A Delaware company is seeking registration with the United States Securities and Exchange Commission (SEC) to carry out over-the-counter (OTC) stock trading on-chain.
BlackStar Enterprise Group has been developing the platform since 2018 and spent almost two years in communication with the regulator, answering dozens of questions and comments from examiners. Recently, the company has taken the next step in providing a detailed plan to the SEC Trading and Market division about how its platforms will be operated.
BlackStar CEO Joseph Kurczodyna told he sought the SEC’s permission to build the platform’s demo in 2018. “We have proved that U.S. registered securities can be traded digitally on a blockchain, that the process is compliant with broker dealers’ back-office and SEC rules,” commented the senior executive.
The platform will allow trading OTC securities within the existing regulated brokerage ecosystem from the Financial Industry Regulatory Authority (FINRA) and SEC, the company said in its filings. As stated in the document:
“For example, customers will continue to use brokerage accounts and broker-dealers and the transfer agent will continue to maintain the shareholder records. […] All custodial duties are intended to remain the same because the platform will pass encrypted customer information to buy or sell orders to the appropriate parties.”
According to Investopedia, OTC refers to the process of trading securities via a broker-dealer network, rather than through a centralized exchange such as the New York Stock Exchange (NYSE).
BlackStar’s platform is built on a private blockchain and powered by Amazon Quantum Ledger Database. Kurczodyna said it would remain in the testing phase until licensed to a broker-dealer, clearing firm or Alternative Trading System (ATS).
Upon approval, both the SEC and FINRA will become Certificate Holders in the blockchain, with full access to transactions. Tokens, crypto assets and short selling transactions will not be supported on the platform.
“From a timing standpoint, we feel this is an exciting time for BlackStar. Our proposed digital trading platform […] could potentially help resolve multiple existing trading issues, including concerns related to fraud in the U.S. financial markets,” claims Kurczodyna, who believes the platform will increase transparency and mitigate risks of investing in OTC stocks.
A similar development is taking place in Germany, where the government wants to use blockchain technology to power stock trading. A recently introduced legislation targets the capital markets’ digitalization through the issuance of electronic securities on a blockchain, aiming to make the stock markets more accessible to startups and small businesses.