The Securities and Exchange Commission (SEC) has filed a notice regarding Box Exchange, a partner of tZero, pertaining to the launch of the Boston Securities and Token Exchange (BSTX) which is seeking regulatory approval to offer publicly traded security tokens.
tZero is a subsidiary of Overstock (NASDAQ:OSTK).
The SEC published the notice to solicit comments on the proposed rule change from interested persons in advance of a change. Box Exchange filed for a rule change in June of 2019.
More than a year ago, tZero and BOX announced a joint venture to facilitate the trading of security tokens. While tZero already holds an ATS license (alternative trading system), the company determined that by utilizing a fully regulated exchange, the secondary market could better guide the emerging industry. BSTX is jointly owned by the two companies each holding 50% of the equity.
BSTX would operate a fully automated, price/time priority execution system for the trading of “security tokens,” which would be equity securities that meet BSTX listing standards
The exchange would record ownership records on the Ethereum blockchain. It would also update the transaction logbook at the end of the trading day. These records would be maintained along with the market participants’ official proof of ownership documents.
Wallet managers that control approved wallet addresses would pay daily gas fees needed to send their transactions to the Ethereum network. The exchange said the transaction fees would be negligible.
The exchange’s listed tokens would have to be ERC-20 compliant, with security measures in the protocol specified by smart contracts that keep track of ownership, whitelisted addresses and compliance with regulatory guidelines.
In a manner that’s similar to the New York Stock Exchange and NASDAQ, Wall Street’s two central stock exchanges, BSTX’s management says it will only operate during regular market hours between 9:30 am and 4:00 pm EST. tZERO also operates during these hours.
BSTX’s proposed rules are similar to the digital versions of rules and regulations currently in place on traditional trading platforms.
One of the questions deals with knowing the person or entity that’s performing the trades and whether they are authorized to do so. Traditional financial markets require traders to obtain a participant ID (MPID), which is assigned by the Financial Industry Regulatory Authority, a self-regulatory organization. Those trading on the BSTX platform would have to use a whitelisted wallet address as their identifier.
The new rules will become effective within 45 days of publication of the notice in the Federal Register, subject to further action by the Commission.
Box Exchange SEC SRO Notice Filing34-87287