Binance may have violated securities rules by allowing token trading of some US stocks, Germany's financial watchdog says

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Binance CEO, Changpeng Zhao.

Crypto exchange Binance this month began allowing non-US users to trade tokenized versions of some US stocks, including Tesla, Coinbase, and MicroStrategy.

But Germany’s financial watchdog, BaFin, on Wednesday warned investors the exchange may have violated securities rules by failing to issue a prospectus detailing its offering of the assets.

The regulator said such a violation constitutes an administrative offense that could be punishable with a fine of 5 million euros ($6 million) or 3% of the issuer’s total turnover in the last financial year. BaFin also has the ability to ban the legal sale of securities.

Binance, which does not have a single location for its headquarters, typically allows users to trade crypto derivatives – including futures and options. But as retail traders warmed up to round-the-clock stock trading in the past year, the exchange offered investors the option to trade fractions of shares using a German broker as an intermediary, according to the Financial Times.

German group CM-Equity was in charge of handling the exchange’s compliance requirements, the FT said, but was not named in BaFin’s statement.

Binance’s stock token trading platform was said to still be accessible on Wednesday by users operating in the UK and Germany. Meanwhile, residents in the US, China, and Turkey are banned from using the service.

The exchange was separately being investigated by the Commodity Futures Trading Commission in March over concerns it permitted US residents to trade derivatives. Although the company isn’t registered with the CFTC to broker crypto transactions, the commission hasn’t filed any charges relating to this activity.

CEO Changpeng Zhao has previously said in a Bloomberg interview the company is “very regulated.” Binance did not respond to Insider’s request for comment on BaFin’s statement.

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