Binance, one of the world's largest cryptocurrency exchanges, has come under fire from European regulators over its Tesla (TSLA) and Coinbase (COIN) token listings.
The tokenized versions of the two company's stocks have allowed traders to purchase tiny fractions of shares and trade them faster than they would normal shares through normal brokerage platforms.
Regulators are examining whether Binance has broken securities laws with the issuing of these token representations of stock shares. Binance allows customers who live outside the US, Turkey or China the ability to trade these tokens.
The tokens follow the performance of the shares they represent, though they are only a fraction of the cost of the underlying shares.
In a statement to the Financial Times, the UK's Financial Conduct Authority said that it is "working with the firm to understand the product, the regulations that may apply to it and how it is marketed. Firms and their senior management teams are responsible for determining whether their products and services fall within the remit of the FCA."
The German regulatory body known as the Federal Financial Supervisory Authority told the Financial Times it could not comment on specifics of the case as it is obligated to be confidential.
“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."
Binance argued that its new Tesla and Coinbase tokens complied with EU's market rules, citing that the tokens are CM-Equity products and that they are in line with EU's Midfid II market rules.
"Currently users only buy and sell the tokens from and to CM-Equity AG, which does not require a prospectus," Binance said the Financial Times.
As previously reported by TheStreet Crypto, the Tesla and Coinbase tokens will be priced and settled in Binance USD (BUSD), a stablecoin pegged to the U.S. dollar and issued by New York-based Paxos Trust Company.
When the first of the two tokens were launched, Binance CEO, Changpeng Zhao, said “Stock tokens demonstrate how we can democratize value transfer more seamlessly, reduce friction and costs to accessibility, without compromising on compliance or security. Through connecting traditional and crypto markets, we are building another technological bridge for a more inclusive financial future.”
Don’t miss out on how smart money is playing the crypto game. Find out how hedge funds, family offices and wall street players are positioning themselves for the growing crypto-economy in our premium newsletter - The Crypto Investor.