The Depository Trust & Clearing Corporation (DTCC) has published guidelines on security tokens and post trade responsibilities. The issuance of these guiding principles are an important step in the utilization of the issuance and ongoing trading of blockchain based securities tokens or crypto assets. DTCC recognizes the need for safety, security, and reliability around these transactions to protect market stability.
DTCC has published an extensive White Paper entitled “Guiding Principles for the Post-Trade Processing of Tokenized Securities”.
DTCC and its subsidiaries, automates, centralizes and standardizes the processing of financial transactions for thousands of broker/dealers, custodian banks and asset managers. DTCC is an industry-owned and governed. In 2017, DTCC’s subsidiaries processed securities transactions valued at more than U.S. $1.61 quadrillion. Its depository provides custody and asset servicing for securities issues from 131 countries and territories valued at US $57.4 trillion.
DTCC has also identified several factors that could “prove essential to the development of regulation and industry rules to govern the post-trade processing of security tokens or other crypto assets.”
Mark Wetjen, Managing Director, Head of Global Public Policy, DTCC, and Chairman of the Board of DTCC Deriv/SERV LLC, said that most people focus on what happens before a trade but what happens after a trade is executed is critically important:
“… this issue has not been broadly discussed within the context of tokenized securities or crypto assets more generally”, said Wetjen. “The framework DTCC has developed identifies the key issues that we believe need to be addressed by those seeking to establish policy, rules or best practices to govern the conduct of entities providing post-trade services for crypto transactions. In our view, these issues are fundamental to protecting investors and establishing trust in the safety and soundness of security token platforms.”
Wetjen is also an advisor to the Digital Chamber of Commerce one of the leading blockchain advocacy groups in North America. In February, the Chamber called on policymakers to establish a clear policy for the responsible growth of the security token market.
According to the white paper, DTCC highlights the following responsibilities”
1. Demonstrable Legal Basis
A platform providing post-trade processing services for crypto assets should have a well-founded, clear, transparent and enforceable legal basis for each material aspect of its activities in all relevant jurisdictions.
2. Identifiable Governance Structure
A security token platform should have appropriate governance arrangements to support the operation of the platform. The governance structure should, at a minimum, include effective rules regarding functionality and risk management.
3. Identifiable Risk Management Procedures and Systems
No matter its structure, a security token platform should have a sound framework for comprehensively managing legal, credit, liquidity, operational and other risks.
4. Identifiable Procedures and Systems to Ensure Settlement Finality
Generally, a security token platform should be expected to provide clear and certain final settlement.
5. Security Token Issuance, Custody and Asset Servicing
A security token platform (or one or more of its components) should have appropriate rules and procedures in place to help ensure the integrity of securities or security token issues and minimize and manage the risks associated with the safekeeping and transfer of securities for which the platform is responsible. The security token platform should have robust accounting practices, safekeeping procedures and internal controls that fully protect assets for which the platform is responsible.
At a minimum, the security token platform should be able to demonstrate that it can be operated safely and that it has a high degree of resiliency and security.
7. Recordkeeping Requirements
The security token platform should demonstrate how it manages the privacy and confidentiality of appropriate records while maintaining their accessibility to regulators and appropriate third parties such as external auditors.