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European regulators threaten Binance’s stock tokens

Photo of: Joseph Stone
by Joseph Stone

Binance’s tokens allowing to invest on shares do not please European regulators.
The world’s largest exchange in terms of volume, Binance could soon have a run-in with the regulatory authorities. Since April, the platform has been offering to invest in the stock market, indirectly.

Binance offers its customers the possibility to buy stock tokens, including in the form of fractional shares. This week, the firm even expanded its offer with MicroStrategy, Apple and Microsoft shares.

But financial regulators are concerned that Binance may be violating securities laws with these financial products. The Financial Times reported last week that the authorities have opened an investigation into stock tokens.

The German supervisory body, BaFin, now believes that these tokens most likely violate the legislation. In a note, it considers that it has “reasonable grounds” to suspect Binance of issuing securities without the required documentation.

A ban would be a serious setback for the firm, and for other exchanges that develop comparable financial products. Binance does not actually issue a share, but tokens backed by these securities.

The exchange states that the “Binance Stock Tokens” represent one ordinary share of the stock in question. Buying a token of this type is like buying a share, but without paying a commission.

Binance’s stock tokens are fully backed by a portfolio of underlying securities held by CM-Equity AG. This regulated European financial services provider is based in Germany. This may explain BaFin’s intervention.

Regulation could curb Binance’s ambitions in this market. On the other hand, it should not clash with regulators on NFTs. The exchange intends to take advantage of the momentum around non-fungible tokens.

In June, Binance will launch an NFT platform, as well as a marketplace. The service will be accessible to its customers through a single Binance.com account. In particular, Binance NFT will allow users to create NFTs and sell them.

“The Binance NFT marketplace will also support small value creators by providing the highest liquidity and lowest fees for users,” says CEO Changpeng Zhao.