Thursday, June 7, 2018

Coinbase Acquires Investment Firms to Offer Regulated Crypto Securities


Coinbase is seeking to become a fully licensed broker-dealer through its acquisition of three federally regulated firms. The company is confident that it will get the approvals necessary to start offering fully-regulated crypto securities.

Coinbase as Regulated Broker-Dealer
One of the world's largest cryptocurrency companies, Coinbase, has implemented a plan to list crypto securities, the company announced on Wednesday. President and COO, Asiff Hirji, wrote:

Today, we're announcing that Coinbase is on track to operate a regulated broker-dealer, pending approval by federal authorities. If approved, Coinbase will soon be capable of offering blockchain-based securities, under the oversight of the US Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (Finra).

With a presence in 32 countries, the San Francisco-based cryptocurrency company has traded $150 billion in assets and claims to have over 20 million customers.

Obtaining Licenses
Coinbase Acquires Investment Firms to Offer Regulated Crypto SecuritiesIn the US, crypto tokens exhibiting the characteristics of securities are subject to the SEC oversight.

Hirji explained that becoming a regulated broker-dealer for the company is "made possible by our acquisition of a broker-dealer license (B-D), an alternative trading system license (ATS), and a registered investment advisor (RIA) license," adding:

If approved, these licenses will set Coinbase on a path to offer future services that include crypto securities trading, margin and over-the-counter (OTC) trading, and new market data products.

The company hopes to secure these licenses through the acquisition of three federally-regulated companies: Keystone Capital Corp, Venovate Marketplace Inc, and Digital Wealth LLC. All of them are registered with Finra.

Operating Under Keystone's Licenses
Keystone Capital is a Finra-registered broker-dealer with licenses to operate an alternative trading system (ATS) and as a registered investment adviser.

A regulatory approval is needed for Coinbase to operate under the Keystone licenses, the Wall Street Journal explained, adding that "Coinbase is essentially buying Keystone for its licenses."

According to Hirji, the company "is confident it will get those approvals," after which it would take several months to integrate Keystone's operations into its own, the publication noted, adding:

Buying Keystone also raises the prospect that Coinbase could, down the line, expand into products tied to stocks or other securities.

On the company's blog, the COO wrote, "Ultimately, we can envision a world where we may even work with regulators to tokenize existing types of securities, bringing to this space the benefits of cryptocurrency-based markets — like 24/7 trading, real-time settlement and chain-of-title."

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