On May 22, 2018, Overstock subsidiary tZERO teamed up with BOX Digital Markets to launch the industry’s first security token exchange. The two have entered into a letter of Intent to form an exchange for the listing of publicly traded security tokens.
BOX Digital and tZERO Joint Venture
tZERO has agreed to contribute cash for the formation of the joint venture as well as blockchain technology to operate the token market. BOX Digital, on the other hand, is to contribute expertise and personnel for obtaining regulatory approval and running the token exchange. Unlike cryptocurrencies, security tokens are digital representations of financial assets such as stocks, real estate, or debt.
“I would like to see something trading in Q3,” Overstock CEO Patrick Byrne told Reuters in a phone interview.
BOX Digital CEO, Lisa Fall, is to become the Chief Executive Officer of the joint venture that is to be equally owned. tZERO and BOX Digital are to have equal representation on the board of directors with one mutually agreed independent director.
“tZERO’s track record and accomplishments in this innovative area, coupled with BOX’s expertise in operating a highly efficient and transparent equity options marketplace, made partnering together an easy decision and we look forward to building a world-class platform for listing and trading security tokens,” said Fall.
Overstock Chief Executive Officer, Patrick Byrne, expects the exchange to be up and running sometime before the third quarter. However, the two need approval from the U.S Securities and Exchange Commission (SEC) to create the proposed regulated security token exchange.
tZERO Regulatory Scrutiny
It awaits to be seen if tZERO will succeed with its new security token exchange push as it is currently undergoing severe regulatory scrutiny. In March 2018 the SEC revealed that it had started reviewing the firm’s Initial Coin Offering (ICO), which Overstock hosted.
The company was in the process of raising money as it sought to create an alternative trading system. So far, it has raised $250 million in funding. While the SEC has confirmed the company is not in any legal trouble with the ICO push, it is still uncertain if the outcome will have any impact on the proposed plan to launch a security’s token exchange.
A move by tZERO and BOX Holdings to form security tokens comes at a time of increased uncertainty over regulation of the cryptocurrency space. Virtual currency prices have taken a hit as a result of investors becoming wary of the kind of rules that could come into play going forward.
Some countries have already banned token sales, and there have been concerns that U.S regulators could follow suit given the proliferation of fraudulent token purchases. The SEC has already conducted sweeping probes on companies and firms that have raised money through ICOs.
VRBex Security Token Exchange Push
tZERO and BOX Digital are not the only ones planning to launch a security token exchange. VRBex has also announced plans to operate a crypto exchange as well as a security token trading platform. According to the company’s Chief Operating Officer, David Powell, token holders represent an interested and motivated group of future customers that will shape security token exchange platforms.
The initial plan is to make about 135 million VRBEX security tokens available for purchase with bitcoin, ether, USD, and Euros. The platform is open to investors who satisfy the applicable suitability standards as VRBex plans to be fully compliant with U.S. laws and regulations.