European Securities and Markets Authority (ESMA) Shares Details on DLT Securities Pilot Regime, Now Applied Across EU

The European Securities and Markets Authority (ESMA) noted that the DLT Pilot Regime has started applying in the European Union (EU) as of 23 March 2023.

ESMA explained in an update that it provides the legal framework for trading and settlement of transactions in crypto-assets that qualify as “financial instruments” under MiFID II, while also facilitating the set-up of new types of market infrastructures, including the following: – DLT multilateral trading facility (DLT MTF)- DLT settlement system (DLT SS)- DLT trading and settlement system (DLT TSS).

The objectives of this initiative, according to the ESMA update, are said to include the development of:

  • Crypto-assets that qualify as financial instruments and
  • DLT market infrastructures,
  • While preserving a “high level” of investor protection, market integrity, financial stability and transparency, and “avoiding” regulatory arbitrage and loopholes.

DLT market infrastructures and their operators – here’s who is eligible according to ESMA update:

  • Authorized investment firms and market operators may apply to operate a DLT multilateral trading facility (DLT MTF)
  • Authorized central securities depositories (CSDs) may apply to operate a DLT settlement system (DLT SS)
  • Both groups may apply to operate “a combined DLT trading and settlement system (DLT TSS)”
  • New entrants may apply for temporary authorizations as investment firms/ market operators or CSDs, “alongside an application under the DLT Pilot Regime”

Financial instruments in scope, according to the ESMA update:

  • Shares – market capitalization/tentative market capitalization below EUR 500 million
  • Bonds – other forms of securitized debt, including depositary receipts in respect of such securities or money market instruments with an issuance size of less than EUR 1 billion (corporate bonds from issuers whose market capitalisation did not exceed EUR 200 million at the time of their issuance are not subject to this threshold)
  • UCITS – market value of assets under management of less than EUR 500 million

Here’s the long-term outlook for the DLT Pilot Regime shared by ESMA:

  • The DLT Pilot is now expected to run for a period of at least 3 years, with the possibility to be extended by the European Commission.
  • The types of financial instruments covered by the DLT Pilot “may also be extended.”
  • If the DLT Pilot is considered to be successful, then it could potentially be made permanent by “amending relevant Union financial services legislation” in order to establish a single coherent framework.


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