Blockchain platform for trading securities OTC moves forward with SEC approval

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By Degen Lipsa

Upon clearance, the SEC and FINRA will both take over as Certificate Holders in the private blockchain, giving regulators access to the network governance and the ability to view transactions.

To conduct over-the-counter (OTC) stock trading on-chain, a Delaware business is requesting registration with the Securities and Exchange Commission (SEC) of the United States.

BlackStar Enterprise Group has been working on the platform since 2018 and has spoken with the regulator for almost two years, responding to their numerous inquiries and concerns. The corporation recently took the next step by giving the SEC Trading and Market division a comprehensive strategy outlining how its platforms will be run.

Blockchain platform for trading securities OTC moves forward with SEC approval
SEC approves Blockchain

According to BlackStar CEO Joseph Kurczodyna, he requested the SEC’s approval to create the platform’s demo in 2018. The senior official stated, “We have demonstrated that U.S. registered securities may be traded digitally on a blockchain and that the procedure is compatible with broker dealers’ back-office and SEC standards.

According to the company’s papers, the platform will permit trading OTC securities within the current ecosystem of authorised brokerage firms overseen by the Financial Industry Regulatory Authority (FINRA) and SEC. According to 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.”

OTC trading, according to Investopedia, is the process of transacting in securities through a network of broker-dealers as opposed to a centralised exchange like the New York Stock Exchange (NYSE).

The platform of BlackStar is powered by Amazon Quantum Ledger Database and constructed on a private blockchain. Until it is licenced to a broker-dealer, clearing house, or alternative trading system (ATS), according to Kurczodyna, it will stay in the testing phase.

The SEC and FINRA will both become Certificate Holders in the blockchain after approval, giving them complete access to transactions. The platform will not handle transactions involving tokens, cryptocurrencies, or short sales.

“From a timing perspective, we believe that BlackStar is in an interesting period right now. According to Kurczodyna, who believes the platform will boost transparency and reduce risks associated with investing in OTC stocks, “Our proposed digital trading platform […] could potentially help resolve multiple existing trading issues, including worries related to fraud in the U.S. financial markets.”

In Germany, where the government wants to employ blockchain technology to fuel stock trading, a similar development is currently occurring. In an effort to increase access to the stock markets for start-ups and small enterprises, legislation has recently been drafted that aims to digitise the capital markets through the issue of electronic securities on a blockchain.

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