SEC TOKENIZED SECURITIES GUIDANCE

OTCM PROTOCOL

Strategic Impact & Compliance Analysis

Groovy Company, Inc. dba OTCM Protocol

Version 2.0 · Updated for SEC–CFTC Release No. 33-11412 (March 17, 2026)

Internal / Investor Relations · CIK: 1499275 · March 2026

Field	Value
Original Statement Date	January 28, 2026 (Joint Staff Statement on Tokenized Securities)
Superseding Release Date	March 17, 2026 (Release Nos. 33-11412; 34-105020)
Analysis Updated	March 19, 2026
Document Type	Compliance Gap Analysis — Version 2.0
Classification	Internal / Investor Relations
Version	2.0
Supersedes	Version 1.1 (January 29, 2026)
Prepared by	OTCM Protocol Strategic Analysis Team

Version 2.0 Update Notice

This document supersedes Version 1.1. The January 28, 2026 Joint Staff Statement on Tokenized Securities, which formed the basis of Version 1.1, has been substantially expanded and elevated in legal authority by Release Nos. 33-11412 and 34-105020, jointly issued by the SEC and CFTC on March 17, 2026.

Version 2.0 reflects all material changes arising from that release, the March 18, 2026 Nasdaq tokenization approval (Release No. 34-105047), and the forthcoming SEC innovation exemption rulemaking. Sections marked 🔄 have been materially revised from Version 1.1.

EXEC Executive Summary

On March 17, 2026, the Securities and Exchange Commission and the Commodity Futures Trading Commission jointly issued Release Nos. 33-11412 and 34-105020 — the most legally significant and comprehensive federal guidance on digital asset classification in U.S. regulatory history. Unlike the January 28, 2026 Joint Staff Statement (which carried Staff-level persuasive weight), Release No. 33-11412 is a Final Rule and Interpretation carrying the full legal weight of an official SEC and CFTC interpretation under the Securities Act of 1933 and the Securities Exchange Act of 1934. It is effective upon Federal Register publication.

The release supersedes all prior Staff statements on the topics it addresses. Its impact on OTCM Protocol is profound and, on balance, highly favorable — but requires five specific updates to this document and to the Company’s strategic positioning.

Key Findings — Version 2.0

Finding	Impact
✅ ST22 Digital Securities are unambiguously Category 5 — the only category under SEC jurisdiction	Confirms core architecture; no change needed
✅ OTCM’s Category 1 Model B architecture is now backed by binding interpretation, not Staff guidance	Stronger legal footing than Version 1.1
✅ The OTCM utility/governance token can now be classified as a Digital Commodity or Digital Tool — not a security — without the Howey Shield argument	Howey Shield analysis for utility token now obsolete
🔄 The five-category taxonomy replaces the two-category framework described in Version 1.1	Part 1 requires full rewrite
⚠️ The Nasdaq tokenization approval (Release No. 34-105047) does NOT create a compliant trading path for CEDEX	ATS question remains open and urgent
🆕 An SEC innovation exemption rulemaking is imminent	New strategic opportunity for CEDEX

PART 1 The Updated SEC–CFTC Regulatory Framework

This section supersedes Part 1 of Version 1.1 in its entirety.

Definition of Digital Securities (Unchanged)

“A tokenized security is a financial instrument enumerated in the definition of ‘security’ under the federal securities laws that is formatted as or represented by a crypto asset, where the record of ownership is maintained in whole or in part on or through one or more crypto networks.”

Fundamental Regulatory Principle (Unchanged, Now Binding)

“The format in which a security is issued or the methods by which holders are recorded (on-chain vs. off-chain) does not affect application of the federal securities laws.”

This technology-neutral principle is now binding interpretation, not Staff guidance, under Release No. 33-11412.

🔄 The Five-Category Taxonomy — REPLACES the Two-Category Framework

Release No. 33-11412 establishes five formal categories of crypto assets, replacing the two-category (Category 1 / Category 2) framework described in Version 1.1. The prior two-category taxonomy addressed only tokenized securities. The five-category taxonomy addresses the full digital asset universe and carries binding legal force.

Category	Name	Securities?	OTCM Protocol Relevance
1	Digital Commodities	No — CFTC jurisdiction	OTCM utility/governance token may qualify — see Part 3 Item 1
2	Digital Collectibles	No	Future NFT-based issuances only; not applicable to ST22
3	Digital Tools	No	Potentially applicable to OTCM Portal access credentials
4	Payment Stablecoins	No — GENIUS Act	Confirms GENIUS Act stablecoin settlement for ST22 trades is not a securities transaction
5	Digital Securities	Yes — SEC jurisdiction	ST22 Digital Securities are unambiguously Category 5

Category 5: Digital Securities — OTCM Protocol’s Confirmed Home

ST22 Digital Securities are unambiguously Category 5. Each ST22 token represents a Series M Preferred Share — a traditional equity security under Securities Act Section 2(a)(1). This is OTCM Protocol’s confirmed regulatory home. All existing federal securities law obligations apply, and the Category 1 Model B architecture is specifically designed to satisfy them.

As SEC Chair Paul Atkins stated at the March 17 DC Blockchain Summit: “This distinction returns the Commission to its core mission — and statutory authority — of protecting investors involved in securities transactions. We are not the Securities and Everything Commission, anymore.”

🆕 Investment Contract Termination — New Framework

Release No. 33-11412 introduces an important new concept absent from the January 28 Statement: investment contract status can terminate. A non-security crypto asset that was initially distributed under an investment contract ceases to be subject to that investment contract when: (1) the issuer fulfills its representations and promises (e.g., launches a functional network); or (2) the issuer demonstrably fails to fulfill those representations.

OTCM Relevance: Directly applicable to the OTCM utility/governance token. The Company should document the point at which the protocol became functional and that investment contract status terminated — eliminating ongoing securities obligations for the utility token.

🆕 March 11, 2026: SEC–CFTC Joint Harmonization Initiative

Six days before Release No. 33-11412, on March 11, 2026, the SEC and CFTC signed a Memorandum of Understanding establishing a Joint Harmonization Initiative co-led by Robert Teply (SEC) and Meghan Tente (CFTC). This initiative coordinates oversight across policymaking, examination, and enforcement, and is intended to reduce frictions for dually regulated entities. OTCM Protocol should monitor this initiative for implications for CEDEX’s regulatory path.

PART 2 OTCM Protocol Compliance Status — Updated for Release No. 33-11412

The Series M / ST22 Digital Securities architecture compliance analysis from Version 1.1 remains valid. What changes is the legal authority level: all prior “Staff guidance alignment” characterizations are upgraded to “binding interpretive release alignment.”

Core Architecture Compliance Status — Upgraded to Binding

SEC Requirement	OTCM Implementation	V1.1 Status	V2.0 Status
Issuer authorization	Board resolution required	Staff guidance	Binding interpretation
Shareholder register integration	Certificate of Designation + Empire master file	Staff guidance	Binding interpretation
SEC-registered custody	Empire Stock Transfer (§17A)	Staff guidance	Binding interpretation
True equity backing	1:1 Series M shares, irrevocable custody	Staff guidance	Binding interpretation
Token standard	SPL Token-2022 with 42 Transfer Hooks	Staff guidance	Binding interpretation
Digital Securities classification	ST22 = Category 5 Digital Securities	Staff guidance	Binding interpretation
Category 1 Model B architecture	Solana as notification layer; Empire as master file	Staff guidance	Binding interpretation
CUSIP assignment	Series M shares receive official CUSIP	Staff guidance	Binding interpretation
Protective conversion triggers	Auto-conversion on specified adverse events	Staff guidance	Binding interpretation
Tripartite legal structure	Issuer + OTCM Protocol + Empire agreement	Staff guidance	Binding interpretation

Critical Differentiator: Protective Conversion Triggers

These triggers directly address the counterparty and bankruptcy risk concerns that Release No. 33-11412 continues to flag for Category 2 (third-party) tokenization models. They remain a significant competitive differentiator and are now backed by binding release authority.

Trigger Event	Investor Protection
Bankruptcy filing (any chapter)	Auto-conversion to common stock
SEC enforcement action against the company	Auto-conversion to common stock
Criminal indictment or conviction of officers	Auto-conversion to common stock
Loss of Empire Stock Transfer services	Auto-conversion to common stock
Material breach of token holder rights	Auto-conversion to common stock

PART 3 Required Compliance Adjustments — Version 2.0

1. Token Classification Strategy — SUBSTANTIALLY RESOLVED by Release No. 33-11412

Priority: HIGH → MEDIUM (for ST22 Digital Securities) · LOW (for utility token)

ST22 Digital Securities

Version 1.1 Issue: The “Howey Shield” framework was the #1 red flag — positioning ST22 tokens as commodities/collectibles rather than securities.

Version 2.0 Status: RESOLVED

Release No. 33-11412 eliminates any strategic value in the Howey Shield argument for ST22 Digital Securities. ST22 tokens are unambiguously Category 5 Digital Securities. This is not a liability — it is OTCM Protocol’s competitive moat.

The SEC has confirmed that only Category 5 assets fall under its jurisdiction, and that Category 1 Model B issuer-sponsored tokenization is the compliant structure. OTCM Protocol should lean into this classification, not away from it.

Actions Required:

• ❌ Permanently retire all “Howey Shield” language for ST22 Digital Securities in all documents

• ✅ Replace with explicit “Category 5 Digital Securities under Release No. 33-11412” classification

• ✅ Update Whitepaper V7.0, PPM, Issuer Agreements, and all marketing materials accordingly

OTCM Utility / Governance Token

The five-category taxonomy potentially reclassifies the OTCM utility/governance token entirely outside securities law. If the OTCM token functions as a governance credential and protocol access tool, it may qualify as a Category 3 Digital Tool (not a security). If it operates as a network-native asset with value derived from protocol operation, it may qualify as a Category 1 Digital Commodity (not a security). The investment contract termination framework may also be applicable.

• 🔧 Engage securities counsel to formally classify the OTCM utility/governance token under the five-category taxonomy

• 🔧 Document investment contract termination analysis if applicable

• 🔧 Update all disclosures to reflect the distinction between ST22 Digital Securities (Category 5) and OTCM utility token (Category 1, 2, or 3 TBD)

2. Disclosure Requirements — UNCHANGED FROM VERSION 1.1

Priority: MEDIUM · Release No. 33-11412 does not change disclosure obligations for Digital Securities issuers. Tokenized securities require the same disclosures as traditional securities. Version 1.1 action items remain in force.

Issuer Type	Required Action
SEC-reporting issuers	Token offering documents must reference existing 10-K, 10-Q, 8-K filings
Non-reporting issuers	Standardized disclosure package: material business information, risk factors, financials, management disclosure, use of proceeds
Ongoing disclosure	Protocol for material event updates to ST22 Digital Securities token holders

3. Trading Venue Compliance — UNCHANGED AND NOW MORE URGENT

Priority: HIGH (unchanged from Version 1.1)

Version 2.0 Update — Nasdaq Approval Analysis

The March 18, 2026 Nasdaq tokenization approval (Release No. 34-105047) applies exclusively to DTC Eligible Securities — securities with functioning clearing and settlement infrastructure within the Depository Trust Company. By definition, this framework does not extend to abandoned OTC securities with no DTC clearing, no market maker, and no broker-dealer support.

The Nasdaq approval does not create a compliant trading path for CEDEX or for ST22 Digital Securities. CEDEX remains on its own regulatory path. OTCM Protocol’s consolidated no-action letter (filed March 30, 2026) requesting Staff confirmation that CEDEX does not require ATS registration is the correct and necessary approach.

Option	Description	Version 2.0 Assessment
Consolidated No-Action Letter	Filed March 30, 2026 — requesting CEDEX operating confirmation	Active — await Staff response by April 30, 2026
ATS Registration	Register CEDEX as an Alternative Trading System	Evaluate based on no-action response
Innovation Exemption Sandbox	Apply for SEC’s forthcoming innovation exemption rulemaking	See Item 6 below
Reg D 506(c) Exemption	Maintain accredited investor limitation while venues are evaluated	Currently operative

4. Broker-Dealer Requirements — UNCHANGED FROM VERSION 1.1

Priority: MEDIUM · No material change from Version 1.1. Release No. 33-11412 does not address broker-dealer registration requirements for Digital Securities issuers. The three-option framework remains operative. The Reg D Rule 506(c) approach for ST22 Digital Securities distributions remains fully consistent with Release No. 33-11412. The 42 Transfer Hook controls enforce accreditation verification programmatically on every transfer.

5. Shareholder Register Integration — UNCHANGED FROM VERSION 1.1

Priority: LOW · No material change. Enhancement recommendations from Version 1.1 remain valid.

Enhancement	Purpose
Document blockchain token records as official book entries for Series M	Legal clarity on authoritative record
Establish formal reconciliation procedures between on-chain and off-chain records	Audit trail completeness
Real-time oracle verification visible to regulators (~400ms Empire attestation cadence)	Transparency and regulatory confidence
Ensure Empire Stock Transfer systems can generate shareholder lists from blockchain data	Compliance reporting readiness

6. Innovation Exemption — NEW SECTION (Not in Version 1.1)

Priority: MEDIUM — Strategic Opportunity

Release No. 33-11412 is explicitly described by SEC Chair Atkins as “a first step rather than a final answer.” Formal rulemaking is imminent. Of particular strategic relevance to OTCM Protocol is the innovation exemption — a forthcoming SEC rulemaking (expected April–May 2026) that would allow companies to test novel business models under principles-based safeguards rather than full compliance with existing rules.

What the Innovation Exemption Could Provide

• Operate CEDEX as a trading venue without full ATS registration during a defined sandbox period

• Submit simplified periodic reports to the SEC in lieu of full ATS disclosure obligations

• Test CEDEX’s compliance architecture under regulatory supervision, building the evidentiary record for permanent clearance

• Reduce regulatory uncertainty while the consolidated no-action letter is pending

Why OTCM Protocol May Be a Strong Candidate

• ✅ OTCM Protocol’s 42 Transfer Hook controls already exceed the safeguards any innovation exemption sandbox would require — enforced atomically on every transaction inside the Solana runtime

• ✅ All ST22 Digital Securities offerings are limited to Empire-verified accredited investors — the sandbox’s investor participation limit is already satisfied

• ✅ CEDEX is non-custodial — OTCM Protocol holds no user funds, reducing the regulatory risk profile

• ✅ On-chain settlement provides regulators with real-time, immutable transaction visibility superior to the reporting obligations sandbox participants would otherwise need to satisfy

Actions Required:

• 🔧 Monitor SEC rulemaking publication (expected April–May 2026 per Chair Atkins remarks)

• 🔧 Engage securities counsel to evaluate innovation exemption application eligibility immediately upon rule publication

• 🔧 Prepare innovation exemption application in parallel with no-action letter response process

• 🔧 Position CEDEX’s 42-control Transfer Hook architecture as the model for “principles-based safeguards” the sandbox framework envisions

7. Documentation Updates — REVISED FROM VERSION 1.1

Priority: HIGH (regulatory documents) · MEDIUM (marketing)

Document	Required Update	Priority
Whitepaper V7.0	Remove all Howey Shield language for ST22; update taxonomy from 2-category to 5-category; cite Release 33-11412 throughout	High — Urgent
PPM V6.1	Update token classification; add five-category taxonomy; remove Howey Shield for ST22; add utility token classification analysis	High — Urgent
No-Action Letter	Filed March 30, 2026 — references Release 33-11412 and January Statement correctly	Complete
Issuer Agreements	Add explicit Digital Securities classification acknowledgment; reference Release 33-11412	Medium
Risk Disclosures	Update to reflect five-category taxonomy; remove any “not a security” language for ST22 Digital Securities	High — Urgent
Marketing Materials	Replace all Howey Shield references; emphasize Category 5 Digital Securities compliance	High — Urgent
Technical Specs	Confirm Transfer Hook documentation reflects Release 33-11412 Digital Securities requirements	Medium
This Analysis	Version 2.0 — complete	Complete

PART 4 Competitive Advantages — Version 2.0

The five-category taxonomy dramatically strengthens OTCM Protocol’s competitive position. The new framework simultaneously confirms OTCM Protocol’s architecture as the compliant model for Digital Securities and draws a sharp regulatory line around all competing models.

Third-Party Models — Now Even More Disfavored

• Synthetic Equity Products (e.g., third-party tokenized stocks without issuer authorization): Now explicitly Category 2 non-compliant — security-based swaps that cannot trade off-exchange to retail investors

• Custodial Receipt Models (ADR-type tokens without direct issuer involvement): Investors face counterparty risk, bankruptcy risk, and no direct issuer relationship — all conditions the SEC’s taxonomy is designed to flag

• Unclassified Tokens Claiming Non-Security Status: Tokens that do not clearly fit one of the five categories are presumptively investment contracts under Howey — the worst possible regulatory outcome

OTCM Protocol Competitive Advantages — Version 2.0

Advantage	Version 1.1 Basis	Version 2.0 Upgrade
Regulatory Moat	Staff guidance alignment	Binding interpretive release alignment
First-Mover Position	Category 1 architecture pre-built	Only OTC platform with architecture conforming to all five categories correctly classified
Risk Mitigation	Protective conversion triggers address counterparty risk	Conversion triggers now specifically address risks flagged in binding Release 33-11412
Institutional Appeal	Clear framework enables institutional participation	Five-category taxonomy gives institutional investors a clear compliance map
CFTC Coordination	N/A	Joint SEC–CFTC harmonization means dual regulatory clarity — utility token may fall under CFTC, not SEC
Innovation Exemption	N/A	42 Transfer Hook controls = best-in-class safeguards for sandbox eligibility

Strategic Messaging — Version 2.0

Version 1.1 Message (Retire)	Version 2.0 Message (Adopt)
“Our ST22 tokens aren’t securities because of the Howey Shield”	RETIRE ENTIRELY — this positioning is obsolete and counterproductive
“Our ST22 tokens are securities-compliant”	Our ST22 Digital Securities are Category 5 Digital Securities under binding Release No. 33-11412 — the only category under SEC jurisdiction
“We align with the January 28 Staff Statement”	We align with binding Release No. 33-11412 — the only comprehensive federal crypto asset classification with full legal authority
“Our OTCM utility token is protected by the Howey Shield”	Our OTCM utility/governance token is being formally classified under the five-category taxonomy — potentially as a Digital Commodity or Digital Tool outside SEC jurisdiction entirely

PART 5 Priority Action Plan — Version 2.0

Pri	#	Action Item	Complexity	Timeline	Status
🔴	1	Retire Howey Shield language globally — all ST22 Digital Securities and utility token documents	Low	1–2 weeks	☐ Open
🔴	2	Update Whitepaper V7.0 and PPM with five-category taxonomy and Release 33-11412 citations	Medium	2–4 weeks	☐ Open
🔴	3	Update all risk disclosures and marketing materials	Low	2–3 weeks	☐ Open
🟡	4	Engage counsel to formally classify OTCM utility token under five-category taxonomy	Medium	3–6 weeks	☐ Open
🟡	5	Await no-action letter response (deadline: April 30, 2026)	Low	Ongoing	🔄 Active
🟡	6	Monitor and evaluate innovation exemption rulemaking (expected April–May 2026)	High	4–8 wks post-pub	☐ Open
🟡	7	Develop standardized issuer disclosure package for non-reporting OTC issuers	Medium	4–8 weeks	☐ Open
🟢	8	Formalize Empire Stock Transfer blockchain/ledger integration documentation	Low	2–4 weeks	☐ Open
🟢	9	Document investment contract termination analysis for utility token	Medium	4–6 weeks	☐ Open

Legend: 🔴 High Priority · 🟡 Medium Priority · 🟢 Low Priority · 🔄 In Progress

CONCL Conclusion — Version 2.0

Release No. 33-11412 is the most consequential federal regulatory development for OTCM Protocol since the January 28 Joint Staff Statement — and in most respects, it is better news than Version 1.1 could have anticipated.

The five-category taxonomy resolves OTCM Protocol’s single largest compliance challenge from Version 1.1: the Howey Shield problem. The OTCM utility/governance token no longer needs an awkward commodity classification argument — it may now be classified as a Digital Commodity, Digital Collectible, or Digital Tool under binding federal interpretation, entirely outside SEC jurisdiction. The ST22 Digital Security is unambiguously a Category 5 Digital Security, backed by binding law rather than Staff guidance.

The binding nature of Release No. 33-11412 also upgrades OTCM Protocol’s entire compliance story from “aligned with Staff guidance” to “aligned with binding federal interpretation” — a meaningful difference when speaking with institutional investors, issuers, and regulators.

Three Strategic Questions Remain Open — March 19, 2026

1. CEDEX trading venue status — awaiting no-action letter response and innovation exemption rulemaking

2. Utility token formal classification — requires counsel engagement under the five-category framework

3. Innovation exemption eligibility — OTCM Protocol should position proactively for sandbox consideration

On all three, OTCM Protocol’s existing architecture — 42 Transfer Hook controls, Empire Stock Transfer Category 1 Model B custody, permanently locked Global Unified CEDEX Liquidity Pool, non-custodial CEDEX — represents the strongest possible starting position.

Compliance Summary — Version 2.0

✅ Binding Interpretive Release Alignment	🔄 In Progress	⚠️ Adjustments Needed
Category 5 Digital Securities classification	No-action letter — filed Mar 30	Utility token formal classification
Category 1 Model B architecture	Innovation exemption monitoring	Howey Shield language retirement
SEC-registered transfer agent custody	Issuer disclosure package development	Document updates — Whitepaper V7.0, PPM
True equity backing 1:1		Trading venue compliance resolution
CUSIP assignment		Broker-dealer determination
Protective conversion triggers
Tripartite legal structure
42 Transfer Hook compliance controls
GENIUS Act stablecoin settlement path
Non-custodial CEDEX architecture

Key Regulatory References — Version 2.0

Document	Date	Legal Weight
Release Nos. 33-11412; 34-105020 — SEC–CFTC Joint Interpretive Release on Crypto Asset Classification	March 17, 2026	Binding — Final Rule and Interpretation
Release No. 34-105047 — SEC Approval of Nasdaq Tokenized Securities Rule	March 18, 2026	Binding — Exchange rule approval
Joint Staff Statement on Tokenized Securities — Division of Corp. Fin., Div. Inv. Mgmt., Div. Trading & Markets	January 28, 2026	Persuasive — substantially superseded by 33-11412
SEC–CFTC Memorandum of Understanding — Joint Harmonization Initiative	March 11, 2026	Operative agreement
Innovation Exemption Rulemaking	Expected April–May 2026	Forthcoming

Disclaimer

This analysis is provided for informational purposes only and does not constitute legal or investment advice. Market participants should consult qualified securities counsel regarding specific compliance requirements. Release No. 33-11412 was effective upon Federal Register publication, which had not yet occurred as of the analysis date of March 19, 2026. Groovy Company, Inc. dba OTCM Protocol is a Wyoming Corporation (CIK: 1499275).