Why Tesla Stock Token's Marketing Could Lend Binance In Regulatory Trouble

April 21, 2021 9:33 pm
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Why Tesla Stock Token's Marketing Could Lend Binance In Regulatory Trouble

Selling Tesla Inc’s (NASDAQ:TSLA) stock as tokens could land the cryptocurrency exchange Binance in hot water in Hong Kong, the South China Morning Post reported Thursday (local time).

What Happened: Binance’s marketing campaign surrounding Tesla’s tokenized stocks could be classified as a regulated activity that requires a license in Hong Kong, but Binance does not hold such a license in the Chinese special administered region, according to records of the local regulator — the Securities and Futures Commission (SFC), according to SCMP.

Binance, with an average daily trading volume of $2 billion, launched a campaign on social media related to the Tesla tokenized stocks last week. 

Gaven Cheong, a partner at law firm Simmons & Simmons, said that according to Hong Kong’s Securities and Futures Ordinance (SFO) the “issue of any advertisement, invitation or document, which contains an invitation to enter into an agreement to buy, or dispose of, any securities to the retail public could be an [offense,] unless such issue is [authorized] by the SFC,” SCMP reported.

A Binance spokesperson told SCMP that it did not operate in Hong Kong and offered the publication no comment on any licensing.

See Also: How to Invest in Tesla Stock

Why It Matters: While Binance’s Apr. 12 announcement regarding the sale of stock tokens mentioned mainland China, Turkey, and “other restricted jurisdictions,” it did not distinctly call out Hong Kong by name as a territory where stock tokens are not available.

The SFC issued a statement on security token offerings in 2019, which made it clear that it is a criminal offense for any person to engage in regulated activities without a license unless an exemption applies.

“Where Security Tokens are ‘securities,’ unless an applicable exemption applies, any person who markets and distributes Security Tokens (whether in Hong Kong or targeting Hong Kong investors) is required to be licensed or registered for Type 1 regulated activity (dealing in securities) under the SFO,” as per the Hong Kong regulator.

Binance is not the only exchange offering tokenized shares. Others like Bittrex and FTX also offer such securities.

See Also: Is Buying Tesla Stock In Tokens Rather Than Actual Shares The Better Choice?

Price Action: Tesla shares closed 3.5% higher at $744.12 on Wednesday and fell 0.47% in after-hours trading. Binance Coin (BNB) traded 6.3% lower at $558.4 at press time on Thursday.

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