Overstock.com Considers Issuing Digital Securities

Digital Currency

Overstock.com has been a leader in embracing digital currency, and now the company wants to embrace digital securities. On April 24th, Overstock.com filed a registration statement with the Securities and Exchange Commission (“SEC”) that explained that their future stock may be offered as cryptographically-secured shares.

The filed S-3, which is a simplified version of the famous S-1 used for initial public offerings, explains that the company may decide to offer up to $500 million in digital securities in the future using the same or similar technology that is currently used for digital currencies. Overstock.com does not have to issue digital securities pursuant to the filing, and may offer regular stock, warrants, debt securities, units, or nothing at all. However, if offered, the filing explains these digital shares would have to be traded on a new alternative exchange built for such currencies that would initially be open to limited authorized broker-dealers.

Overstock.com explains that digital securities would have similar positives and negatives as digital currency. The benefits would be speed and convenience. Digital securities could trade nearly immediately instead of taking three days to settle as is the current standard. Further, there would be no more need for physical stock certificates, which, yes, still do exist. However, the filing explains there are risks because of both the new technology and public inexperience.   The filing explains that the exchange may have glitches resulting in trade interruptions, few trades resulting in illiquidity of the stock, or criminal hackers who match the private and public ledgers resulting in stockholders’ entire trading history being revealed. Further, Overstock.com realizes that most traders are not savvy about private keys, and thus brokers may have to hold the keys for clients initially, which poses a security risk.

While Overstock.com set precedent with this registration statement, it will be interesting to follow how the market, and specially the SEC, react to digital securities if and when Overstock.com actually offers them.

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