Last week the French and Italian securities regulators AMF and CONSOB proposed changes to the DLT Pilot Regime in order to attract more participants. The legislation which eases certain regulations for distributed ledger technology market infrastructures was enacted in mid-2022 and became effective in April 2023. Yet so far only two projects have been approved – CSD Prague for settlement, and 21X as a combined exchange and settlement venue. No licenses have been granted so far by AMF or CONSOB.
21X is a good example of several of the rules that were relaxed, in that it allows a single entity to manage both the trading and post trade infrastructure. The new on-chain exchange operates on a permissionless blockchain, even if the participants require permissions. Retail investors can participate directly, without going through a broker, although compensation has to be offered if something goes wrong. Additionally, for settlement purposes 21X uses stablecoins or in European regulatory lingo, electronic money tokens (EMTs). This requires the waiving of certain rules regarding finality of settlement.
First off, the regulators propose ‘greater proportionality’ based on the scale of the project. Because it’s a kind of sandbox, the regime sets activity limits which the larger infrastructures consider too small to be worthwhile. A Deutsche Börse group executive compared it to adapting an aircraft carrier to land a Cessna, but only for one or two landings.
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