Reg S Offering

The offering must be an offshore transaction. This means no directed selling efforts are made in the United States, and the securities are sold to buyers outside the U.S. at the time of the buy order. The rule is designed to ensure the offering is genuinely international, preventing circumvention of U.S. registration for domestic sales.

Reg S establishes two categories of issuers with different restrictions:

• Category I: Issuers with no substantial U.S. market interest in their securities (e.g., foreign issuers). No resale restrictions apply.
• Category II: Foreign issuers with a U.S. market interest, and U.S. domestic issuers. Securities are subject to a 40-day distribution compliance period where they cannot be offered or sold to U.S. persons.
• Category III: Higher-risk issuers (e.g., reporting shell companies). Subject to a one-year restricted period and additional selling restrictions.

Securities issued under Reg S are typically restricted securities for a defined period (the distribution compliance period). During this time, they cannot be resold into the United States or to U.S. persons without registration or another exemption. After the restriction period expires, they may be resold, subject to other securities laws. This is distinct from registered securities, which are freely tradable on U.S. exchanges.

Issuers and distributors are prohibited from engaging in directed selling efforts. This includes any activity that could condition the U.S. market for the securities, such as advertising in U.S. media, seminars targeting U.S. investors, or mailing offers to U.S. addresses. All promotional activities must be conducted outside the United States.

Reg S is frequently used by blockchain projects for initial coin offerings (ICOs) and token sales to non-U.S. investors. It allows projects to raise capital globally while complying with U.S. securities law by excluding U.S. participants. Purchasers must complete an accreditation or non-U.S. person certification (e.g., a Rule 902(k) certification) to prove their eligibility.

Issuers often conduct a combined Reg S/Reg D offering to raise capital from both non-U.S. (Reg S) and accredited U.S. (Reg D, e.g., Rule 506(c)) investors simultaneously. The offerings must be structured to avoid integration, meaning they are treated as separate exempt offerings. This is a common strategy for maximizing the investor pool while maintaining regulatory compliance.

This category includes U.S. domestic issuers with no substantial U.S. market interest in their securities. They face the most restrictive rules, including a 40-day distribution compliance period and a prohibition on offering to, or selling for the account of, a U.S. person. These issuers are typically conducting an overseas-directed offering.

This is the most common category for non-U.S. companies. It includes foreign private issuers with a substantial U.S. market interest in their equity securities. They must adhere to a 40-day distribution compliance period and implement offering restrictions, including contractual prohibitions on resales to U.S. persons and legending of certificates. Most international blockchain token sales by established non-U.S. entities fall here.

This category applies to foreign private issuers with no substantial U.S. market interest in their securities, or for debt offerings by any foreign issuer. It imposes the longest restrictions: a 40-day compliance period for debt and a one-year compliance period for equity. It requires offering restrictions and, for equity, purchasers must certify they are not U.S. persons and are not buying for a U.S. person.

A critical determination for classifying foreign issuers. SUSMI exists if, over a recent 12-month period:

• Over 20% of trading in the issuer's equity securities occurred on U.S. exchanges or through ADRs.
• The issuer's primary market is in the U.S.
• The issuer conducted a registered U.S. offering. SUSMI triggers placement in the more restrictive Category 2 for equity offerings.

A core compliance requirement for Categories 2 and 3. Issuers and distributors must implement contractual measures, including:

• No directed selling efforts in the U.S.
• Agreements that all off-chain transactions (not on an exchange) will only be with non-U.S. persons or pursuant to another exemption.
• Physical or electronic legending of securities to warn against U.S. sales during the compliance period.

A mandatory "closed period" after the offering where resale restrictions apply. Its length is defined by the issuer's category:

• Category 1 & 2: 40 days for both debt and equity.
• Category 3: 40 days for debt, 1 year for equity. During this period, securities are restricted securities and cannot be offered or sold to a U.S. person or for the account of a U.S. person.

Regulation S is a safe harbor exemption from the registration requirements of the Securities Act of 1933 for securities offerings conducted outside the United States. Its primary purpose is to facilitate global capital raising by U.S. and foreign issuers while maintaining a clear jurisdictional boundary to avoid imposing U.S. securities laws on purely offshore transactions.

To qualify, offerings must meet strict conditions to ensure they are truly offshore:

• No Directed Selling Efforts: The issuer cannot conduct any marketing or selling activities targeted at the U.S.
• Offshore Transactions: Both the offer and sale must occur outside the U.S.
• Category Distinctions: Rules differ for equity (Category 3 has the longest distribution compliance period) versus debt offerings.
• Legending Requirements: Securities must bear a legend restricting their resale into the U.S. for a specified period.

Reg S is a foundational legal framework for tokenizing real-world assets (RWAs) for international investors. It allows issuers to structure security token offerings (STOs) representing equity, debt, or funds tied to assets like real estate, private credit, or commodities, and sell them to a non-U.S. investor base in a compliant manner. This bridges traditional securities law with blockchain-based issuance.

In Institutional DeFi, Reg S-compliant tokens can be integrated as collateral assets or yield-bearing instruments within permissioned protocols. For example, a tokenized private credit note issued under Reg S could be used in a decentralized lending pool accessible only to verified, non-U.S. institutional participants, creating compliant on-chain capital markets.

While both are private placement exemptions, they target different markets:

• Regulation S: For offshore offerings to non-U.S. persons.
• Regulation D (e.g., Rule 506): For domestic U.S. offerings to accredited investors within the U.S. Issuers often run parallel offerings under both regimes to access capital from U.S. accredited investors and a global audience simultaneously.

Enforcing Reg S conditions on-chain requires sophisticated compliance middleware. Key solutions include:

• Geographic Blocking: Using oracle-verified data to restrict access based on IP/KYC jurisdiction.
• Transfer Agent Protocols: Smart contracts that enforce distribution compliance periods and legend restrictions before permitting transfers.
• KYC/AML Attestations: Integrating with providers like Chainalysis or Elliptic to verify investor status.

Reg S creates a legal safe harbor, meaning that if an issuer follows its specific rules, the offering is deemed to occur outside the United States and is therefore exempt from SEC registration. The two fundamental conditions are:

• Offshore Transaction: The offer and sale must be made in an "offshore transaction."
• No Directed Selling Efforts: The issuer must not engage in any "directed selling efforts" in the U.S. to condition the market for the securities.

Reg S offerings are categorized based on the issuer's connection to the U.S. market, dictating the required compliance steps:

• Category 1: For foreign issuers with no "substantial U.S. market interest." Minimal restrictions apply.
• Category 2: For foreign issuers with a substantial U.S. market interest (e.g., SEC-reporting foreign companies). Requires a 40-day distribution compliance period where securities cannot be offered/sold to U.S. persons.
• Category 3: For U.S. domestic issuers. Has the strictest rules, including a 40-day or one-year distribution compliance period and specific resale restrictions.

A critical enforcement mechanism is the distribution compliance period (or "restricted period"). During this time, which lasts 40 days or one year depending on the category, purchasers cannot resell the securities to U.S. persons. To enforce this, securities are issued with a Reg S legend on certificates or in smart contract metadata, clearly stating the transfer restrictions. This legend is a key tool for compliance officers and transfer agents.

In the context of blockchain token offerings, Reg S is a common structure for sales to non-U.S. investors. Issuers must implement robust Know Your Customer (KYC) and geoblocking measures to ensure participants are outside the U.S. The tokens are typically issued with a smart contract-enforced lock-up or transfer restriction for the compliance period. Failure to properly implement these controls can result in the loss of the safe harbor, exposing the issuer to SEC enforcement for an unregistered securities offering.

Reg S is often used in tandem with Regulation D (Reg D) for a combined global private placement.

• Reg S: Governs sales to non-U.S. persons outside the United States.
• Reg D (e.g., Rule 506(b/c)): Governs sales to accredited investors within the United States. This dual-track approach allows issuers to raise capital from both U.S. and international investors while complying with the distinct exemption requirements for each jurisdiction.

The primary risk is the loss of the exemption, which can lead to SEC penalties, rescission offers (allowing investors to get their money back), and legal liability. Key due diligence areas include:

• Verifying the accuracy of investor accreditation (for Reg D) and non-U.S. status (for Reg S).
• Ensuring all marketing and promotional activities are strictly offshore with no U.S. conditioning.
• Properly implementing and monitoring the distribution compliance period and transfer restrictions.
• Filing the required Form D notice with the SEC for the U.S. portion of the offering.

An individual or entity that meets specific financial thresholds, allowing them to participate in unregistered securities offerings like those under Regulation D. Criteria include:

• Individual income >$200k ($300k joint) for two years with expectation of same.
• Net worth over $1 million (excluding primary residence).
• Certain entities like banks, investment companies, and trusts with >$5M in assets. Reg S offerings do not require investors to be accredited, as they are conducted outside U.S. jurisdiction.

An issuance of digital tokens that represent ownership in an asset (equity, debt, real estate) and are explicitly treated as securities under law. STOs often utilize exemptions like Reg D (for U.S. investors) or Reg S (for non-U.S. investors) to comply with regulations. They provide a blockchain-based mechanism for capital formation with embedded compliance features, contrasting with unregulated Initial Coin Offerings (ICOs).

A core requirement of Regulation S. The offer and sale must occur outside the United States. This is operationally defined by:

• The buyer is outside the U.S. at the time of the buy order.
• No directed selling efforts are made in the U.S.
• The transaction is executed on a designated offshore securities exchange or through a foreign broker-dealer. This geographic and procedural isolation is what exempts the offering from SEC registration requirements.

A contractual restriction preventing the resale of securities into the United States for a defined time after a Reg S offering. This is a critical distribution compliance mechanism. Key rules:

• Rule 903 (Category 3): For reporting issuers, a 6-month lock-up; for non-reporting issuers, a 12-month lock-up.
• Rule 904: For resales by distributors, a 40-day distribution compliance period. These periods are enforced to prevent the immediate flow of offshore-purchased securities back into the U.S. public market.