Last week the Association for Financial Markets in Europe (AFME) outlined its European vision and policy recommendations for DLT and tokenization. This is in response to a call for submissions by the EU’s capital markets Directorate, FISMA. The paper makes recommendations that address some key issues holding up the development of tokenization in the European Union.
One of the critical suggestions relates to CSDR, the regulations that govern central securities depositories (CSDs). Today CSDs perform critical functions including securities issuance, acting as record keepers and providing settlement infrastructures. However, a DLT can provide the record keeping function. Smart contracts can perform functions such as paying interest or dividends. Plus, DLT supports delivery versus payment, which can eliminate settlement risks without the need for a centralized counterparty (CCP).
Countries such as Germany, Luxembourg and Italy have passed DLT friendly laws. We frequently report on issuances under Germany’s electronic securities law, eWpG, where securities issued via a decentralized registry don’t require the use of a CSD. Instead, a registrar ensures the DLT is keeping tabs and other related tasks. It’s significantly less arduous to become a registrar versus a CSD. That’s because the registrar only performs one aspect of a CSD’s role under CSDR.
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