The European Securities and Markets Authority (ESMA) has published a discussion paper on the potential uses of distributed ledger technology (DLT) in securities markets.
ESMA has been fairly open to the idea of real innovation, and this paper came out of its call for evidence on investments using virtual currencies (see here).
The discussion paper is a really interesting and useful document, setting out some of the benefits that DLT could offer to securities markets, including:
- clearing and settlement - ESMA identifies that if clearing and settlement could be combined into a single step, there are a number of benefits;
- record of ownership and safekeeping of assets;
- reporting and oversight, including for supervisory purposes;
- counterparty risk;
- efficient collateral management;
- security and resilience; and
- reduction of costs
ESMA also sets out key challenges and possible shortcomings, as well as an analysis of the applicable EU regulatory framework. The legal questions in the paper are the same sort of questions that we in the Regulatory team at Freshfields have been grappling with.
ESMA will consider all comments received by 2 September 2016. Contributions should be submitted online. The reply form is available here.
In April 2015, ESMA published a call for evidence on investments using virtual currencies or the distributed ledger technology (‘DLT’). The results of the call for evidence showed that investments using virtual currencies as underlying remained marginal. However, the underlying technology had the potential to be used by financial markets outside the space of virtual currencies with possible disruptive effects. Hence, ESMA decided to analyse the possible impact of the application of the DLT to securities markets.