Online retailer and early adopter of cryptocurrency, Overstock, has announced that it will pay shareholders a dividend in the form of shares of Overstock.com Inc.’s Digital Voting Series A-1 Preferred Stock (OSTKO)
According to a press release, the A-1 shares wll be distributed at a ratio of 1:10, meaning that one share will be issued for every 10 shares held in OSTK.
Overstock's founder and chief executive officer, Patrick Byrne, stated:
The approximately 40,000 holders of the currently outstanding ≈37 million shares of Overstock will be issued a dividend of ≈3.7 million of these new digital shares.
Arbitrage Between Digital Shares and Stocks
While Byrne predicts that the digital shares may trade with relative parity to OSTK stock “Because the bundle of legal rights represented by each of these new A-1 shares is similar to the bundle of legal rights embodied in shares of our common stock,” the Overstock CEO emphasizes that the trading dynamics unique to cryptoassets may render speculation of price parity between the two assets meaningless, stating:
However, our legacy OSTK shares trade in a capital market with trading and settlement mechanisms about which I have long made my criticisms and doubts known to the public, whereas our new blockchain-based A-1 shares trade in a blockchain-based capital market which I believe is resistant to such dynamics. I cannot predict what kind of trading parity, if any, will emerge between the two.
Byrne also advances the possibility that “arbitrageurs will notice and explore” price disparities between the two assets, potentially “punch[ing] a wormhole between the universe of legacy [National Market System] and [the] new universe of a blockchain capital market.” OSTK shares are currently trading at just over $23 each.
Digital Securities Can Be Traded on PRO Securities’ ATS
The digital securities can currently be traded on the PRO Securities alternative trading system (ATS), the PRO Securities ATS is the same platform on which tZERO’s security tokens began to be resold among accredited investors earlier this year.
The release states that the new shares “are not required to be registered under the Securities Act of 1933 or applicable state securities laws.” As such, no secondary resales of the shares will occur “until they become eligible for resales under Rule 144 under the Securities Act, or if another exemption from registration is available.”
The digital securities are exclusively tradable on the PRO Securities ATS through a brokerage account established with Dinosaur Financial Group, LLC.
Update: The original version of the article erroniously stated Overstock would pay dividends in tZERO security tokens. It has been updated to reflect it'll pay in shares of Overstock.com Inc.’s Digital Voting Series A-1 Preferred Stock (OSTKO)