Boston Security Token Exchange (BSTX) — How Investors Can Get Involved

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Feb. 2 2022, Published 11:28 a.m. ET

The SEC has been notoriously tough on cryptocurrency-related endeavors. The agency has slammed down almost all funds that invest in Bitcoin or other crypto securities. Now, SEC Chair Gary Gensler is opening up the gates for crypto regulation in a different way. What is the Boston Security Token Exchange (BSTX)?

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Here’s a rundown of BSTX—a private-blockchain-operated exchange that could bring crypto and NFT trading in the future.

The SEC changed its rules for BSTX.

boston
Source: Getty

SEC Chair Gary Gensler

In January, the SEC granted accelerated approval for a proposed rule change for BOX Exchange LLC, which is the company behind BSTX. According to the filing, BSTX “proposes to record and disseminate certain information regarding orders and executions on BSTX on a proprietary market data feed that BSTX would operate using a proprietary blockchain system.”

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Basically, the SEC is allowing BSTX to operate and store data on a specially designed and secured blockchain. Each participant would be able to see their own orders and transaction information on the blockchain. They would also be able to see anonymous general market data.

What is BSTX?

BSTX is led by Box Exchange and its partner tZERO. It’s a legitimate security exchange, but it differs from others like the New York Stock Exchange, Nasdaq Exchange, and Chicago Mercantile Exchange.

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Here’s how BSTX is different:

  • BSTX operates using blockchain technology. This is where transactions go through and where BTX stores all exchange and market data. The blockchain is private.

  • Through the blockchain, exchange participants can view their own activity and anonymously view member activity.

  • BSTX offers same-day and next-day pay settlements.

Does that mean you can trade crypto on a stock exchange now?

No. According to the SEC filing, BSTX’s current proposal “does not involve the trading of digital tokens.” If BSTX wanted the SEC to update the rules to allow for token trading, the blockchain-powered exchange would need to file another rule change proposal.

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Crypto and NFT trading on BSTX might come in the future, but it isn't likely in the current landscape. The SEC has only let crypto-adjacent securities into the market, like an ETF that tracks Bitcoin futures, but doesn’t directly invest in Bitcoin itself.

The SEC says that a national securities exchange must be “designed to prevent fraudulent and manipulative acts and practices; to promote just and equitable principles of trade; to foster cooperation and coordination with persons engaged in [trading], and, in general, to protect investors and the public interest.” For now, it seems that BSTX checks all the boxes.

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When will BSTX launch?

BSTX expects to launch in the second quarter of 2022. The exchange hopes that smaller companies will be able to use BSTX to access a more streamlined price discovery process and reach investors in the public market.

BSTX CEO Lisa Fall said in a press release, “Today’s approval is only the start for BSTX. We are encouraged and energized by the outreach to date from both traditional and non-traditional finance participants. Utilizing future rule filings, we plan to respond with a series of further innovations that will benefit both the issuer and trading communities.”

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