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Alternative Market Briefing

Other Voices: SEC greenlights investment fund delivered in security tokens

Friday, July 17, 2020

By: Deric Behar, Stephen Wink, Latham & Watkins

On July 6, 2020, asset management firm Arca announced that the US Securities and Exchange Commission (SEC) granted it approval under the Investment Company Act of 1940 to issue shares of a closed-end US Treasury fund in the form of digital securities. The fund will comprise a managed portfolio invested primarily in interest-bearing and low-volatility short-term US government bills, bonds, and notes. Interests in the fund will be purchased directly from the fund and will be issued to approved Ethereum wallets as "ArCoin" ERC-1404 tokens, digital securities that are transferable using blockchain technology. ArCoins are decidedly not cryptocurrencies or stablecoins, but are securities tokens representing equity interests in the fund, with a net asset value that will fluctuate based on the value of the fund's underlying Treasury assets in the same manner as other mutual fund shares.

Arca asserts that its offer of digital securities rather than traditional shares will allow investors to transfer shares peer-to-peer quickly, in small increments, and at lower cost. Additionally, peer-to-peer transactions using ArCoins will be trackable by the fund administrator and transfer agent on the Ethereum blockchain on a real-time basis.

Digital Asset Milestone

While the advent of ArCoins is not a watershed moment (such as when an exchange-traded fund finally obtains the SEC's blessing to hold cryptocurrencies or stablecoi......................

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