EU securities regulator clears next step for tokenized trading pilot program

Quick Take

  • The European Securities and Markets Agency (ESMA) said it will not need to adjust regulations on transparency and data reporting for a decentralized ledger technology securities trading pilot program.
  • The ESMA report clears the way for the pilot’s next steps.

The European Securities and Markets Agency (ESMA), a European supervisory authority, stated that it will not need to adjust regulatory standards for a pilot trading project using distributed ledger technology (DLT), clearing the next step for experimental tokenized securities trades to take place. 

The regulatory agency published its opinion in a report released on Tuesday. The report says that ESMA will monitor whether further guidance is needed to make sure transaction data is shared in existing records accurately, especially for cancelled or modified transactions. 

ESMA's announcement comes in anticipation of the EU’s DLT Pilot Regime, which is set to kick off in March 2023. The project experiments with transacting tokenized securities in a monitored, regulated environment as a trial, bringing both traditional financial institutions and new, digital players to take part in the sandbox. 

Following this, ESMA will work on clarifying application of "regulatory technical standards", on transparency and data reporting requirements, as well as guide stakeholders preparing for participating in the DLT Pilot Regime.

Applications to take part in the project can begin as the launch approaches in March. In the meantime, ESMA’s report indicates that “a significant number of market participants expressed interest in operating a DLT [for market infrastructure] under the DLT Pilot.”

The report included adjustments requested from respondents to ESMA’s call earlier this year. There were worries, for instance, about translating blockchain technology into traditional finance actions.

“Transaction on-chain will not necessarily occur at the same time as the settlement of the transaction,” the report reads.

The DLT Pilot Regime falls under the EU’s digital finance package rolled out in September 2020. The recently finalized Markets in Crypto-assets (MiCA) regulation is one of the other key regulations within that pod. 


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