ESMA goes live with DLT pilot
23 March 2023 Europe
Image: James_Threw/stock.adobe.com
The European Securities Markets Authority’s (ESMA’s) distributed ledger technology (DLT) pilot regime goes live from today.
The pilot builds on the existing Markets in Financial Instruments Regulation (MiFIR) and includes tokenised financial instruments. This aims to bring pre- and post-trade transparency and market abuse monitoring to DLT-based securities.
The regime allows some exemptions from the EU’s MiFIR and Central Securities Depositories Regulation (CSDR) regimes, making it easier for market participants to trial DLT when trading and settling financial instruments, says Etrading Software.
As part of the programme — which was introduced by the European Commission in 2020 as part of its digital finance package — ESMA recommends the International Standards Organisation (ISO) standard 24165 digital token identifier (DTI) codes, issued by the DTI Foundation (DTIF), as a compensatory measure.
DTIF and the Association of National Numbering Agencies (ANNA) — ISO Registration Authority for ISO 6166 international securities identification numbers (ISINs) — have been running a joint task force which was formed to explore the synergies between DTIs and ISINs.
The task force has recommended close cooperation between the registration authorities and has been working on identifying security tokens with existing ISINs to allow these to become issued DTIs.
Currently, more than 50 such tokens have been identified, verified and added to the DTI registry. The task force will continue its work to support participants in the DLT Pilot in meeting ESMA’s recommendations.
According to Alisa DiCaprio, chief economist at R3, today’s launch of the EU’s DLT pilot regime represents an important opportunity for those working in DLT and financial services.
She continues: “By providing the regulatory framework to apply DLT across a range of use-cases, the pilot will enable companies to explore the ways in which this technology can make the financial sector more efficient while reducing risk and increasing profitability.”
DiCaprio states that this will help accelerate innovation in Europe’s financial sector, bolstering the long-term competitiveness of European capital markets.
As other jurisdictions such as the UK, US and Middle East look to emulate the EU’s programme, institutions should make the most of the opportunity to understand more about how DLT can enhance their services and collaborate to realise these benefits, DiCaprio advises.
Commenting on the release of the DLT pilot, Etrading Software CEO Sassan Danesh says: “The DTI standard is critical to help the industry know what they are dealing with. They continue to adopt the standard to help build increased transparency and clarity in the market. ESMA’s pilot today signals the importance given to pre- and post-trade transparency and protecting industry against market abuse.”
Stephan Dreyer, managing director of ANNA, adds: “Working with the DTIF, ANNA is building interoperability between the ISIN and DTI, harmonising standards in this space. The ISIN standard (ISO 6166) will continue to provide unique instrument identification as it has for the past 40 years and incorporate new assets, including digital assets.
The pilot builds on the existing Markets in Financial Instruments Regulation (MiFIR) and includes tokenised financial instruments. This aims to bring pre- and post-trade transparency and market abuse monitoring to DLT-based securities.
The regime allows some exemptions from the EU’s MiFIR and Central Securities Depositories Regulation (CSDR) regimes, making it easier for market participants to trial DLT when trading and settling financial instruments, says Etrading Software.
As part of the programme — which was introduced by the European Commission in 2020 as part of its digital finance package — ESMA recommends the International Standards Organisation (ISO) standard 24165 digital token identifier (DTI) codes, issued by the DTI Foundation (DTIF), as a compensatory measure.
DTIF and the Association of National Numbering Agencies (ANNA) — ISO Registration Authority for ISO 6166 international securities identification numbers (ISINs) — have been running a joint task force which was formed to explore the synergies between DTIs and ISINs.
The task force has recommended close cooperation between the registration authorities and has been working on identifying security tokens with existing ISINs to allow these to become issued DTIs.
Currently, more than 50 such tokens have been identified, verified and added to the DTI registry. The task force will continue its work to support participants in the DLT Pilot in meeting ESMA’s recommendations.
According to Alisa DiCaprio, chief economist at R3, today’s launch of the EU’s DLT pilot regime represents an important opportunity for those working in DLT and financial services.
She continues: “By providing the regulatory framework to apply DLT across a range of use-cases, the pilot will enable companies to explore the ways in which this technology can make the financial sector more efficient while reducing risk and increasing profitability.”
DiCaprio states that this will help accelerate innovation in Europe’s financial sector, bolstering the long-term competitiveness of European capital markets.
As other jurisdictions such as the UK, US and Middle East look to emulate the EU’s programme, institutions should make the most of the opportunity to understand more about how DLT can enhance their services and collaborate to realise these benefits, DiCaprio advises.
Commenting on the release of the DLT pilot, Etrading Software CEO Sassan Danesh says: “The DTI standard is critical to help the industry know what they are dealing with. They continue to adopt the standard to help build increased transparency and clarity in the market. ESMA’s pilot today signals the importance given to pre- and post-trade transparency and protecting industry against market abuse.”
Stephan Dreyer, managing director of ANNA, adds: “Working with the DTIF, ANNA is building interoperability between the ISIN and DTI, harmonising standards in this space. The ISIN standard (ISO 6166) will continue to provide unique instrument identification as it has for the past 40 years and incorporate new assets, including digital assets.
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