST22 Tokenized Securities satisfy all four Howey prongs and are unambiguously securities under federal securities laws.
C. 📋 Regulation D 506(c) Compliance
ST22 Tokenized Securities are offered under Regulation D Rule 506(c):
Requirement | Implementation | Status |
|---|---|---|
🎖️ Accredited Investors Only | All ST22 purchasers must verify accredited investor status | ✅ |
✅ Verification Required | Third-party accreditation verification via KYC provider | ✅ |
📢 General Solicitation Permitted | May publicly advertise offering | ✅ |
📋 Form D Filing | Filed with SEC within 15 days of first sale | ✅ |
🚫 Bad Actor Check | Disqualification verification required | ✅ |
📊 No Dollar Limit | No cap on offering amount | ✅ |
Accredited Investor Requirements (SEC Rule 501)
Qualification Method | Criteria |
|---|---|
💰 Individual Income | $200,000+ annually for past 2 years |
👫 Joint Income | $300,000+ annually with spouse |
🏦 Net Worth | $1,000,000+ excluding primary residence |
🏢 Entity Assets | $5,000,000+ in assets |
📜 Professional Certification | Series 7, 65, or 82 license holder |
🏛️ Institutional | Banks, broker-dealers, insurance companies, RIAs |
D. 🛡️ Investor Protections Under Category 1
Category 1 compliance provides significant investor protections beyond standard securities law:
Protection | Description | Implementation |
|---|---|---|
💎 True Ownership | Actual equity ownership, not derivative claim | 1:1 Series M preferred shares |
🏦 Regulated Custody | SEC-registered custodian | Empire Stock Transfer |
🔄 Conversion Rights | Right to convert to underlying shares | Per Certificate of Designation |
🛡️ Protective Triggers | Automatic protection on adverse events | Protective conversion to common stock |
📋 Shareholder Status | Recorded on official register | Wyoming Secretary of State filing |
⚖️ Securities Law Protection | Full federal securities law protections | Anti-fraud, disclosure requirements |
🔴 Circuit Breakers | Trading halts during extreme volatility | 30% price drop triggers halt |
📊 Wallet Limits | Concentration limits | 4.99% maximum per wallet |
E. 🚫 Meme Coin Guidance Does NOT Apply to ST22
Why February 2025 Guidance Is Inapplicable
The SEC's February 27, 2025 Meme Coin Statement explicitly does NOT apply to ST22 Tokenized Securities:
Meme Coin Characteristic | ST22 Status | Disqualifying Factor |
|---|---|---|
🎨 "No inherent utility" | ❌ Has utility | Represents actual equity ownership |
💰 "No financial claim" | ❌ Has financial claim | 1:1 preferred share backing |
🚫 "No profit-sharing mechanism" | ❌ Has profit sharing | Dividend rights per Certificate |
🏢 "No issuer management" | ❌ Has issuer involvement | Direct issuer authorization required |
📈 "Value from community sentiment" | ❌ Value from equity | Value derives from underlying company |
🎭 "Akin to collectibles" | ❌ Equity instruments | True shareholder status |
Explicit Exclusion in Meme Coin Statement
The Meme Coin Statement itself excludes securities:
"This statement does not address digital assets that are securities under federal securities laws."
ST22 Tokenized Securities are expressly designed as securities and therefore fall entirely outside the scope of meme coin guidance.
IV. OTCM UTILITY TOKEN: REGULATORY ANALYSIS
A. ⚖️ Classification: UTILITY TOKEN
The OTCM Utility Token is a completely separate instrument from ST22 Tokenized Securities with fundamentally different characteristics.
Characteristic | OTCM Utility Token | ST22 Tokenized Securities |
|---|---|---|
⚖️ Classification | Utility Token | Securities |
💎 Asset Backing | None | 1:1 preferred shares |
🔧 Primary Function | Platform governance, fees, staking | Equity ownership |
🏛️ Issuer Authorization | N/A | Board resolution required |
💰 Financial Rights | Staking rewards (from platform fees) | Shareholder rights |
📜 Regulatory Framework | Utility token analysis | SEC Category 1 |
🎖️ Investor Restrictions | None | Accredited investors only |
B. 🔧 Genuine Utility Functions
The OTCM Utility Token provides genuine platform utility:
Utility Function | Description | Utility Indication |
|---|---|---|
🗳️ Governance | DAO voting rights on protocol parameters | ✅ Genuine utility |
💸 Fee Discounts | 10-50% transaction fee discounts | ✅ Genuine utility |
🏦 Staking | 8-40% APY rewards (funded by ST22 trading fees) | ⚠️ Mixed (utility + yield) |
🔓 Premium Features | Access to premium platform features | ✅ Genuine utility |
💧 Liquidity Incentives | LP participation rewards | ⚠️ Mixed |
C. 🔍 Howey Test Application
Four-Prong Analysis for OTCM Utility Token
Prong | Question | OTCM Utility Token | Analysis |
|---|---|---|---|
1️⃣ Investment of Money | Is there an investment? | ⚠️ Arguably yes | Purchase requires payment |
2️⃣ Common Enterprise | Is there a common enterprise? | ⚠️ Unclear | Utility function may negate |
3️⃣ Expectation of Profits | Profit expectation? | ⚠️ Primarily utility | Marketed for utility, not investment |
4️⃣ Efforts of Others | Efforts of others? | ⚠️ Limited | Value derives from platform usage, decentralization planned |
Analysis Factors Weighing Against Securities Classification
Factor | Description |
|---|---|
🚫 No Asset Backing | Explicitly has no backing — unlike ST22 |
🔧 Genuine Utility | Real platform functions (governance, discounts) |
📢 Utility Marketing | Never marketed as investment |
🏛️ Decentralization | DAO governance reduces "efforts of others" |
💰 Fee-Based Rewards | Staking funded by usage, not profits |
Conclusion
The OTCM Utility Token likely does not satisfy the Howey test due to genuine utility functions and lack of asset backing. However, classification depends on specific facts and circumstances.
D. 📋 Comparison to Meme Coin Guidance
Distinguishing Factors from "Typical" Meme Coins
Meme Coin Factor | OTCM Utility Token Status | Comparison |
|---|---|---|
🎨 "No inherent utility" | ❌ Has utility | Governance, fee discounts, staking |
🎭 "Primarily entertainment" | ❌ Primarily functional | Platform operation utility |
📊 "No business development" | ❌ Has development | Ongoing protocol development |
💰 "No profit mechanism" | ⚠️ Staking exists | But funded by fees, not profits |
Conclusion
The OTCM Utility Token is NOT a typical "meme coin" as described in the February 2025 guidance due to genuine utility functions. However, the meme coin guidance is informational only and has no legal force.
E. ⚠️ Key Distinctions from ST22
Critical Warning
⚠️ The OTCM Utility Token and ST22 Tokenized Securities are completely different instruments with different regulatory classifications.
Factor | ST22 Tokenized Securities | OTCM Utility Token |
|---|---|---|
⚖️ Classification | SECURITIES | Utility Token |
💎 Backing | 1:1 Preferred Series "M" shares | NONE |
🏦 Custody | Empire Stock Transfer (SEC-registered) | User wallets |
🔄 Conversion | Convertible to common stock | No conversion rights |
📈 Investment | True equity investment | Platform utility only |
🛡️ Securities Laws | Fully applicable | Generally not applicable |
🎖️ Restrictions | Accredited investors only | No restrictions |
V. FEBRUARY 2025 MEME COIN STATEMENT: CONTEXT AND LIMITATIONS
A. 📅 Statement Overview
On February 27, 2025, the SEC's Division of Corporation Finance issued staff guidance on meme coins, concluding that typical meme coins do not constitute securities.
Statement Conclusions
Conclusion | Description |
|---|---|
🚫 No Registration Required | For qualifying meme coins |
🛡️ No Securities Protection | Purchasers not protected by securities laws |
🎨 Collectible Classification | Characterized as "akin to collectibles" |
B. 🚫 Statement Limitations
The February 2025 statement has significant legal limitations:
Limitation | Quote from Statement |
|---|---|
⚖️ No Legal Force | "This statement... has no legal force or effect" |
📜 No Law Change | "It does not alter or amend applicable law" |
📋 No New Obligations | "It creates no new or additional obligations" |
🏛️ Not Commission Approved | "The Commission has neither approved nor disapproved" |
C. 👩⚖️ Commissioner Crenshaw Dissent
Commissioner Caroline A. Crenshaw issued a dissenting response:
Concern | Description |
|---|---|
📚 Definitional Inadequacy | "Offers no clear definition from law or even a basic dictionary" |
🌐 Overbroad Application | Attempts to exempt "an entire product category" |
📊 Factual Diversity | Meme coins exist on "a continuum" requiring individualized analysis |
⚖️ Howey Requirement | Supreme Court requires "individualized inquiry" |
D. ⚠️ Applicability to OTCM Protocol
ST22 Tokenized Securities: NOT Applicable
Reason | Explanation |
|---|---|
📜 Explicit Exclusion | Statement excludes "digital assets that are securities" |
💎 Asset Backing | ST22 has 1:1 equity backing — meme coins have none |
🏛️ Issuer Authorization | ST22 requires board approval — meme coins do not |
⚖️ Category 1 Framework | ST22 governed by January 2026 guidance |
OTCM Utility Token: Informative Only
Consideration | Analysis |
|---|---|
🔧 Genuine Utility | OTCM Utility Token has real utility — unlike typical meme coins |
📋 No Legal Force | Statement provides context but no binding determination |
⚖️ Howey Analysis | Individual Howey analysis required regardless |
VI. COMPARATIVE ANALYSIS
A. 📊 Token Classification Matrix
Factor | ST22 Tokenized Securities | OTCM Utility Token | Typical Meme Coin |
|---|---|---|---|
⚖️ Classification | SECURITIES | Utility Token | Non-security (per staff) |
📜 Primary Guidance | Category 1 (Jan 2026) | Howey analysis | Meme coin statement |
💎 Asset Backing | 1:1 preferred shares | None | None |
🏦 Custody | Empire Stock Transfer | User wallets | User wallets |
🔧 Utility Function | Equity ownership | Governance, fees, staking | Entertainment only |
📜 Securities Laws | Fully applicable | Generally not applicable | Not applicable |
🎖️ Investor Restrictions | Accredited only | None | None |
🛡️ Investor Protection | Federal securities laws | Platform terms | None |
B. ⚖️ Regulatory Framework Application
Framework | ST22 Application | OTCM Utility Token |
|---|---|---|
SEC Category 1 | ✅ Primary authority | ❌ Not applicable |
Howey Test | ✅ All prongs satisfied | ⚠️ Likely not satisfied |
Meme Coin Guidance | ❌ Explicitly excluded | ⚠️ Informative only |
Regulation D 506(c) | ✅ Applicable | ❌ Not applicable |
Bank Secrecy Act | ✅ Applicable | ✅ Applicable |
OFAC Sanctions | ✅ Applicable | ✅ Applicable |
VII. COMPLIANCE FRAMEWORK
A. 📋 ST22 Compliance Requirements
Ongoing Obligations
Requirement | Frequency | Implementation |
|---|---|---|
🏦 Custody Verification | Continuous (~400ms) | Transfer Hook oracle |
🎖️ Accreditation Check | Per transaction | KYC provider integration |
🚫 OFAC Screening | Per transaction | Transfer Hook enforcement |
📊 Wallet Limits | Per transaction | Transfer Hook enforcement |
🔴 Circuit Breakers | As triggered | Transfer Hook enforcement |
📋 Record Keeping | 7 years | Compliance database |
Form D Requirements
Filing | Timing | Responsibility |
|---|---|---|
📋 Initial Form D | Within 15 days of first sale | Legal Department |
📊 Annual Amendment | As required | Legal Department |
🏛️ State Notices | Per state requirements | Legal Department |
B. 🎫 OTCM Utility Token Compliance
Operational Requirements
Requirement | Implementation |
|---|---|
🔧 Utility Focus | Market and design for utility, not investment |
📢 No Investment Claims | Never represent as investment vehicle |
💎 No Backing Claims | Explicitly state no asset backing |
📋 Clear Distinction | Always distinguish from ST22 securities |
🚫 AML/OFAC | Standard compliance requirements |
VIII. RISK ASSESSMENT
A. 🚨 ST22 Regulatory Risks
Risk | Probability | Impact | Mitigation |
|---|---|---|---|
📜 Category 1 Changes | Low | High | Monitor SEC guidance |
👮 Enforcement Action | Low | High | Strict compliance |
🏛️ State Action | Medium | Medium | Blue Sky compliance |
🌍 International | Medium | Medium | Jurisdictional restrictions |
B. 🚨 OTCM Utility Token Risks
Risk | Probability | Impact | Mitigation |
|---|---|---|---|
⚖️ Reclassification | Low-Medium | High | Maintain utility focus |
📋 Guidance Changes | Medium | Medium | Monitor developments |
🎖️ Staking Analysis | Medium | Medium | Utility framing |
IX. CONCLUSION
A. 🎯 Key Determinations
ST22 Tokenized Securities
Determination | Regulatory Basis |
|---|---|
⚖️ Classification: SECURITIES | SEC Category 1 Joint Statement (January 28, 2026) |
📜 Full Securities Law Application | Securities Act, Exchange Act, anti-fraud provisions |
🎖️ Accredited Investors Only | Regulation D Rule 506(c) |
🛡️ Investor Protections | Federal securities laws + 42 Transfer Hook controls |
🚫 Meme Coin Guidance Inapplicable | Explicitly excluded as securities |
OTCM Utility Token
Determination | Basis |
|---|---|
⚖️ Classification: UTILITY TOKEN | Genuine utility functions, no asset backing |
📜 Not Securities | Likely does not satisfy Howey test |
🔧 Genuine Utility | Governance, fee discounts, staking |
💎 No Backing | Explicitly has no asset backing |
🚫 Not Meme Coin | Has genuine utility beyond collectible status |
B. 💼 Strategic Position
Why OTCM Protocol Chose Category 1 Compliance
Factor | Alternative Approach | OTCM Approach |
|---|---|---|
⚖️ Regulatory Certainty | Uncertain, staff guidance | Clear SEC framework |
🏦 Institutional Access | Limited | Institutional-ready |
🛡️ Investor Protection | None | Full securities protections |
💎 Value Proposition | Speculative | True equity ownership |
📊 Market Credibility | "Meme" association | Securities market legitimacy |
X. REGULATORY REFERENCES
🔗 Official Sources
Ref | Citation |
|---|---|
[1] | SEC Tokenized Securities Joint Statement (PRIMARY AUTHORITY). https://www.sec.gov/newsroom/speeches-statements/corp-fin-statement-tokenized-securities-012826 — January 28, 2026 |
[2] | SEC Meme Coin Statement. https://www.sec.gov/news/statement/crypto-task-force-meme-tokens — February 27, 2025 (informational only) |
[3] | SEC Digital Asset Framework. https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets |
[4] | SEC v. W.J. Howey Co., 328 U.S. 293 (1946) |
[5] | Regulation D. 17 CFR § 230.501-506 |
[6] | FinCEN BSA Resources. https://www.fincen.gov/resources/statutes-regulations/bank-secrecy-act |
[7] | OFAC Sanctions. https://www.treasury.gov/ofac |
XI. LIMITATIONS AND DISCLAIMERS
⚠️ Important Limitations
Limitation | Description |
|---|---|
🏛️ Individualized Analysis | Securities law requires analysis of specific facts |
📋 Not Legal Advice | This memorandum does not constitute legal advice |
👨⚖️ Counsel Recommended | Consultation with securities counsel recommended |
🔄 Dynamic Landscape | Regulatory landscape may change |
📋 Document Information
Field | Value |
|---|---|
📄 Document Version | 3.0 |
📅 Last Updated | January 2026 |
📍 Jurisdiction | Federal (United States) |
🏛️ Primary Authority | SEC Category 1 Joint Statement (January 28, 2026) |
⚖️ Document Type | Regulatory Analysis Memorandum |
© 2026 OTCM Protocol, Inc. | All Rights Reserved
ST22 Tokenized Securities are securities under federal securities laws pursuant to SEC Category 1 guidance. The OTCM Utility Token is a utility token with no asset backing. This document is for informational purposes only and does not constitute legal advice.