DLT Pilot Regime
What is the DLT pilot regime?
The DLT Pilot Regime is a pilot scheme for operating market infrastructures based on distributed ledger technology (”DLT“). It is an EU-wide regulation that came into force in March 2023 and is intended to serve as a temporary “regulatory sandbox” for trading and settlement of financial instruments based on DLT.
The DLT Pilot Regime is part of the European Commission's “Digital Finance Package”. Another measure of the Digital Finance Package is for instance MiCAR.
The DLT Pilot Regime distinguishes between three forms of permissions:
1. Decentralized trading system: DLT MTF
2. Decentralized settlement system: DLT SS
3. Decentralized trading and settlement system: DLT TSS
As part of the DLT pilot regime, shares, bonds and other debt instruments as well as UCITS can be traded and settled directly using DLT (e.g. a blockchain). Applications to obtain a permission can be submitted since March 23, 2023. Permissions are issued by the competent authorities for a period of up to six years.
What is the objective of the DLT Pilot Regime?
Currently, DLT-based financial products cannot be offered via regulated exchanges and multilateral trading systems, but only outside regulated markets. As a result, the security and transparency of so-called security tokens for organized trade cannot yet be guaranteed. The aim of the DLT Pilot Regime is therefore to test DLT in the capital market in a legally secure manner to evaluate opportunities and risks and whether DLT is suitable for long-term use in capital markets.
Which financial instruments does the DLT Pilot Regime support?
As part of the DLT pilot regime, so-called “DLT financial instruments” can be traded and settled. DLT financial instruments are financial instruments that are issued, transferred and stored using a distributed ledger. As the DLT Pilot Regime is a pilot project, it is currently limited to the following DLT financial instruments and thresholds:
1. Shares with a market capitalization of up to EUR 500 million
2. UCITS with a market value of max. EUR 500 million
3. Bonds and other debt instruments with an issue volume of up to EUR 1 billion
The total value of DLT financial instruments that may be traded and/or settled on the DLT market infrastructure must also not exceed six billion euros upon initial approval of the DLT financial instruments and nine billion euros during the term of the DLT financial instruments.
Who could be interested in the DLT pilot regime?
Entering the DLT pilot regime could be particularly worthwhile for the following parties:
1. Multilateral trading facilities (”MTFs“);
2. Central Securities Depository (”CSDs“);
3. Investment intermediaries;
4. Organized trading facilities (”OTFs“);
5. Stock exchanges;
6. Crypto Securities Registrars;
7. Fintechs that are active in the area of crypto assets.
Of course, there are many other companies for which the DLT pilot regime could benefit. A benefit must always be evaluated based on the individual business model. FinPlanet is happy to assist you with this.
What forms of participation are possible?
The DLT pilot regime distinguishes between the following permit requirements:
Multilateral DLT trading facilities (”DLT MTF“):
A DLT MTF is a multilateral trading facility operated by an investment firm or a market operator that is authorised under MiFID II and has received special approval under the DLTR.
DLT settlement systems (”DLT SS“):
A DLT SS is one from an authorized central securities depository (”CSD“) operated settlement system, which, under the DLT Pilot Regime, is offered the opportunity to make use of exemptions from the CSD Regulation.
DLT trading and settlement systems (”DLT TSS“):
A DLT-TSS is considered a multilateral trading facility and a securities settlement system that combines the services provided by a DLT MTF and a DLT SS and is operated by a market operator or an investment firm and a central securities depository.
How do we support you?
FinPlanet is your one-stop shop for your entry into the DLT pilot regime!
We provide you with full support when it comes to the DLT pilot regime. In particular, our support includes the following services:
- Support during the license application;
- Workshops;
- Project management;
- Strategy consulting;
- Development of a target operating model;
- Regulatory-compliant structure of the IT infrastructure;
- Implementation of processes in the organizational and operational structure;
- Adjustments to your written regulations and guidelines;
- Support for new product processes in accordance with the German MaRisk AT 8.1 (”NPP“);
- Assistance in the selection of service providers;
- Market & competition analyses;
- Smart contract audits and IT development (by our partner companies);
- And many more...
