SEC Postpones Decision on Overstock-Affiliated Security Token Exchange

The United States Securities and Exchange Commission is seeking more feedback and more time before it decides whether to approve the launch of the Boston Security Token Exchange (BSTX).

In a letter published on April 1, the regulator postponed the current April 2 deadline in light of responses to a recent proposed rule change to BSTX’s original filing.

The proposed exchange

BSTX is a project for a regulated security token exchange platform that would be jointly owned by Box Digital Markets and Overstock’s blockchain arm tZERO. As the SEC summarizes in its April 1 letter, the project proposes the operation of a platform using:

“A fully automated, price-time priority execution system to list and trade NMS stocks that meet BSTX listing standards and for which ancillary records of ownership reflecting certain end-of-day security token balances as reported by market participants would be created and maintained using distributed ledger technology.”

The SEC briefly outlined the results of the feedback it had solicited earlier this year on the BSTX application and subsequent amendments filed by Box and tZERO.

The two comment letters received had raised concerns that the platform could represent a “significant change for the equities market,” as well as noting the affiliation of the tZERO token with owners of the exchange, Overstock, and other entities. The relationships between these actors warrant further disclosure and analysis, the commentator had argued.

One of the letters also pointed to the 85% decrease in the token’s value since its issuance less than two years ago. Both commenters had appealed to the SEC to spend more time evaluating the proposal.

In view of the legal and policy issues raised by the application, the SEC is seeking more time to study whether the proposed exchange would be consistent with sections of the U.S. Securities Exchange Act of 1934. These require, among other things, that the exchange is not “designed to permit unfair discrimination between customers, issuers, brokers, or dealers.”

Contributors have three weeks to submit initial thoughts, and an additional two weeks to respond to others’ comments.

Industry actors’ concerns

As previously reported, one of the commenters had drawn the Commission’s attention to their concerns over Box’s apparently exclusive access to the distributed ledger that would be used to support security token trading on the platform. 

The feedback also alleged there was insufficient detail regarding BTSX’s digital securities infrastructure and technology pairing with the existing equities market infrastructure.