Financial Regulators in Europe have raised concerns over the transparency and legitimacy of Binance’s stock token trade that began recently. According to the watchdogs, it is unclear whether the exchange’s stock token trading complies with the regulations overseeing corporate asset trading legislation. The regulators are tracking whether Binance is in line with security trading rules following the recent launch of the crypto-financial business milestone.
Binance in the Spotlight
The exchange commenced its equity token trading earlier this month, with Tesla becoming the first startup to offer its shares. Afterward, Coinbase Inc joined the fray following its public listing on Nasdaq. Changpeng Zhao, the platform’s CEO, marked the move as uplifting the importance of digital currencies in an unfavorably regulated crypto market.
According to the Financial Times, the United Kingdom’s Financial Conduct Authority is working with Binance to discover what the products are and how they will regulate them. The FCA gave a statement saying,
“Firms and their senior management teams are responsible for determining whether their products and services fall within the remit of the FCA.”
BaFin, the German financial regulator, did not respond to FT’s question on examining Binance’s stock trading. However, the watchdog issued an explanation saying if the assets are transferable, tradable on crypto exchanges, and carry economic privileges like cash payments or dividends; they should be classified as securities.
Offering Equity Tokens in Europe
According to FT’s interview with Binance, the exchange offers shares tokens through CM-Equity. CM-Equity products are compliant with most financial authority’s regulations, including BaFin and the European Union’s Midfid Ⅱ market laws. Binance further stated that since it offers the tokens via CM-Equity, the products are not in any way subject to a prospectus.
The exchange also stated that its share tokens are drafted to monitor how shares perform in their respective companies, although they only cost a portion of the shares. The tokens are only a fraction of the whole shares and, as stated by the trading platform, are ‘backed by a portfolio of underlying securities.’
Binance insists that investors have a right to acquire profits from the equity tokens, not excluding projected dividends. The company added that CM-Equity is the custody service provider for the assets, overseeing compliance and KYC protocol checks.
Trading at a Risky Stance
Since the exchange has not provided any prospectus, they might find themselves in the wrong position if the stock tokens are determined as securities. Nonetheless, CM-Equity said the Binance tokens were compliant with European financial regulations whose workability is a certified ‘total return swap.’
Financial lawyers have termed whether the tokens are securities as a gray area because Binance did not specify the nature of the assets on their website.