publication of the European regulation Pilot scheme

On 2 June 2022, the European regulation on a pilot project for market infrastructures based on distributed ledger technology was published in the Official Journal of the European Union. The text will enter into force on 23 March 2023.

Development of a secondary market for security tokens

This pilot scheme, with an initial duration of three years, extendable to six years, temporarily removes some requirements of the existing regulatory framework, in order to allow market infrastructure operators and new entrants to use blockchain technology to operate multilaterally. trading system (SMN) and / or settlement-delivery system (SRL) on tokenized financial instruments (or “security tokens”).

The result of a proposal by the European Commission as part of a series of measures on digital finance in Europe, the pilot scheme differs from the other measures in that it proposes regulatory exemptions aimed at the MiFID 2 and Scope directives, as well as central securities depositories (Regulation) ( CSDR) in order to test blockchain technology in the context of market or post-trade activity. This regime will allow national and European actors and regulators to gain significant experience in the use of blockchain technology in the context of market activities.

The implementation of this system is innovative in that, for the first time, a European text of direct application authorizes some market operators to derogate from certain provisions of ordinary legislation, under certain conditions.

DLT market infrastructure

The regulation defines a new category of actors: market infrastructures using distributed ledger technology (DLT). This category refers to three distinct actors authorized by the national authorities of a member state of the European Union to register under this regime:

– The DLT Multilateral Trading System or “MTF DLT”, a multilateral trading system for tokenized securities which allows to trade exclusively DLT financial instruments;
– The DLT or “SR DLT” settlement system, a tokenized securities settlement system that regulates transactions on DLT financial instruments;
– And a new player, not previously envisaged by financial regulations, which provides both the services of a DLT MTF and an SR DLT, the DLT or “SNR DLT” trading and settlement system, which will allow a single entity to combine and settlement – delivery of tokenized financial securities.

The regulation limits the scope of this testing area to some financial instruments whose market value will be limited.

Next steps

Before the regulation enters into force, some steps still need to be completed. The European Securities and Markets Authority (ESMA) must amend the regulatory technical standards of the MIFIR and CSDR regulations to adapt them to the pilot regime and publish various guidelines.

The Member States of the European Union must designate the competent national authority responsible for granting the regulatory approvals and exemptions that may be granted under the pilot program. In France, this competence could be shared between the MFA, the Prudential Control and Resolution Authority (ACPR) and the Banque de France. In order to simplify the accreditation process for players, a “one-stop-shop” principle is envisaged which allows a player not to have to interact with multiple authorities.

Finally, adaptations of national regulations in terms of movable law are to be expected, which remain national competences not harmonized by European law. In France, based on a report by the Haut Comité Juridique de la Place Financière de Paris (HCJP) published on 27 November 2020, the draft regulation on a pilot project led to the relaunch of the HCJP’s work on this issue. Legislative and regulatory changes to the law on listed securities on distributed ledger technology are expected in the coming months to allow for the implementation of this system. Draft legislative and regulatory texts should be subjected to extensive consultation with financial players on the Parisian market.

Discuss with the MFA

Fully committed to the development of a European digital finance strategy, the MFA, which regularly dialogues with the actors with innovative projects, invites potential candidates to read the text and to approach the regulator to anticipate the entry into application of the legislation using the module made available to you at the following link: Contact Innovation & Digital Finance


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