⚖️ 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:

⚠️ 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

🔑 Key Conclusions

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

B. 🏛️ Category 1 vs. Category 2 Taxonomy

The Joint Statement establishes two categories of tokenized securities:

Category 1: Issuer-Sponsored Tokenized Securities ✅ (OTCM Model)

Category 2: Third-Party Tokenized Securities ❌ (NOT OTCM Model)

C. 📋 Seven Category 1 Requirements

The SEC guidance establishes seven key requirements for Category 1 compliance:

D. ⚖️ Securities Law Application

Federal Securities Laws Apply to ST22 Tokens

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.

B. 🔍 Howey Test Application (Confirmatory)

While Category 1 guidance directly establishes securities treatment, the traditional Howey test confirms this classification:

Four-Prong Analysis

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):

Accredited Investor Requirements (SEC Rule 501)

D. 🛡️ Investor Protections Under Category 1

Category 1 compliance provides significant investor protections beyond standard securities law:

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:

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.

B. 🔧 Genuine Utility Functions

The OTCM Utility Token provides genuine platform utility:

C. 🔍 Howey Test Application

Four-Prong Analysis for OTCM Utility Token

Analysis Factors Weighing Against Securities Classification

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

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.

V. FEBRUARY 2025 MEME COIN STATEMENT: CONTEXT AND LIMITATIONS

A. 📅 Statement Overview

On February 27, 2025, the SEC's Division of Corporation Finance issued a staff statementguidance on meme coins, concluding that mosttypical meme coins do not constitute securities under federal law. This unprecedented guidance represents a significant departure from previous regulatory approaches and provides material clarity for digital asset market participants.securities.

⚠️ CRITICAL LIMITATIONS:
• 
Statement contains definitional limitations
• Lacks Commission-wide approval
• Faces notable internal dissent

II. ⚖️ REGULATORY BACKGROUND AND CURRENT STATUS

A. 📅 February 27, 2025 Staff StatementConclusions

// QUALIFYING MEME COIN CHARACTERISTICS:
🎮 Limited Functionality → "limited or no use or functionality"
🌐 Cultural Basis → reflect "online or social trends" and internet culture
🎭 Entertainment Purpose → purchased for "entertainment and social interaction"
📈 Speculative Nature → high volatility driven by "market demand and speculation"
💰 No Economic Rights → generate no yield or rights to future income/profits/assets

III.B. ⚖️🚫 HOWEYStatement TEST ANALYSISLimitations

A. 🔍 Application to Meme Coins

The staffFebruary 2025 statement implicitly applies the Supreme Court'shas four-prongsignificant Howeylegal testlimitations, concluding that typical meme coins fail to satisfy the requirements for investment contract classification::

HOWEY

🚨 CRITICAL LIMITATION - THE STATEMENT EXPLICITLY DISCLAIMS LEGAL AUTHORITY:

B.

C. 👩‍⚖️ Commissioner Crenshaw Dissent

Commissioner Caroline A. Crenshaw issued a notable dissenting response, arguing that:response:

1. Concern	Description
   📚 Definitional Inadequacy: The guidance	"offersOffers no clear definition from law or even a basic dictionary"
   🌐 Overbroad Application:	Attempts to exempt "an entire product category" without proper legal foundation
   📊 Factual Diversity:	Meme coins exist on "a continuum of offers and sales"continuum" requiring individualized analysis
   ⚖️ Howey Requirement:	Supreme Court precedent requires "individualized inquiry into each unique crypto asset" C. 🕵️ Enforcement Considerations The statement explicitly reserves enforcement authority, noting that regulators will continue monitoring for:inquiry" 🎯 ENFORCEMENT TARGETS: • Assets "falsely labeled as meme coins to avoid securities laws" • Products that don't match the outlined characteristics • Fraudulent activities related to meme coin transactions

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   V.D. 💼⚠️ PRACTICALApplicability IMPLICATIONSto OTCM Protocol

   A.ST22 🏢Tokenized MarketSecurities: ParticipantsNOT Applicable

   Reason	Explanation
   📜 📈Explicit ExchangeExclusion	Statement Operators:excludes May"digital listassets qualifyingthat memeare coinssecurities"
   💎 with reduced regulatory risk, though individual analysis remains prudent. 👨‍💻Asset ProjectBacking	ST22 Developers:has Relief1:1 fromequity registrationbacking requirements for tokens meeting statement criteria, but compliance with other applicable laws continues. 💰 Investors: No federal securities law protections apply to meme coin transactions. B. 📋 Ongoing Compliance Obligations Market participants must continue evaluating "the economic realities of all meme coins in transactions on a continuing basis" to determine securities status, as the statement acknowledges diverse characteristics within the meme coin universe. VI. 🏛️ REGULATORY CONTEXT AND FUTURE CONSIDERATIONS A. 🔄 Administration Policy Shift This guidance reflects the Trump administration's approach to cryptocurrency regulation, including: 🏛️ Establishment of an SEC cryptocurrency task force ❌ Dismissal of previous administration crypto enforcement actions 🎯 Commitment to "regulatory clarity" over enforcement-first approaches B. 🤝 Inter-Agency Coordination 📊 CFTC Position: Derivatives contracts on certain— meme coins have been listed on CFTC-registered exchanges, suggestingnone
   🏛️ commodity classification under CFTC jurisdiction. ⚠️Issuer RegulatoryAuthorization	ST22 Uncertainty:requires Potential conflicts between SEC and CFTC classifications require careful analysis for specific assets. VII. 🎯 RISK ASSESSMENT AND RECOMMENDATIONS A. 🚨 High-Risk Factors ⚠️ REGULATORY RISK ASSESSMENT: 1. Staff-Only Guidance → Lack of Commission-wideboard approval limits precedential value 2. Definitional Ambiguity → Absence of clear legal definitions creates uncertainty 3. Case-by-Case Analysis → Continued need for individual asset evaluation 4. Enforcement Reserves → Explicit reservation of regulatory authority B. ✅ Recommended Compliance Approach For entities engaging with— meme coincoins transactions:do not 📄 Document Compliance: Maintain detailed records demonstrating conformity with statement criteria
   ⚖️ 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 ReviewForce:	Statement Conductprovides individualizedcontext but no binding determination
   ⚖️ Howey Analysis	Individual Howey analysis forrequired eachregardless

   asset

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   despite

   VI. generalCOMPARATIVE guidance

3. ANALYSIS

   A. 📊 Token Classification Matrix

   Factor	ST22 Tokenized Securities	OTCM Utility Token	Typical Meme Coin
   📡⚖️ MonitorClassification	SECURITIES	Utility DevelopmentsToken:	Non-security Track(per additionalstaff)
   📜 regulatory Primary guidanceGuidance	Category and1 potential(Jan Commission2026)	Howey action 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
   🛡️ ConservativeInvestor PositioningProtection: Consider	Federal securities compliancelaws	Platform for borderline casesterms	None

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   VIII.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

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   VII. COMPLIANCE FRAMEWORK

   A. 📋 CONCLUSIONST22 Compliance Requirements

   Ongoing Obligations

   Requirement	Frequency	Implementation
   The🏦 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

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   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

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   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

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   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

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   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

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   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

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   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 staff(informational statementonly)
   [3]	SEC providesDigital unprecedentedAsset regulatoryFramework. clarityhttps://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets
   [4]	SEC forv. qualifyingW.J. memeHowey coins while acknowledging significant limitations. 🎯 Key Takeaways: REGULATORY POSITION: ✅ Guidance represents staff views only ⚠️ Faces internal dissent 🔒 Explicitly reserves enforcement authority for non-conforming assets 📊 Provides framework for ongoing compliance assessment 💼 Business Impact: Market participants should approach this guidance as favorable but preliminaryCo., maintaining328 robustU.S. compliance293 protocols(1946)
   [5]	Regulation andD. legal17 analysisCFR for§ individual230.501-506
   [6]	FinCEN assets.BSA TheResources. statement'shttps://www.fincen.gov/resources/statutes-regulations/bank-secrecy-act
   [7]	OFAC practicalSanctions. value lies in reducing regulatory uncertainty for clearly qualifying meme coins.https://www.treasury.gov/ofac

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   IX. ⚠️

   XI. LIMITATIONS AND DISCLAIMERS

   ⚠️ Important Limitations

   Limitation 🚨 LEGAL DISCLAIMER: This analysis constitutes preliminary legal assessment based on available regulatory guidance as of September 4, 2025.	Important Limitations:Description
   🏛️ Individualized Analysis	Securities law requires individualized analysis of specific facts and circumstances
   📋 Not Legal Advice	This memorandum does not constitute legal advice
   👨‍⚖️ Counsel Recommended	Consultation with specialized securities counsel is strongly recommended before making compliance determinations
   🔄 TheDynamic regulatoryLandscape	Regulatory landscape remains dynamic - subsequent Commission action, court decisions, or enforcement activities may materially alter this analysischange

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   📋 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)
   ⚖️ ProfessionalDocument Disclaimer:Type	Regulatory Analysis Memorandum

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   © 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 formatteddocument is for informational purposes only and does not constitute legal memorandum maintains all original legal analysis and conclusions while improving readability through enhanced structure and visual elements. The substantive legal content and professional recommendations remain unchanged.advice.