Germany’s Financial Regulator Warns Binance Over Stock Token Offering

Germany’s federal financial supervisory authority, BaFin, has warned Binance crypto exchange about the risk of being fined for offering tokenized stock trading service without first publishing an investor prospectus.  

Germany’s financial regulator has said that it has reasonable evidence for suspecting Binance may be violating the nation’s securities laws with regards to the exchange’s recently announced stock tokens service.

On Monday, April 26, Binance made an announcement that it offers stock tokens, priced and settled in the form of the exchange’s own cryptocurrency (Binance BUSD stablecoin), thus giving investors exposure to Apple Inc., Microsoft Corp., and MicroStrategy Inc. shares.

However, the announcement as reported by the Financial Times raised eyebrows across Europe’s regulatory ecosystem, including Germany. This is because Binance’s offering is facilitated through a partnership with German financial service company CM-Equity, which is licensed in the nation.

On Wednesday, April 27, the German regulator stated that there seemed to be no prospectus on the exchange’s website for the Coinbase, Tesla, and MicroStrategy issues, which is a violation of European Union securities laws that could result in Binance, as an issuer, being fined 5 million euros ($6.04 million) or 3% of last year’s turnover.

BaFin’s notice mentioned a company by the name “Binance Germany GmbH & Co. KG,” which the regulator stated that it suspects providing securities in the form of shares token with the terms MSTR / BUSD, COIN / BUSD, and TSLA / BUSD without the required prospectus on the website.

However, the regulator did not mention CM-equity in the notice.

BaFin did not specify what steps it would take next, but the notice highlights potential punishments for violations of the prospectus rule.

Binance has not given immediate comment on the announcement.

New Era of Stock Trading on Crypto Exchanges

Crypto exchanges are entering the tokenized stock trading space by allowing their users to purchase fractions of publicly-traded companies’ shares. For example, Binance has followed the steps of its competitors such as Bittrex Global and FTX to introduce such service with tokenized stocks.

The move is set to make stocks of publicly traded companies be traded as tokens on crypto exchanges so that users can purchase fractional shares using cryptocurrencies. Tesla and MicroStrategy are some of the prominent firms that have made some moves in the rapidly growing crypto space. The development has assisted in boosting Bitcoin’s price and even put the bigger spotlight on cryptocurrencies.

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Deutsche Borse’s platform Xetra to list its first Ether ETPs

Deutsche Borse’s electronic trading platform, Xetra, is preparing to launch its first Ether (ETH)-based exchange-traded products, or ETPs.

According to data from Xetra, the platform is set to debut trading of two Ether ETPs — ETC Group’s Ether exchange-traded commodity, or ETC, product (ZETH) and 21Shares’ Ethereum ETP (AETH) — on Tuesday. A spokesperson for Deutsche Borse told Cointelegraph that the two products will be the first Ether ETPs to ever be listed on Xetra.

Alongside AETH, Xetra will be also listing 21Shares’ Bitcoin Cash (BCH) ETP, the firm’s global head of ETP, Laurent Kssis, told Cointelegraph. “As of tomorrow 21Shares will have 4 ETPs centrally cleared on Xetra which shows how the exchange has put its trust in us and demanded that we step in with more institutional grade ETPs for investors,” Kssis said.

According to an announcement by ETC Group, ZETH was approved by the Federal Financial Supervisory Authority, Germany’s financial regulator better known as BaFin. The new crypto investment product provides a physically backed, central counterparty-cleared ETC on Ether cryptocurrency that is stored in regulated, institutional-grade custody by BitGo Trust Company, the company said.

The upcoming listings bring three new crypto products to four Bitcoin ETPs already listed on Xetra, including ETC Group’s BTCetc and VanEck’s Vectors Bitcoin ETN, as well as 21Shares’s Bitcoin ETP and Short Bitcoin ETP.

Representing an electronic trading platform operated by Deutsche Borse, Xetra is one of the largest trading platforms in Europe. The company said that Xetra accounts for nearly 90% of the total trading volume of all German stock exchanges, listing over 2,700 tradable securities.

Despite Xetra’s increasing adoption of crypto ETPs, the company is apparently unlikely to start onboarding other types of crypto investment products such as a crypto exchange-traded fund, or ETF, anytime soon. Stephan Kraus, head of Deutsche Borse’s ETF segment, told Cointelegraph that “ETFs on a single cryptocurrency are currently legally not possible” due to the European Union’s regulatory framework for funds.

“For the same reason, there are currently, for example, no gold ETFs listed on EU trading venues,” Kraus stated. “ETPs track the price development of an underlying in a similar way to ETFs, but are legally debt instruments and not funds,” he added.