Competitive Advantage from Blockchain noticed by the EU Securities Regulator.

Enterprise Security Magazine | Friday, February 04, 2022

A consultation seeking feedback from stakeholders on the need to amend the regulatory technical standards (RTS) was launched by the European Securities and Markets Authority.

FREMONT, CA: On January 4, the European Securities and Markets Authority launched a consultation seeking feedback from stakeholders on the need to amend the regulatory technical standards (RTS) governing pre and post-trade transparency and data reporting requirements for a blockchain-based pilot regime. This pilot regime for distributed ledger technology (DLT)-based market infrastructures (the DLT Pilot) aims to develop the trading and settlement of tokenized securities. The market participants and EU regulators, according to ESMA, will be allowed by DLT Pilot to gain experience on new opportunities and issues raised by DLT while ensuring financial stability, investor protection, and market integrity.

The DLT Pilot has not yet been finalized, but the European Parliament and the Council agreed in November 2021, and legislators are expected to sign off on the proposal during the first quarter of 2022. The DLT Pilot would begin applying 9 months after the regulation was published, implying that the programme may not begin until 2023. DLT market infrastructures (DLT MI) are introduced in three categories by the DLT pilot: DLT Multilateral Trading Facilities (DLT MTF), DLT Trading and Settlement Systems (DLT TSS), and DLT Settlement Systems (DLT SS). The permission to operate a DLT MI may be granted in addition to a license as a Central Securities Depositary or an investment firm (or regulated market), or it may be granted to new entrants that will meet the relevant MiFID II requirements.

One key point in the agreement that the parliament and council united on is that the regulation must be technologically neutral and avoid references to specific types of DLT. Theoretically, this opens the door for permissionless DTLs as long as they meet the DLT MI requirements. The reason for launching this DLT pilot is that, despite crypto assets being one of the most important applications of blockchain technology in finance, existing EU legislation may preclude the use of DLT. According to ESMA, this initiative will facilitate the creation of an EU framework that will allow markets in crypto assets and a broader use of DLT in financial services.


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