SEC Delays Decision on Overstock-Backed Security Token Exchange

The Commission Seeks More Feedback Over Next Three Weeks 

In a letter published on April 1, the SEC delayed the current April 2 deadline because it requires more feedbacks and reviews of the operations of the proposed BSTX, the one affiliated with Overstock’s blockchain arm tZERO.

BSTX is a project working to become a regulated exchange for trading security tokens, the platform would be jointly owned by tZERO (the blockchain arm of Overstock) and Box Digital Markets.

The commission was scheduled to announce a decision on BSTX yesterday, but because of some policy and legal matters, it is extending the deadline. The SEC is particularly interested to know whether BSTX’s operations meet compliance requirements of the Securities Exchange Act of 1934. The commission also wants to know whether the information that tZERO and BOX had provided will be sufficient to make an adequate ruling concerning the BSTX’s approval.

The SEC had warned parties involved that should these two issues not sufficiently be addressed then might contribute to grounds for summary rejection. The commission has given the parties three weeks to submit their initial thoughts, and another two weeks to respond to others’ comments.  

The BSTX proposal was at first filed in May 2019 in which the SEC published for public consultation in October. Last month, BOX filed an amended BSTX proposal to increase the number of market markers needed for an initial listing from two to three and to tighten the overall listing standards of the exchange.

There also have been several concerns raised by industry actors. For instance, Nasdaq stock exchange raised their concern to the SEC, saying that the BTSX proposal might create an “unreasonable burden on competition” as the underlying blockchain technology (distributed ledger) would be exclusively available on BOX. Moreover, Nasdaq stock exchange mentioned that the proposal seems to provide “inadequate” detail concerning BTSX’s digital securities technology and infrastructure pairing with the existing equities market infrastructure.

All these explained the reason why industry actors wanted the commission to spend more time before rejecting or approving BSTX’s proposal.

SEC’s Latest Guidance on Digital Assets Securities

In July 2019, the SEC published a framework that all security token investors and issuers must follow. All investors and issuers must be declared effective by the agency before they can commence with their security token sale.

Moreover, to operate their trading platforms, all investors and issuers are required to register with the agency as broker-dealers who are expected to safeguard customer assets and to keep client’s assets separate from the company’s assets under the Consumer Protection Act. The commission has been active in bringing fines and charges to individuals who have failed to create tokens without any use-value. Therefore, with more time granted for more feedbacks and reviews, it remains to see whether the SEC will approve or reject BSTX’s proposal.   

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