The Binance crypto exchange, as one of the largest crypto exchanges in the world, is constantly expanding with new markets, as evidenced by the recent opening of trading in stock tokens.
This time, however, Binance is entering an area with a long history of stock trading, which is attracting the attention and concern of European regulators.
One of the first regulators to become interested is The UK’s Financial Conduct Authority, which provided an opinion to the Financial Times and stated that it is “working with the firm to understand the product, the regulations that may apply to it and how it is marketed”.
According to the London-based daily, another regulator is the German watchdog BaFin, which does not want to comment much on the case for reasons of confidentiality, but said “We cannot comment on the specific case due to confidentiality obligations,” -- “Fundamentally, however, the following applies: if tokens are transferable, can be traded at a crypto exchange and are equipped with economic entitlements like dividends or cash settlements, they represent securities and are subject to the obligation to publish a prospectus.”
In the first announcement, Binance relied on the fact that there are zero-commission trades that allowed the users to trade fractional stocks. All stock tokens are denominated, settled, and collateralized in BUSD.
Binance also stated that their stock tokens are a CM-Equity product, which is in full compliance with the EU’s Mifid II markets rules and BaFin’s banking regulations.
However, this is still not enough and the lawyer at a partner of law firm Eversheds Sutherland in Hamburg disputes that Binance does not mention on the website whether it is a security or a derivative and says “Taken together with the information from Binance, it’s simply not consistent,” -- “If I was BaFin, I’d write immediately to them and ask where the prospectus is.”
In the end, however, it looks like Binance knows what it is doing and reassures everyone, including the FT daily, with the words “Currently users only buy and sell the tokens from and to CM-Equity AG, which does not require a prospectus,”.
For the time being, Binance only allows trading in stock tokens of Coinbase Global, Inc. (COIN) and Tesla Inc. (TSLA).