Binance draws heat in Europe for stock tokens, lists MicroStrategy anyway

Binance is selling stock tokens despite attracting attention of European regulators.

Crypto exchange Binance will sell Apple, Microsoft, and MicroStrategy stock tokens despite attracting scrutiny of European regulators for its Tesla and Coinbase listings earlier this month.

In a Monday post, Binance said it will roll out the tokens in pairs with its USD stablecoin (BUSD) over the next week, starting with MicroStrategy.

The Cayman Islands-based exchange listed its first stock token, Tesla, on April 12, followed by Coinbase on April 15. Binance said it will “monitor market demand” and may sell tokens for other companies in the future.

Similar to the offerings of Binance competitors like FTX, these new listings offer traders fractionalized units of stocks. Each full token represents one ordinary share in the associated company.

Traditionally, exchanges restrict stock investors to purchasing whole shares. Binance users can instead trade a minimum of one-hundredth of a token. 

Binance stock token holders can earn dividends however won’t receive the voting rights associated with actual equity shareholders.

Binance’s stock tokens offer exposure to these companies.

While crypto exchange’s aren’t usually restricted to any particular trading hours, Binance noted its stock tokens will follow traditional trading schedules.

They also won’t be available for residents in the US, mainland China, Turkey, and other CM-Equity restricted jurisdictions.

Binance and FTX share German bank for stock tokens

First reported by the Financial Times (FT), regulators in the EU are figuring out whether Binance’s stock tokens are securities.

German watchdog BaFin told FT: “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.”

BaFin however wouldn’t confirm it’s investigating Binance for potentially breaking European securities laws. 

On the other hand, the UK’s Financial Conduct Authority (FCA) reportedly said it’s “working with [Binance] to understand the product, the regulations that may apply to it, and how it is marketed.”

Binance claims its stock tokens are compliant with the EU rules and BaFin’s banking regulations.

The exchange told FT its users are really buying and selling them via CM-Equity AG “which does not require a prospectus.” Antigua and Barbados-based FTX also works with CM-Equity AG to sell tokenized stocks.

[Read more: Tokenized Coinbase stock trades nearly 20% above private Nasdaq sales]

Another report suggested regulators could regard Binance marketing its stock tokens a regulated activity. Such efforts require a license in Hong Kong.

South China Morning Post found Binance doesn’t hold any such license, citing Securities and Futures Commission (SFC) records.