DTCC outlines responsibilities of security token platforms
13 March 2019 New York
Image: Shutterstock
The Depository Trust & Clearing Corporation (DTCC) has outlined guiding principles for post-trade processing of tokenised securities in a new whitepaper.
In the whitepaper, DTCC identified responsibilities that should be expected of any platform that provides post-trade processing of security tokens, including those related to custody and asset servicing.
For example, security token platforms should have robust accounting practices, safekeeping procedures and internal controls that fully protect assets for which the platform is responsible.
The whitepaper further outlined other function-based guiding principles for regulators and market participants for the post-trade processing of tokenised securities that it said are essential to the development of regulation and industry rules to govern the post-trade processing of security tokens or other crypto assets.
DTCC said: “The market for trading crypto assets that are security tokens where the post-trade processing uses distributed ledger technology (DLT), has created a need for safety, security and reliability around these transactions to protect market stability.”
It added: “DTCC highlights that DLT introduces characteristics that are distinct from the market structure for traditional securities, therefore creating unique requirements in the design and application of appropriate regulations and post-trade processing structures.”
Other responsibilities that DTCC stated should be expected of any platform that provides post-trade processing of security tokens included a well-founded, clear, transparent and enforceable legal basis for each material aspect of its activities in all relevant jurisdictions, as well as governance arrangements to support the operation of the platform.
It said: “The governance structure should, at a minimum, include effective rules regarding functionality and risk management.”
It further stated: “Generally, a security token platform should be expected to provide clear and certain final settlement and no matter its structure, a security token platform should have a sound framework for comprehensively managing legal, credit, liquidity, operational and other risks.”
In the whitepaper, DTCC identified responsibilities that should be expected of any platform that provides post-trade processing of security tokens, including those related to custody and asset servicing.
For example, security token platforms should have robust accounting practices, safekeeping procedures and internal controls that fully protect assets for which the platform is responsible.
The whitepaper further outlined other function-based guiding principles for regulators and market participants for the post-trade processing of tokenised securities that it said are essential to the development of regulation and industry rules to govern the post-trade processing of security tokens or other crypto assets.
DTCC said: “The market for trading crypto assets that are security tokens where the post-trade processing uses distributed ledger technology (DLT), has created a need for safety, security and reliability around these transactions to protect market stability.”
It added: “DTCC highlights that DLT introduces characteristics that are distinct from the market structure for traditional securities, therefore creating unique requirements in the design and application of appropriate regulations and post-trade processing structures.”
Other responsibilities that DTCC stated should be expected of any platform that provides post-trade processing of security tokens included a well-founded, clear, transparent and enforceable legal basis for each material aspect of its activities in all relevant jurisdictions, as well as governance arrangements to support the operation of the platform.
It said: “The governance structure should, at a minimum, include effective rules regarding functionality and risk management.”
It further stated: “Generally, a security token platform should be expected to provide clear and certain final settlement and no matter its structure, a security token platform should have a sound framework for comprehensively managing legal, credit, liquidity, operational and other risks.”
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