Blockchain platform for securities trading OTC moves forward with SEC approval

A Delaware company is seeking registration with the United States Securities and Exchange Commission (SEC) to conduct over-the-counter (OTC) stock trading on the chain.

BlackStar Enterprise Group has been developing the platform since 2018 and spent almost two years communicating with the regulator, answering dozens of questions and comments from censors. Recently, the company has taken the next step in providing a detailed plan to the SEC Trading and Market division on how the platforms will be operated.

BlackStar CEO Joseph Kurczodyna told Cointelegraph that he sought the SEC’s permission to build the platform’s demo in 2018. “We have proven that US-registered securities can be digitally traded on a blockchain, that the process is compliant with broker-dealer back-office and SEC rules,” commented the top manager.

The platform will allow trading of OTC securities within the existing regulated brokerage ecosystem of the Financial Industry Regulatory Authority (FINRA) and the SEC, the company said in its filings. As stated in the document:

“For example, clients will continue to use brokerage accounts and broker-dealers, and the transfer agent will continue to maintain shareholder records. […] All custody obligations are intended to remain the same because the platform will send encrypted customer information to buy or sell orders to the relevant 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 the Amazon Quantum Ledger Database. Kurczodyna said it would remain in the testing phase until it was licensed to a broker-dealer, a clearing firm or an alternative trading system (ATS).

Upon approval, both the SEC and FINRA will become certificate holders in the blockchain, with full access to transactions. Tokens, cryptoassets and short sale 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 […] can potentially help solve several existing trading problems, including concerns related to fraud in the US financial markets,” claims Kurczodyna, who believes the platform will increase transparency and reduce risk when investing in OTC stocks.

A similar development is taking place in Germany, where the government wants to use blockchain technology to conduct stock trading. Recently introduced legislation targets the digitization of capital markets through the issuance of electronic securities on a blockchain, with the aim of making stock markets more accessible to startups and small businesses.

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