Last year the EU finalised its pilot regime for market infrastructures based on distributed ledger technology (DLT). The DLT Pilot Regime introduces an EU regulatory sandbox and harmonised requirements for market participants, such as central securities depositories or market operators, that wish to establish a DLT market infrastructure. The DLT Pilot Regime will be applicable from 23 March 2023 for a maximum of six years.
The overall aim of the new framework is to help establish market/trading systems based on the distributed ledger technology (and without centralised intermediaries) for crypto assets that qualify as financial instruments (other crypto assets will be subject to the MiCA Regulation). Through the DLT Pilot Regime the legislator, regulators and market participants should be able to build the necessary experience and evidence upon which a permanent EU regulatory regime could be based.
The regime introduces three types of systems: (i) DLT multilateral trading facilities (DLT MTF); (ii) DLT settlement systems (DLT SS); and (iii) DLT trading and settlement systems (DLT TSS).
By way of introducing the regulatory sandbox with defined temporary exemptions from certain otherwise restrictive requirements of the Markets in Financial Instruments 2 Directive (MiFID2) and the Regulation on Central Securities Depositories (CSDR), market participants can now more easily set up DLT-based trading/settlement systems that would otherwise be prevented by the strict regulatory requirements.
During the application period (six years) the EU Commission would like market participants to explore the full potential of the DLT pilot regime and regulators to identify any necessary changes and improvements to the framework. In 2026, the ESMA will prepare and publish a comprehensive report on the functioning of the DLT Pilot Regime, based upon which a decision on a potential full and permanent implementation of the framework will be taken.
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