In a massive boost for tokenization in Europe, the European Commission has proposed a major upgrade to the DLT Pilot Regime, the framework that governs the trading and settlement of tokenized financial instruments, including stocks and bonds. The announcement is part of a much broader package of legislative proposals working towards a European single market for financial services. That includes the passporting of regulated markets and central securities depositories (CSDs), a new Pan-European Market Operator (PEMO) status and simplifications in launching pan-European funds. All changes would have to go through the EU’s laborious regulatory process.
The broader package of proposals includes targeted amendments to MiCA crypto regulations, particularly the widely floated proposal for ESMA to authorize, monitor and supervise all crypto asset services providers (CASPs), rather than national regulators. For mainstream CSDs it suggests that regulated e-money tokens (stablecoins) should be usable for settlement.
Previously DLT platforms were limited to €6 billion in total issuance, which discouraged large entities from engaging. That threshold has been raised to €100 billion alongside several other changes, such as allowing all MiFID II securities, not just stocks, bonds and funds. The proposal drops a restriction that only allowed tokenized stocks for firms worth less than €500 million. Another major change is that CASPs can qualify to issue tokenized securities under the DLT Pilot Regime. This is part of a two tier approach, with a simplified regime applying to smaller DLT platforms that can issue up to €10 billion. Other major changes are explored below.
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