Experts are warning Canadian investors curious about trading stock tokens to be cautious as the current regulatory climate is still uncertain. Cryptocurrency exchange such as Binance has, for instance, announced that it stopped selling stock in multiple countries after warnings from securities.
Binance which is based in Cayman Island and owned by Chinese-Canadian businessman Changpeng Zhao is facing regulations actions in Germany and Hong Kong for not being registered as a security in the jurisdictions.
Binance also ceases operations in Ontario after it failed to comply with Ontario Securities law. Regulators in various countries are also figuring out the approach they will take on the cryptocurrency industry, like the token stock. Investors in the token sector risk the exchange being taken off at any time.
However, Canadian companies such as Canopy Growth Corp, Blackberry Ltd, and Aurora Cannabis are tokenizing their stock of foreign trading platforms such as Binance and Hong Kong-based FTX.
Investors prefer digital token instead of stock because they can buy and sell a fractional amount of stock by owning a tokenized version of security. However, the price of a token stock is tied to the value of the share itself.
Currently, there are no regulated crypto platforms in Canada, but investors still trade on the unregulated stock token on a platform such as FTX. Tetra Trust CEO Eric Richmond warns that trading in unregulated platforms should be a concern to Canadian investors.
“I think the main concern with investing in stock tokens in Canada is that because there is no regulated platform if something happens to the platform you use, you’re done.”
Canada as a whole has not taken a clear position on stock tokens as a product. However, provincial and territorial regulators have stated the companies that offer security tokens have to register as dealers.
Crypto platforms in a province like Ontario are required to register so that they can offer tokens. Experts believe the main issue is not the product itself but the fact that the stock token is a security. To sell securities, the platforms must go through all necessary steps to become a regulated dealer in securities.
However, stock tokens are not similar to actual stock. Investors in stock tokens do not own any company shares, and only in some specific cases, investors can receive dividends. Investors mostly make money from trading on the movement in the company’s stock.
Stock tokens traders argue that it is one of the easiest ways to acquire fractional shares of stock. Furthermore, shares of company’s such as Tesla have soared to over $600 recently, a level that is too high for many investors.
Token Funder Inc CEO Alan Wunsche says that the digital version of stock is creating a new way of raising money. Token Funder Inc. is a company facilitating the trading of digital securities linked to private companies.
The company has received the approval of the Ontario Securities Commission to begging to trade in securities tokens. Wunsche adds that many people agree that the future of capital markets lies in digital tokens.