Breaking down MyStonks' compliance framework: How do Reg S exemptions + MSB registration support the globalization of trading US stocks tokens?

Written by: Dr.404

The main focus of this article is on structure and logic, without delving into detailed discussions of legal provisions. Neither of us is a lawyer, and arguing over legal details is just a pointless squabble. I may also make mistakes, so please feel free to point them out. The content is based on my research and inferences and may not necessarily align 100% with the compliance framework design of the project; everyone can make their own judgment.

After reading Mr. Ni's article, I feel that mixing different things together may mislead everyone. I would like to share my views.

First, let me mention a few points of disagreement I have with Mr. Ni's original text.

1. The focus should not be on the assumption of MyStonks "If we are to publicly operate security token trading in the United States," because it is currently not open to U.S. residents and is only for non-U.S. sales, so discussing Broker and ATS qualifications is meaningless.

2. "FinCEN (MSB registration) also failed to directly locate the entry on the public retrieval page," did not understand that MyStonks is currently misidentifying the company in its structural design.

Comprehensive analysis of MyStonks' compliance structure design

1. Two main companies and their responsibilities

The first is MyStonks Holding Limited registered in the BVI (British Virgin Islands)

Responsibilities: It is the issuer of US stock tokens currently tradable on the MyStonks exchange, utilizing the exemption of Reg S. Under the definition of US securities law, US stock tokens represent equity in US stocks and essentially belong to the category of securities. The model for going with Reg S was established by the early US tokenization company Dinari, so it is not a precedent.

The second is MyStonks Holding LLC registered in the state of Delaware, USA.

Responsibilities: Based on industry practices, determine if it is a subject that can issue securities to US users in the future. In fact, I don't think we need to pay too much attention to this Reg D; it feels more like a drill for exploring the US market, which could later lead to STOs for compliant investors. Just think about it, if a new startup were to do an on-chain IPO, then Mr. Ni's Reg D filing has nothing to do with the current listing and trading of the MyStonks US stock token.

The current issuance of US stock tokens is completed through the BVI company MyStonks Holding Limited, relying on the Reg S exemption, which is a completely different compliance path.

2. Reg S Exemption

MyStonks Holding Limited issues and sells US stock tokens overseas, targeting non-U.S. investors, relying on Reg S exemption, and does not need to register or file with the SEC, primarily meeting (only listing the two most important points)

1. Offshore Transaction

Securities offerings and sales must occur outside the United States.

The buyer must be located outside of the United States when placing an order.

or the issuer has reasonable grounds to believe that the buyer is overseas

How Mystonks works

GeoBlocking + KYC before purchase (verify non-U.S. identity) + To purchase U.S. stocks, you must agree that you are not a U.S. citizen/resident

In fact, the user terms of the exchange are also written.

2. No direct sales activities in the United States: Advertising, roadshows, investment seminars, etc. aimed at promoting securities are not allowed in the United States.

3. MSB (Money Services Business) Registration

Mr. Ni couldn't find it, so I'll help him find it. The entity that registered as MSB is not MyStonks Holding LLC but MyStonks Holding Limited, which can be downloaded from the Fincen website.

Why is MSB registration necessary?

Reg S only addresses the compliance exemption issue for U.S. stock tokens and does not cover capital transfer and exchange operations.

MyStonks is issued overseas by the BVI company MyStonks Holding Limited for non-U.S. investors in the form of U.S. stock tokens (Reg S). Based on rough estimates, the funds clearing path during the transaction involves the United States, where the stablecoin (USDC) paid by users needs to be exchanged for USD through a U.S. financial institution (Circle), and these USD are then used to purchase corresponding U.S. stocks in the U.S. market.

In this step, accept customer funds → exchange → transfer to the securities market, which falls under money transmission in the US regulatory framework, and must register as an MSB with FinCEN.

Purpose of MSB Registration

Anti-Money Laundering Compliance (AML/KYC): FinCEN requires the collection and verification of customer identities, prohibiting transactions from high-risk or sanctioned areas.

Suspicious Activity Report (SAR): Reporting suspicious fund flows to prevent money laundering, terrorist financing, etc. For example, yesterday's incident is usually automatically detected by the Transaction Monitoring System for abnormal patterns. Once confirmed as suspicious, a SAR is submitted to FinCEN.

Cross-border business recognition: Holding an MSB license makes it easier to collaborate with U.S. banks, payment institutions, and market makers, reducing the risk of chargebacks or frozen funds.

And the offshore BVI company MyStonks Holding Limited mentioned above is responsible for the issuance and trading of US stock tokens, which makes sense.

More evidence: The user stated that they arrived at the BVI British Virgin Islands.

Reg S addresses the compliance issues of issuing tokens in the US stock market, while MSB tackles anti-money laundering and capital flow issues related to fund transfers. These two functions are completely different, but both are under MyStonks Holding Limited.

Including the proof of custody stocks from Fidelity in the past also points to MyStonks Holding Limited.

It is already very clear that MyStonks Holding Limited is the entity for token issuance and trading in the US stock market!

Final summary

MyStonks' compliance when selling US stock tokens in different countries is actually a multi-layered protective structure, and currently, it does not obtain licenses for each jurisdiction one by one.

1. Issuance layer compliance (Reg S exemption): Obtaining an exemption for securities issuance under U.S. law, without the need to register or file with the SEC.

2. Compliance with Trading and Funds Flow (MSB / AML): Handling fund clearing and anti-money laundering issues, especially regarding cross-border dollar flows.

3. Avoiding sales risks in different countries: The definitions and licensing requirements for security tokens vary greatly across countries. Some countries have no specific regulations at all, making it a rather gray area. However, MyStonks is not the only one facing this challenge, as Dinari, Xstocks, SHIFT, and others also encounter it. What I have seen is that they manage to deal with it.

A. Users explicitly not supported in the user terms:

Not listed on any international or national sanctions lists.

Do not use this platform for illegal purposes (including but not limited to money laundering, tax evasion, or financing terrorism).

Not a US citizen / resident, you are also not representing Americans using this platform.

B. MyStonks actively implements GeoBlocking + KYC access restrictions

C. At the same time, MyStonks is actively applying for licenses in jurisdictions.