Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on a pilot regime for market infrastructures based on distributed ledger technology
Date: 2020-09-24
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: blockchain, consumer protection, digital single market, electronic money, financial instrument, financial legislation, financial services, information technology applications, investment protection, virtual currency

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   EUROPEAN COMMISSION  Brussels, 24.9.2020  COM(2020) 594 final 2020/0267 (COD)  Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on a pilot regime for market infrastructures based on distributed ledger technology (Text with EEA relevance) {SEC(2020) 308 final} - {SWD(2020) 201 final} - {SWD(2020) 202 final}  
 
EXPLANATORY MEMORANDUM 

1. 

• 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

This proposal is part of a package of measures to further enable and support the potential of 
digital finance in terms of innovation and competition while mitigating the risks. It is in line 
with  the Commission  priorities to  make Europe  fit for the digital  age  and to  build a future-
ready economy that works for the people. The digital finance package includes a new Strategy 
on digital finance for the EU financial sector1 with the aim to ensure that the EU embraces the 
digital  revolution  and  drives  it  with  innovative  European  firms  in  the  lead,  making  the 
benefits of digital finance available to European consumers and businesses. In addition to this 
proposal,  the  package  also  includes  a  proposal  for  a  regulation  to  build  markets  in  crypto-
assets2,  a  proposal  for  digital  operational  resilience3,  and  a  proposal  to  clarify  or  amend 
certain related EU financial services rules4. 

One  of  the  strategy’s  identified  priority  areas  is  ensuring  that  the  EU  financial  services 
regulatory framework is innovation-friendly and does not pose obstacles to the application of 
new technologies. This proposal, together with the proposal for a bespoke regime for crypto-
assets,  represents  the  first  concrete  actions  within  this  area,  seeking  to  provide  appropriate 
levels of consumer and investor protection, legal certainty for crypto-assets, enable innovative 
firms to make use of blockchain, distributed ledger technology (‘DLT’) and crypto-assets and 
ensure financial stability. 

Crypto-assets are one of the major applications of blockchain technology in finance. Since the 
publication of the Commission’s FinTech Action plan5, in March 2018, the Commission has 
been examining the opportunities and challenges raised by crypto-assets. In the 2018 FinTech 
Action  plan,  the  Commission  mandated  the  European  Banking  Authority  (EBA)  and  the 
European Securities and Markets Authority (ESMA) to assess the applicability and suitability 
of the existing financial services regulatory framework to crypto-assets. The advice6, issued in 
January  2019,  argued  that  while  some  crypto-assets  could  fall  within  the  scope  of  EU 
legislation, effectively applying it to these assets is not always straightforward. Moreover, the 
advice  noted  that  provisions  in  existing  EU  legislation  may  inhibit  the  use  of  DLT.  At  the 
same time, the EBA and ESMA underlined that – beyond EU legislation aimed at combating 
money laundering and terrorism financing  – most crypto-assets fall outside the scope of EU 

1 

2 

3 

4 

5 

6 

Communication from the Commission to the European Parliament, the Council, the European Central 
Bank, the European Economic and Social  Committee and  the  Committee of the  Regions on a Digital 
Finance Strategy for the EU COM(2020)591 
Proposal for a Regulation of the European Parliament and of the Council on markets in crypto-assets, 
and amending Directive (EU) 2019/1937 – COM(2020)593  
Proposal  for  a  Regulation  of  the  European  Parliament  and  of  the  Council  on  digital  operational 
resilience  for the  financial sector and amending  Regulations (EC) No 1060/2009, (EU) No 648/2012, 
(EU) No 600/2014 and (EU) No 909/2014 - COM(2020)595 
Proposal  for  a  Directive  of  the  European  Parliament  and  of  The  Council  amending  Directives 
2006/43/EC, 2009/65/EC, 2009/138/EU, 2011/61/EU, EU/2013/36, 2014/65/EU, (EU) 2015/2366 and 
EU/2016/2341 - COM(2020)596 
Communication from the Commission to the European Parliament, the Council, the European Central 
Bank, the European Economic and Social Committee and the Committee of the Regions on a , FinTech 
Action plan, COM/2018/109 final, 08.03.2018 
ESMA, Advice on ‘Initial Coin Offerings and Crypto-Assets’, 2019; EBA report with advice on crypto-
assets, 2019. 

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financial  services  legislation  and  therefore  are  not  subject  to  provisions  on  consumer  and 
investor protection and market integrity, among others, although they give rise to these risks. 
In addition, a number of Member States have recently legislated on issues related to crypto-
assets leading to market fragmentation. 

Given these developments and as part of the Commission’s broader digital agenda, President 
Ursula  von  der  Leyen  stressed  the  need  for  “a  common  approach  with  Member  States  on 
cryptocurrencies  to  ensure  we  understand  how  to  make  the  most  of  the  opportunities  they 
create and address the new risks they may pose”7. While acknowledging the risks they may 
present,  the  Commission  and  the  Council  also  jointly  declared  in  December  2019  that  they 
“are committed to put in place a framework that will harness the potential opportunities that 
crypto-assets may offer”8. More recently, the European Parliament is working on a report on 
digital finance, which has a particular focus on crypto assets.9 

To  respond  to  all  of  these  issues  and  create  an  EU  framework  that  both  enables  markets  in 
crypto-assets as well as the tokenisation of traditional financial assets and wider use of DLT 
in  financial  services,  this  proposal  will  be  accompanied  by  other  legislative  proposals.  The 
Commission is proposing a clarification that the existing definition of ‘financial instruments’ 
– which defines the scope  of the Markets in Financial Instruments Directive (MiFID  II)10 - 
includes  financial  instruments  based  on  DLT,11  and  a  bespoke  regime  for  crypto-assets  not 
covered by existing financial services legislation as well as e-money tokens12. 

This  proposal,  which  covers  a  pilot  regime  for  DLT  market  infrastructures  in  the  form  of  a 
Regulation,  has  four  general  and  related  objectives.  The  first  objective  is  one  of  legal 
certainty.  For  secondary  markets  for  crypto-assets  that  qualify  as  financial  instruments  to 
develop  within  the  EU,  we  need  to  know  exactly  where  the  framework  is  no  longer  fit  for 
purpose. The second objective is to support innovation. Removing obstacles to the application 
of  new  technologies  in  the  financial  sector  underpins  the  Commission’s  digital  finance 
strategy. To promote the uptake of technology and responsible innovation,  a pilot  regime is 
necessary, to ensure that more wide-ranging changes to existing financial services legislation 
are  evidence  based.  The  third  objective  is  to  instil  consumer  and  investor  protection  and 
market integrity, the fourth is to ensure financial stability. The pilot regime will put in place 
appropriate  safeguards,  for  example  limiting  the  types  of  financial  instruments  that  can  be 
traded. Moreover, provisions specifically aimed at ensuring financial stability and consumer 
and  investor  protection  will  not  be  within  scope  of  the  provisions  that  a  DLT  market 
infrastructure could be exempted from. 

• 

Consistency with existing policy provisions in the policy area 

This  proposal  is  part  of  a  broader  framework  on  crypto-assets  and  distributed  ledger 
technology  (DLT),  as  it  is  accompanied  by  proposals  seeking  to  ensure  that  existing 
legislations  do  not  present  obstacles  to  the  uptake  of  new  technologies  while  reaching  their 

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12 

Mission letter of President-elect Von der Leyen to Vice-President Dombrovskis, 10 September 2019. 
Joint Statement of the European Commission and Council on ‘stablecoins’, 5 December 2019. 

https://www.europarl.europa.eu/doceo/document/ECON-PR-650539_EN.pdf. 

Directive  2014/65/EU  of  the  European  Parliament  and  of  the  Council  of  15 May  2014  on  markets  in 
financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU 
Proposal  for  a  Directive  of  the  European  Parliament  and  of  the  Council  amending  Directives 
2006/43/EC, 2009/65/EC, 2009/138/EU, 2011/61/EU, EU/2013/36, 2014/65/EU, (EU) 2015/2366 and 
EU/2016/2341 - COM(2020)596 
Proposal for a Regulation of the European Parliament and of the Council on markets in crypto  assets 
and amending Directive (EU) 2019/1937 - COM(2020)593 

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objectives  as  well  as  a  bespoke  regime  for  crypto-assets  not  covered  by  existing  financial 
services legislation and e-money tokens. 
As part of the FinTech Action plan adopted in March 201813, the Commission mandated the 
ESAs  to  produce  advice  on  the  applicability  and  suitability  of  the  existing  EU  financial 
services  regulatory framework on crypto-assets.  This  proposal  takes into account  the advice 
received  from  EBA  and  ESMA.14  It  is  also  aligned  with  the  overarching  ambition  of  the 
digital finance strategy of ensuring that the EU framework is innovation-friendly.  

Consistency with other Union policies 

• 
As  stated  by  President  von  der  Leyen  in  her  Political  Guidelines,15  and  set  out  in  the 
Communication  ‘Shaping  Europe’s  digital  future’,16  it  is  crucial  for  Europe  to  reap  all  the 
benefits of the digital age and to strengthen its industry and innovation capacity, within safe 
and ethical boundaries. 

The proposal is  also  consistent  with the  Union policies  aimed at  creating a Capital Markets 
Union (CMU). It notably responds to the High-level Forum’s final report, which stressed the 
underused potential of crypto-assets and called on the Commission to increase legal certainty 
and establish clear rules for the use of crypto-assets.17  

Finally, the proposal is fully in line with the recommendation in the Security Union Strategy 
for  the  development  of  a  legislative framework  in crypto-assets  given the  growing  effect of 
these new technologies on how financial assets are issued, exchanged, shared and accessed.18 

2. 

• 

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

The proposal is  based on Article 114 TFEU, which confers to  the European institutions the 
competence to lay down appropriate provisions for the approximation of laws of the Member 
States  that  have  as  their  objective  the  establishment  and  functioning  of  the  internal  market. 
The proposal aims to allow for experimentation through derogations for the use of DLT in the 
trading and post-trading of crypto-assets that qualify as financial instruments, where existing 
legislation precludes or limits their use.  

Today, there is limited use of DLT in financial services, specifically by market infrastructures 
(trading venues or central securities depositories). Regulatory obstacles and legal certainty are 
most often cited as the main reasons for the limited uptake of this potentially transformational 
technology in market infrastructures. The EU follows the principle of technological neutrality, 
but  rules  are  still  created  based  on  market  realities,  and  the  existing  financial  services 
legislation was not designed with DLT and crypto-assets in mind. This means that there are 

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European Commission, FinTech Action plan, COM/2018/109 final 
ESMA,  Advice  on  ‘Initial  Coin  Offerings  and  Crypto-Assets’,  2019;  EBA  report  with  advice  on  crypto-assets, 
2019. 
President Ursula von der Leyen, Political Guidelines for the next European Commission, 2019-2024. 
Communication  from  the  Commission  to  the  European  Parliament,  the  Council,  the  European 
Economic and Social   Committee and the Committee of the Region, Shaping Europe’s Digital Future, 
COM(2020) 67 final. 
Recommendation  7  of 
(https://ec.europa.eu/info/sites/info/files/business_economy_euro/growth_and_investment/documents/200610-cmu-
high-level-forum-final-report_en.pdf).  
Communication  from  the  Commission  to  the  European  Parliament,  the  European  Council,  the  Council,  the 
European Economic and Social Committee and the Committee of the Regions on the EU Security Union Strategy -
COM(2020)605 final, 24.07.2020 

the  Capital  Markets  Union’s 

the  High-Level 

forum  on 

final 

report.  

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provisions in it, which sometimes restricts and even prevents the use of DLT. The absence of 
a DLT-based secondary market, limits the efficiency gains and the sustainable development of 
a primary market for financial instruments in crypto-asset form.  

Through  the  introduction  of  a  common  EU  pilot  regime  for  the  experimentation  of  DLT 
market infrastructures, firms within the EU would be able to exploit the full potential of the 
existing  framework,  allowing  supervisors  and  legislators  to  identify  obstacles  in  the 
regulation,  while  regulators  and  firms  themselves  gain  valuable  knowledge  about  the 
application  of  DLT.  This  could  facilitate  a  more  reliable  and  safe  secondary  market  for 
crypto-assets qualifying as financial instruments. This would also allow EU financial services 
firms  to  retain  global  competitiveness  as  other  jurisdictions  have  already  implemented 
measures to allow for experimentation with DLT in financial services. Lastly, the pilot regime 
would allow for real use cases and help build the necessary experience and evidence on which 
a permanent EU regulatory regime could be inspired. 

• 

Subsidiarity (for non-exclusive competence)  

The  rules  governing  financial  services  and  in  particular  market  infrastructures  across  the 
Union are largely set  at  EU level. That is why any derogations or exemptions from specific 
provisions must be done at EU level. 

Additionally, action at EU level, such as the proposed Regulation, would ensure consistency 
and  a  level  playing  field  by  granting  powers  to  ESMA  to  oversee  and  coordinate 
experimentations as Member States’ competent authorities submit evaluated applications from 
market participants. 

Finally,  the  long-term  objective  of  gaining  experience  on  the  application,  and  limits  of,  the 
existing financial services  legislation to  DLT market  infrastructures, necessitates that this is 
done at EU level. Thus, the ESMA will evaluate the outcomes on a yearly basis and ESMA, 
together with the Commission will evaluate and report to the Council and Parliament on the 
pilot regime at the latest after a five-year period. 

• 

Proportionality 

Under the principle of proportionality, the content and form of EU action should not exceed 
what  is  necessary  to  achieve  the  objectives  of  the  Treaties.  The  proposed  rules  will  not  go 
beyond what is necessary in order to achieve the objectives of the proposal. It will cover only 
the  aspects  that  Member  States  cannot  achieve  on  their  own  and  where  the  administrative 
burden and costs are commensurate with the specific and general objectives to be achieved.  

The  proposed  pilot  regime  will  ensure  proportionality  by  allowing  adequate  flexibility  for 
supervisors to determine which provisions to disregard for a market participant’s test, to allow 
for  different  tests  cases  to  take  place.  The  pilot  regime  will  enable  regulators  to  remove 
regulatory constraints that can inhibit the development of DLT market infrastructures, which 
could enable the transition to tokenised financial instruments and DLT market infrastructures, 
enabling innovation and ensuring EU’s global competitiveness.  

The pilot regime approach is at this stage considered the most proportionate to the objectives 
as  there  is  presently  not  sufficient  evidence  to  support  more  significant  and  wide-ranging 
permanent changes to the existing financial services framework in  an effort to allow for the 

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use  of  DLT.  This  is  also  detailed  in  the  accompanying  impact  assessment,  for  example  in 
chapters 6 and 7.19 

• 

Choice of the instrument 

Article 114 TFEU allows the adoption of acts in the form of a Regulation or Directive. For 
this  proposal,  a  Regulation  was  chosen  in  order  to  lay  down  a  single  set  of  immediately 
applicable rules throughout the Single Market.  

The  proposed  Regulation  establishes  harmonised  requirements  for  market  participants 
wishing to apply for a permission to establish a DLT market infrastructure. Such DLT market 
infrastructures must not be subject to specific national rules. Therefore, a Regulation is more 
appropriate than a Directive. 

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Stakeholder consultations 

The  Commission  has  consulted  stakeholders  throughout  the  process  of  preparing  this 
proposal. In particular: 

i) 

ii) 

The  Commission  carried  out  a  dedicated  open  public  consultation  (19 
December 2019 - 19 March 2020)20 

The Commission consulted the public on an inception impact assessment 
(19 December 2019 - 16 January 2020)21 

iii)  The Commission services consulted Member State experts in the Expert 
Group on Banking, Payments and Insurance (EGBPI) on two occasions 
(18 May 2020 and 16 July 2020)22 

The purpose of the public consultation was to inform the Commission on the development of 
a potential EU framework for crypto-assets. It included questions on crypto-assets not covered 
by  the  existing  EU  financial  services  legislation,  crypto-assets  covered  by  the  existing  EU 
financial  services  legislation  (e.g.  qualifying  as  transferable  securities  or  electronic  money), 
specific  questions  on  so-called  ‘stablecoins’  as  well  as  more  general  questions  on  the 
application of DLT in financial services. 

Many respondents believe that the application of DLT in financial services in  general could 
lead  to  efficiency  gains  and  that  it  could  have  an  impact  on  current  financial  market 
infrastructures.  There  was  also  general  agreement  that  when  crypto-assets  are  financial 
instruments,  existing  rules  governing  financial  instruments  should  apply.  Lastly,  there  was 
wide  recognition  that  the  application  of  existing  rules  to  crypto-assets  and  DLT-based 
business models can raise complex legal and supervisory questions. 

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Impact Assessment accompanying the document Proposal for a Regulation of the European Parliament 
and of the Council on Markets in Crypto-assets and amending Directive (EU) 2019/1937 SWD(2020) 
380  

 https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/2019
-crypto-assets-consultation-document_en.pdf  
Impact Assessment accompanying the document Proposal for a Regulation of the European Parliament 
and of the Council on Markets in Crypto-assets and amending Directive (EU) 2019/1937, SWD(2020) 
380   
https://ec.europa.eu/info/publications/egbpi-meetings-2020_en   

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Member  State  representatives  expressed  overall  support  for  the  approach  chosen  to  create  a 
pilot  regime to  allow for experimentation  with  the application of  DLT in  financial services. 
They highlighted it should not be too restrictive, but at the same time cannot lead to market 
fragmentation or undermine important existing regulatory requirements. 

The  proposal  also  integrates  feedback  received  through  meetings  with  stakeholders  and  EU 
authorities and institutions. 

• 

Collection and use of expertise 

In preparing this proposal, the Commission has relied on qualitative and quantitative evidence 
collected from recognised sources, including the reports from the EBA and ESMA.23 This has 
been complemented with  confidential  input, and publicly available reports  from  supervisory 
authorities,  international  standard  setting  bodies  and  leading  research  institutes,  as  well  as 
quantitative  and  qualitative  input  from  identified  stakeholders  across  the  global  financial 
sector. 

• 

Impact assessment 

This  proposal  is  accompanied  by  an  impact  assessment,  which  was  submitted  to  the 
Regulatory  Scrutiny  Board  (RSB)  on  29  April  2020  and  approved  on  29  May  2020.24  The 
RSB  recommended  improvements  in  some  areas  with  a  view  to:  (i)  better  put  the  initiative 
into context with ongoing EU and international regulatory efforts; (ii) provide more clarity as 
to  how  the  initiative  will  mitigate  the  risks  of  fraud,  hacking  and  market  abuse  and  also 
explain  the  coherence  with  the  upcoming  revision  of  the  anti-money  laundering  legislation; 
and, (iii) explain concerns of financial stability relating to ‘stablecoins’ better and also clarify 
how supervisory bodies will ensure investor and consumer protection. The impact assessment 
has  been  amended  accordingly,  also  addressing  the  more  detailed  comments  made  by  the 
RSB. 

The  Commission  considered  a  number  of  policy  options  for  crypto-assets  that  qualify  as 
financial instruments under the Markets in Financial Instruments Directive (MiFID II)25, and 
more specifically: 

– 

– 

– 

Option 1: Non-legislative measures to provide guidance on the applicability of 
the  EU  framework  on  financial  services  to  crypto-assets  that  qualify  as 
financial instruments and DLT 

Option 2: Targeted amendments to the EU framework on financial services 

Option 3: Pilot regime – the creation of a DLT market infrastructure 

Option  1  could  provide  clarification  on  when  crypto-assets  could  qualify  as  financial 
instruments  under  MiFID  II.  Guidance  could  also  support  the  primary  market  (e.g.  by 
providing  further  clarification  on  how  the  prospectus  regulation  could  apply  to  this  type  of 
issuances), and to some extent the secondary market (by specifying how a trading platform for 
crypto-assets  could  operate  under  the  MiFID  II/MiFIR26  framework)  as  well  as  the 

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26 

ESMA, Advice on ‘Initial Coin Offerings and Crypto-Assets’, 2019; EBA report with advice on crypto-
assets, 2019. 
Impact Assessment accompanying the document Proposal for a Regulation of the European Parliament 
and of the Council on Markets in Crypto-assets  and amending Directive (EU) 2019/1937, SWD(2020) 
380 
Directive  2014/65/EU  of  the  European  Parliament  and  of  the  Council  of  15 May  2014  on  markets  in 
financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU 
Regulation  (EU)  No 600/2014  of  the  European  Parliament  and  of  the  Council  of  15 May  2014  on 
markets in financial instruments and amending Regulation (EU) No 648/2012  

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development  of  post-trading  infrastructures  for  financial  instruments  in  crypto-asset  form. 
However,  non-legislative  measures  under  Option  1  could  also  have  a  limited  effect.  By 
nature, soft law measures  are not  binding  and one Member State or one  national  competent 
authority (NCA) could decide not to apply the guidance. The guidance on which crypto-assets 
constitute  ‘financial  instruments’  under  MiFID  II  could  have  limited  effects  due  to  the 
differences in the transposition of the notion of ‘financial instruments’ in national legislations. 

Option 2 could provide a high degree of legal certainty for market participants and NCAs on 
how  the  EU  financial  services  legislation  applies  to  services  related  to  the  issuance,  trading 
and settlement of financial instruments in crypto-asset form and the use of DLT. In principle, 
targeted  amendments  in  well-defined  areas  (e.g.  the  Prospectus  Regulation27,  the  Central 
Securities  Depositories  Regulation28  and  the  Settlement  Finality  Directive29)  could  be 
effective  to  enable  the  use  of  DLT  by  market  participants.  However,  those  targeted 
amendments taken in isolation could have a limited impact to support the uptake of financial 
instruments in crypto-asset form and DLT in the financial sector. Under Option 2, the number 
of  amendments  to  existing  legislation  would  be  relatively  limited.  As  DLT  and  financial 
instruments in crypto-asset form are in nascent stages, it is difficult to identify all regulatory 
obstacles that would require immediate legislative action. 

Lastly,  Option  3,  could  give  existing  investment  firms  and  market  players  the  possibility  to 
test the use of DLT on a larger scale, by offering trading and settlement services at the same 
time.  DLT  can  allow  for  near  real-time  settlement,  thereby  reducing  the  counterparty  risk 
during the settlement process. The distributed nature of DLT could also mitigate some cyber 
risks that centralised market infrastructures raise, such as the single point of failure. The use 
of DLT could decrease costs by freeing up capital through reduced need for collateral posting 
and through automated processes (with the use of smart contracts) that could simplify some 
back office processes (e.g. reconciliation). 

The  three  options  were  considered  coherent  with  the  existing  legislation  and  the 
Commission’s  objectives  as  regards  a  digital  economy  and  at  the  same  time,  they  were  not 
considered  mutually  exclusive  and  are  seen  as  complementary  to  a  gradual  regulatory 
approach starting with a pilot regime. 

• 

Fundamental rights 

The EU is committed to high standards of protection of fundamental rights and is signatory to 
a broad set of conventions on human rights. In this context, the proposal is not likely to have a 
direct  impact  on  these  rights,  as  listed  in  the  main  UN  conventions  on  human  rights,  the 
Charter  of  Fundamental  Rights  of  the  European  Union,  which  is  an  integral  part  of  the  EU 
Treaties, and the European Convention on Human Rights (ECHR). 

27 

28 

29 

Regulation  (EU)  2017/1129  of  the  European  Parliament  and  of  the  Council  of  14  June  2017  on  the 
prospectus  to  be  published  when  securities  are  offered  to  the  public  or  admitted  to  trading  on  a 
regulated market, and repealing Directive 2003/71/EC 
Regulation  (EU)  No 909/2014  of  the  European  Parliament  and  of  the  Council  of  23 July  2014  on 
improving  securities  settlement  in  the  European  Union  and  on  central  securities  depositories  and 
amending Directives 98/26/EC and 2014/65/EU and Regulation (EU) No 236/2012 
Directive  98/26/EC  of  the  European  Parliament  and  of  the  Council  of  19  May  1998  on  settlement 
finality in payment and securities settlement systems 

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4. 

BUDGETARY IMPLICATIONS 

This  proposal  holds implications in  terms  of  costs  and administrative burden for NCAs and 
ESMA. The magnitude and distribution of these costs will depend on the precise requirements 
placed on DLT market infrastructures and the related supervisory and monitoring tasks.  

The  estimated  supervisory  costs  for  each  Member  State  (including  staff,  training,  IT 
infrastructure) can range from €150.000 to €250.000 per year per DLT market infrastructure. 
However,  this  would  be  partially  offset  by  the  supervisory  fees  that  NCAs  would  levy  on 
DLT market infrastructures. 

For  ESMA,  the  estimated  cost  in  relation  to  review  and  coordination  are  estimated  at 
€150.000-300.000  in  total,  not  per  DLT  market  infrastructure,  as  they  will  have  no  direct 
supervision.  These  costs  will  be  covered  by  ESMA’s  operating  budget,  which  will  be 
increased. In addition, ESMA is expected to maintain a register of DLT market infrastructures 
in operation, the costs related to this are considered to be covered by the costs relating to the 
maintenance  of  the  register  as  referred  to  in  the  proposal  for  a  Regulation  on  Markets  in 
Crypto-Assets.  

All  budgetary  implications  of  this  proposal  is  detailed  in  the  legislative  financial  statement 
attached to the proposal for a Regulation on Markets in Crypto-Assets.  

5. 

• 

OTHER ELEMENTS 

Detailed explanation of the specific provisions of the proposal 

This proposal seeks to provide legal certainty and flexibility for market participants who wish 
to  operate  a  DLT  market  infrastructure  by  establishing  uniform  requirements  for  operating 
these. Permissions granted under this Regulation would allow market participants to operate a 
DLT market infrastructure and to provide their services across all Member States.  

Article  1  defines  the  subject  matter  and  scope.  In  particular,  this  Regulation  establishes 
operating conditions for DLT market infrastructures, permissions to make use of them and the 
supervision and cooperation of competent authorities and ESMA. The Regulation  applies to 
market  participants  (either  investment  firms,  market  operators  or  central  securities 
depositories, CSDs) permissioned in accordance with Article 7 or Article 8. Article 2 sets out 
terms and definitions, among others: ‘DLT market infrastructure’, ‘DLT multilateral trading 
facility’ or ‘DLT MTF’, ‘DLT securities settlement system’ and ‘DLT transferable securities’. 
Article 3 describes the limitations in terms of DLT transferable securities that can be admitted 
to  trading  on,  or  recorded  by,  DLT  market  infrastructures.  For  shares,  the  market 
capitalisation or the tentative market capitalisation of the issuer of DLT transferable securities 
should be less than EUR 200 million; for public bonds other  than sovereign bonds, covered 
bonds and corporate bonds the limit is EUR 500 million. DLT market infrastructures should 
not  admit  to  trading  or  record  sovereign  bonds.  In  addition,  the  total  market  value  of  DLT 
transferable securities recorded by a CSD operating a DLT securities settlement system, or by 
a DLT MTF where allowed to record such DLT transferable securities, shall not exceed EUR 
2.5 billion.     

Article  4  sets  the  requirements  for  a  DLT  MTF,  which  are  the  same  as  for  an  MTF  under 
Directive 2014/65/EU and specifies the exemptions possible under this Regulation. Article 5 
sets the requirements for a CSD operating a securities settlement system, which are the same 
as  for  a  CSD  under  Regulation  (EU)  No  909/2014  and  specifies  the  exemptions  possible 
under this Regulation. Article 4 and Article 5 contain a limited list of exemptions that DLT 
market infrastructures can request and the conditions attached to such exemptions.  

EN 

8 

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Article 6 sets the additional requirements applicable to DLT market infrastructures to address 
the novel forms of risks raised by the use of DLT. DLT market infrastructures must provide 
all  members,  participants,  clients  and  investors  with  clear  and  unambiguous  information  on 
how they carry out their functions, services and activities and how these are different from a 
traditional  MTF  or  CSD.  DLT  market  infrastructures  must  also  ensure  that  overall  IT  and 
cyber  arrangements  related to  the use of  DLT are adequate. Where the business model of a 
DLT  market  infrastructure  involves  the  safekeeping  of  clients’  funds  or  DLT  transferable 
securities, or the means to access these, they must have adequate arrangements to safeguard 
such assets. 

Article  7  and  Article  8  set  out  the  procedure  for  the  specific  permission  to  operate  a  DLT 
MTF  and  a  DLT  securities  settlement  system  respectively  and  include  details  on  the 
information that must be submitted to the competent authority.  

Article  9  defines  the  cooperation  between  the  DLT  market  infrastructure,  competent 
authorities  and  ESMA.  DLT  market  infrastructures  must  inform  competent  authorities  and 
ESMA  of,  for  example:  proposed  material  changes  to  their  business  plan  including  critical 
staff,  evidence  of  hacking,  fraud  or  other  serious  malpractice,  material  changes  in  the 
information  contained  in  the  initial  application,  technical  or  operational  difficulties  in 
delivering  activities  or  services  covered  under  the  permission  and  any  risks  to  investor 
protection, market integrity or financial stability that may have arisen and were not foreseen at 
the  time  the  permission  was  given.  Where  notified  of  such  information,  the  competent 
authority  may  request  the  DLT  market  infrastructure  to  submit  an  application  for  another 
permission, exemption or take any corrective measure it deems appropriate. The DLT market 
infrastructure  is  obliged  to  provide  any  requested  information  to  the  competent  authority 
which granted the permission and ESMA. The competent authority, after the consultation of 
ESMA,  may  recommend  corrective  measures  to  the  DLT  market  infrastructure  to  ensure 
investor  protection,  market  integrity  or  financial  stability.  The  DLT  market  infrastructure 
needs  to  detail  how  these  have  been  accommodated.  In  addition,  the  DLT  market 
infrastructure  shall  produce  and  submit  a  report  to  the  competent  authority  and  ESMA 
detailing all of the information above including potential difficulties in applying EU financial 
services  legislation.  ESMA  shall,  on  a  regular  basis,  inform  all  competent  authorities  about 
the aforementioned reports produced by DLT market infrastructures and exemptions granted 
in accordance with Article 7 and Article 8, monitor the application of these exemptions and 
submit an annual report to the Commission on how they are applied in practice. 

Article  10  details,  that  at  the  latest  after  a  five-year  period,  ESMA  will  produce  a  detailed 
report  on  the  pilot  regime  to  the  Commission.  On  the  basis  of  ESMA’s  assessment,  the 
Commission  will  produce  a  report  including  a  cost-benefit  analysis  on  whether  the  pilot 
regime  should  be  maintained  as  it  is  or  amended,  whether  it  should  be  extended  to  new 
categories of financial instruments, whether targeted amendments to EU legislation should be 
considered  to  enable  a  widespread  use  of  DLT  and  whether  the  pilot  regime  should  be 
terminated.  

Article  11  indicates  that  the  regulation  shall  enter  into  application  12  months  after  its  entry 
into force.  

EN 

9 

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2020/0267 (COD) 

Proposal for a 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on a pilot regime for market infrastructures based on distributed ledger technology 

(Text with EEA relevance) 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 114 thereof, 

Having regard to the proposal from the European Commission, 

After transmission of the draft legislative act to the national parliaments, 
Having regard to the opinion of the European Economic and Social Committee30,  

Having regard to the opinion of the European Central Bank31 

Acting in accordance with the ordinary legislative procedure, 

Whereas: 

(1) 

(2) 

30 
31 
32 

33 

The European Commission’s communication on a Digital  Finance Strategy32 aims to 
ensure  that  the  Union  financial  services  legislation  is  fit  for  the  digital  age  and 
contributes to a future-ready economy that works for the people, including by enabling 
the use of innovative technologies. The Union has a policy interest in developing and 
promoting  the  uptake  of  transformative  technologies  in  the  financial  sector,  such  as 
blockchain  and  distributed  ledger  technology  (‘DLT’).  Crypto-assets  are  one  of  the 
main DLT applications for finance. 

The  majority  of  crypto-assets  fall  outside  of  the  scope  of  EU  legislation  and  raise, 
among  others,  challenges  in  terms  of  investor  protection,  market  integrity  and 
financial  stability.  They  therefore  require  a  dedicated  regime  at  Union  level.  By 
contrast,  other  crypto-assets  qualify  as  financial  instruments  within  the  meaning  of 
Directive  2014/65/EU  of  the  European  Parliament  and  of  the  Council  (Markets  in 
Financial Instruments Directive, MiFID II)33. In so far as a crypto-asset qualifies as a 
financial instrument under that Directive, a full set of Union financial rules, including 
Regulation  (EU)  2017/1129  of  the  European  Parliament  and  of  the  Council  (the 

OJ C , , p. . 
OJ C […], […], p. […]. 
Communication from the Commission to the European Parliament, the Council, the European Central 
Bank,  the  European  Economic  and  Social  Committee  and  the  committee  of  the  Regions  on  a  Digital 
Finance Strategy for EU COM(2020)591 
Directive  2014/65/EU  of  the  European  Parliament  and  of  the  Council  of  15 May  2014  on  markets  in 
financial  instruments  and  amending  Directive  2002/92/EC  and  Directive  2011/61/EU  (OJ  L  173, 
12.6.2014, p. 349). 

EN 

10 

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Prospectus Regulation)34, Directive 2013/50/EU of the European Parliament and of the 
Council  (the  Transparency  Directive)35,  Regulation  (EU)  No  596/2014  of  the 
European Parliament and of the Council (the Market Abuse Regulation)36, Regulation 
(EU) No 236/2012 of the European Parliament and of the Council (the Short Selling 
Regulation)37,  Regulation  (EU)  No  909/2014  of  the  European  Parliament  and  of  the 
Council (the Central Securities Depositories Regulation)38 and Directive 98/26/EC of 
the European Parliament and of the Council (the Settlement Finality Directive)39 may 
apply  to  its  issuer  and  firms  conducting  activities  related  to  it.  The  so-called 
tokenisation  of  financial  instruments,  that  is  to  say  their  transformation  into  crypto-
assets  to  enable  them  to  be  issued,  stored  and  transferred  on  a  distributed  ledger,  is 
expected  to  open  up  opportunities  for  efficiency  improvements  in  the  entire  trading 
and post-trading area.  

The Union financial services legislation was not designed with DLT and crypto-assets 
in  mind40,  and  there  are  provisions  in  existing  EU  financial  services  legislation  that 
may preclude or limit the use of DLT in the issuance, trading and settlement of crypto-
assets which qualify as financial instruments. There is also currently a lack of market 
infrastructures  using  DLT  and  providing  trading  and  settlement  services  for  crypto-
assets  that  qualify  as  financial  instruments.  Without  a  secondary  market  able  to 
provide  liquidity  and  to  enable  investors  to  buy  and  sell  such  assets,  the  primary 
market  for  crypto-assets  that  qualify  as  financial  instruments  will  never  expand  in  a 
sustainable way. 

At  the  same  time,  regulatory  gaps  exist  due  to  legal,  technological  and  operational 
specificities  related  to  the  use  of  DLT  and  crypto-assets  that  qualify  as  financial 
instruments.  For 
transparency,  reliability  and  safety 
requirements imposed on the protocols and smart contracts underpinning crypto-assets 
that qualify as financial instruments. The underlying technology could also pose some 
novel  forms  of  cyber  risks  that  are  not  appropriately  addressed  by  existing  rules. 
Several  projects  for  the  trading  and  post-trading  of  crypto-assets  qualifying  as 

there  are  no 

instance, 

Regulation  (EU)  2017/1129  of  the  European  Parliament  and  of  the  Council  of  14  June  2017  on  the 
prospectus  to  be  published  when  securities  are  offered  to  the  public  or  admitted  to  trading  on  a 
regulated market, and repealing Directive 2003/71/EC (OJ L 168, 30.6.2017, p. 12) 
Directive  2013/50/EU  of  the  European  Parliament  and  of  the  Council  of  22 October  2013  amending 
Directive  2004/109/EC  of  the  European  Parliament  and  of  the  Council  on  the  harmonisation  of 
transparency  requirements  in  relation  to  information  about  issuers  whose  securities  are  admitted  to 
trading on a regulated market, Directive 2003/71/EC of the European Parliament and of the Council on 
the  prospectus  to  be  published  when  securities  are  offered  to  the  public  or  admitted  to  trading  and 
Commission  Directive  2007/14/EC  laying  down  detailed  rules  for  the  implementation  of  certain 
provisions of Directive 2004/109/EC (OJ L 294, 6.11.2013, p. 13)  
Regulation  (EU)  No 596/2014  of  the  European  Parliament  and  of  the  Council  of  16 April  2014  on 
market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament 
and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC (OJ L 173, 
12.6.2014, p. 1) 
Regulation  (EU)  No 236/2012  of  the  European  Parliament  and  of  the  Council  of  14 March  2012  on 
short selling and certain aspects of credit default swaps (OJ L 86, 24.3.2012, p. 1).  
Regulation  (EU)  No 909/2014  of  the  European  Parliament  and  of  the  Council  of  23 July  2014  on 
improving  securities  settlement  in  the  European  Union  and  on  central  securities  depositories  and 
amending  Directives  98/26/EC  and  2014/65/EU  and  Regulation  (EU)  No 236/2012  (OJ  L  257, 
28.8.2014, p. 1) 
Directive  98/26/EC  of  the  European  Parliament  and  of  the  Council  of  19  May  1998  on  settlement 
finality in payment and securities settlement systems (OJ L 166, 11.6.1998, p. 45) 
European Securities and Markets Authority’s, Report with advice on Initial Coin Offerings and Crypto-
Assets (ESMA50-157-1391) 

(3) 

(4) 

34 

35 

36 

37 

38 

39 

40 

EN 

11 

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financial  instruments  have  been  developed  in  the  Union,  but  few  are  already  in 
operation  or  they  have  limited  scale.  Given  this  limited  experience  as  regards  the 
trading  and  post-trading  of  transactions  in  crypto-assets  that  qualify  as  financial 
instruments, it would currently be premature to bring significant modifications to the 
Union financial services legislation to enable the full deployment of such crypto-assets 
and  their  underlying  technology.  At  the  same  time,  the  creation  of  financial  market 
infrastructures  for  crypto-assets  that  qualify  as  financial  instruments  is  currently 
constrained  by  some  requirements  embedded  in  the  Union’s  financial  services 
legislation  that  would  not  be  fully  adapted  to  crypto-assets  qualifying  as  financial 
instruments  and  to  the  use  of  DLT.  For  instance,  trading  platforms  for  crypto-assets 
usually  give direct access to  retail  investors,  while traditional trading venues  usually 
give access through financial intermediaries.  

In  order  to  allow  for  the  development  of  crypto-assets  that  qualify  as  financial 
instruments  and  DLT,  while  preserving  a  high  level  of  financial  stability,  market 
integrity,  transparency  and  investor  protection,  it  would  be  useful  to  create  a  pilot 
regime for DLT market infrastructures. A pilot regime for DLT market infrastructures 
should allow such DLT market infrastructures to be temporarily exempted from some 
specific  requirements  under  the  Union  financial  services  legislation  that  could 
otherwise  prevent  them  from  developing  solutions  for  the  trading  and  settlement  of 
transactions  in  crypto-assets  that  qualify  as  financial  instruments.  The  pilot  regime 
should  also  enable  the  European  Securities  and  Markets  Authorities  (ESMA)  and  
competent authorities to gain experience on the opportunities and specific risks created 
by  crypto-assets  that  qualify  as  financial  instruments,  and  by  their  underlying 
technology.   

To meet  this objective,  a new Union status of DLT market infrastructures should be 
created.  This  status  of  DLT  market  infrastructure  should  be  optional  and  should  not 
prevent  financial  market  infrastructures,  such  as  trading  venues,  central  securities 
depositories  and  central  counterparties,  from  developing  trading  and  post-trading 
services  and activities for crypto-assets  which qualify  as financial instruments  or are 
based on DLT, under the existing Union financial services legislation. 

A  DLT  market  infrastructure  should  be  defined  either  as  a  DLT  multilateral  trading 
facility (DLT MTF) or a DLT securities settlement system. 

A DLT MTF should be a multilateral trading facility that is operated by an investment 
firm or a market operator that operate the business or a regulated market and maybe 
the  regulated  market  itself,  authorised  under  Directive  2014/65/EU  (Markets  in 
Financial Instruments Directive, MiFID II), and that has received a specific permission 
under  this  Regulation.  Such  a  DLT  MTF  should  be  subject  to  all  the  requirements 
applicable  to  a  multilateral  trading  facility  under  the  framework  of  Directive 
2014/65/EU  (Markets  in  Financial  Instruments  Directive,  MiFID  II),  Regulation  EU 
No 600/2014 of the European Parliament and of the Council (the Markets in Financial 
Instruments  Regulation,  MiFIR)41,  or  any  other  EU  financial  services  legislation, 
except  if  it  has  been  granted  one  or  several  exemptions  by  its  national  competent 

(5) 

(6) 

(7) 

(8) 

41 

Regulation  (EU)  No 600/2014  of  the  European  Parliament  and  of  the  Council  of  15 May  2014  on 
markets in financial instruments and amending Regulation (EU) No 648/2012 (OJ L 173, 12.6.2014, p. 
84) 

EN 

12 

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(9) 

authority, in accordance with this Regulation and Directive (EU) .../... of the European 
Parliament and of the Council42. 

The  use  of  distributed  ledger  technology,  with  all  transactions  recorded  in  a 
decentralised ledger, can expedite and condense trading and settlement to nearly real-
time and could enable the merger of trading and post-trading activities. However, the 
current rules envisage the performance of trading and settlement activities by separate 
market infrastructures. Regulation (EU) No 909/2014 of the European Parliament and 
of the Council (the Central Securities Depositories Regulation) requires that financial 
instruments  admitted  to  trading  on  a  trading  venue  within  the  meaning  of  Directive 
2014/65/EU (Market in Financial Instruments Directive, MiFID II) be recorded with a 
central  securities  depositary  (‘CSD’),  while  a  distributed  ledger  could  be  potentially 
used as a decentralised version of such a depository. Therefore, it would be justified to 
allow  a  DLT  MTF  to  perform  some  activities  normally  performed  by  a  CSD. 
Therefore, when granted the relevant exemption(s), a DLT MTF should be allowed to 
ensure  the  initial  recording  of  DLT  transferable  securities,  the  settlement  of 
transactions  in  DLT  transferable  securities  and  the  safekeeping  of  DLT  transferable 
securities.  

(10)  A DLT securities settlement system should be a securities settlement system operated 
by  a  CSD  authorised  under  Regulation  (EU)  No  909/2014  (the  Central  Securities 
Depositories Regulation) that has received a specific permission under this Regulation. 
A DLT securities settlement system, and the CSD operating it, should be subject to the 
relevant  requirements  of  Regulation  (EU)  No  909/2014  (the  Central  Securities 
Depository Regulation), except where the national competent authority has granted the 
CSD operating the DLT securities settlement system with one or several exemptions, 
in accordance with this Regulation.  

(11)  A  DLT  MTF  or  a  CSD  operating  a  DLT  securities  settlement  system  should  only 
admit to trading or record DLT transferable securities on their distributed ledger. DLT 
transferable securities should  be crypto-assets that  qualify  as ‘transferable securities’ 
within  the  meaning  of  Directive  2014/65/EU  (the  Market  in  Financial  Instruments 
Directive, MiFID II) and that are issued, transferred and stored on a distributed ledger.  

(12) 

In  order  to  allow  innovation  and  experimentation  in  a  sound  regulatory  environment 
while  preserving  financial  stability,  the  type  of  transferable  securities  admitted  to 
trading  on  a  DLT  MTF  or  recorded  in  a  CSD  operating  a  DLT  securities  settlement 
system should be limited to securities, such as shares and bonds that are not liquid.  In 
order to determine whether a share or bond is liquid or not, this Regulation should set 
some value thresholds. To avoid the creation of any risk to financial stability, the total 
market  value  of  DLT  transferable  securities  recorded  by  a  CSD  operating  a  DLT 
securities  settlement  system,  or  admitted  to  trading  by  a  DLT  MTF,  should  also  be 
limited.  DLT  market  infrastructures  should  also  be  prevented  from  admitting  to 
trading or recording on the distributed ledger sovereign bonds. To verify that the DLT 
transferable securities traded on or recorded by a DLT market infrastructure meets the 
conditions  imposed  under  this  Regulation,  national  competent  authorities  should  be 
allowed to require such DLT market infrastructures to submit reports.   

42 

Proposal  for  a  Directive  of  the  European  Parliament  and  of  the  Council  amending  Directives 
2006/43/EC, 2009/65/EC, 2009/138/EU, 2011/61/EU, EU/2013/36, 2014/65/EU, (EU) 2015/2366 and 
EU/2016/2341 - COM(2020)596 

EN 

13 

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(13) 

In order to ensure a level playing field with transferable securities admitted to trading 
on  a  traditional  trading  venue  within  the  meaning  of  Directive  2014/65/EU  (the 
Market  in  Financial  Instruments  Directive,  MiFID  II)  and  a  high  level  of  market 
integrity,  the  DLT  transferable  securities  admitted  to  trading  on  a  DLT  MTF  should 
always be subject  to  the provisions prohibiting  market  abuse in  Regulation  (EU)  No 
596/2014 (the Market Abuse Regulation).  

(14)  A  DLT  MTF  should  be  able  to  request  one  or  several  exemptions  on  a  temporary 
basis,  as  listed  under  this  Regulation,  to  be  granted  by  the  competent  authority,  if  it 
complies  with  the  conditions  attached  to  such  exemptions  as  well  as  additional 
requirements  set  under  this  Regulation  to  address  novel  forms  of  risks  raised  by  the 
use  of  DLT.  The  DLT  MTF  should  also  comply  with  any  compensatory  measure 
imposed  by  the  competent  authority  in  order  to  meet  the  objectives  pursued  by  the 
provision for which an exemption has been requested. 

(15)  Where  a  financial  instrument  is  admitted  to  trading  on  an  MTF,  it  is  to  be  recorded 
with an authorised Central Securities Depository in accordance with Regulation (EU) 
No 909/2014 (the Central Securities Depository Regulation). While the recording of a 
transferable  security  and  the  settlement  of  related  transactions  could  potentially  take 
place on a distributed ledger, Regulation (EU) No 909/2014 imposes an intermediation 
by a CSD and would oblige to replicate the recording on the distributed ledger at  the 
CSD level, potentially imposing a functionally redundant overlay to the trade lifecycle 
of  a  financial  instrument  handled  by  DLT  market  infrastructures  subject  to  this 
Regulation.  Therefore,  a  DLT  MTF  should  be  able  to  request  an  exemption  of  the 
book-entry  requirement  and  the  recording  with  a  CSD  set  by  Regulation  (EU)  No 
909/2014,  where  the  DLT  MTF  complies  with  equivalent  requirements  to  those 
applying  to  a  CSD.  The  DLT  MTF  should  record  the  transferable  securities  on  its 
distributed ledger, ensure the integrity of the issues on the distributed ledger, establish 
and maintain procedures to ensure the safekeeping of the DLT transferable securities, 
complete the settlement of transactions, and prevent settlement fails.  

(16)  Where  performing  the  settlement  of  transactions  in  DLT  transferable  securities,  the 
DLT  MTF  should  ensure  that  the  payment  for  DLT  transferable  securities  from  the 
buyer  occurs  at  the  same  time  as  DLT  transferable  securities  are  delivered  from  the 
seller (delivery versus payment). Where practicable and available, the cash payments 
should be settled through central bank money and, where not practicable or available, 
through commercial bank money. In order to test innovative solutions and to allow for 
the  cash  payments  to  occur  on  a  distributed  ledger,  the  DLT  MTFs  should  also  be 
allowed to use so-called settlement coins, that is to say commercial bank money in a 
tokenised  form,  or  e-money  tokens  as  defined  in  the  Regulation  No  2021/XX  on 
Markets in Crypto-Assets43. Where using commercial bank money for cash payments, 
the DLT MTF should limit counterparty risk by establishing and monitoring adherence 
by  the  credit  institutions  used  for  the  settlement  of  cash  payments  to  strict  criteria, 
such  as  their  regulation  and  supervision,  creditworthiness,  capitalisation,  access  to 
liquidity and operational reliability.   

43  Proposal for a Regulation of the European Parliament and of the  Council on Markets in Crypto-assets, and 

amending Directive (EU) 2019/1937– COM(2020)593 

EN 

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(17)  Under  Directive  (EU)  .../...44,  which  amends  Directive  2014/65/EU  (Markets  in 
Financial  Instruments  Directive,  MiFID  II),  a  DLT  MTF  is  able  to  request  an 
exemption  from  the  obligation  of  intermediation.  Traditional  MTFs  may  admit  as 
members  or  participants  only  investment  firms,  credit  institutions  and  other  persons 
who  have  sufficient  level  of  trading  ability,  competence  and  with  adequate 
organisational  arrangements  and  resources.  By  contrast,  many  trading  platforms  for 
crypto-assets offer a disintermediated access and provide direct access to retail clients. 
One  potential  regulatory  hurdle  to  the  development  of  MTFs  for  DLT  transferable 
in  Directive 
securities  could  be 
2014/65/EU (Markets in Financial Instruments Directive, MiFID II). A DLT MTF is 
allowed to request a temporary derogation to such an obligation of intermediation and 
to  provide  access  to  retail  investors,  provided  that  adequate  safeguards  in  terms  of 
investor protection would be in place and that such retail investors are fit and proper 
for anti-money laundering and combatting the financing of terrorism purpose. 

intermediation  embedded 

the  obligation  of 

(18)  To be granted an exemption under this Regulation, the DLT MTF should demonstrate 
that the exemption is proportionate and limited to the use of DLT as described in its 
business  plan  and  that  the  exemption  requested  is  limited  to  the  DLT  MTF  and  not 
extended to any other MTF operated by the same investment firm or market operator.  

(19)  A CSD operating a DLT securities settlement system should be able to request one or 
several exemptions on a temporary basis, as listed under this Regulation, to be granted 
by  the  relevant  competent  authority,  if  it  complied  with  the  conditions  to  such 
exemptions  as  well as  additional requirements  to  address  novel  forms  of risks raised 
by the use of DLT. The  CSD operating the DLT securities settlement  system should 
comply with any compensatory measure imposed by the competent authority in order 
to  meet  the  objectives  pursued  by  the  provision  for  which  an  exemption  has  been 
requested.  

(20)  A  CSD  operating  a  securities  settlement  system  should  be  allowed  to  request 
exemptions from different provisions that are likely to create regulatory obstacles for 
the  development  of  settlement  securities  systems  for  transferable  securities.  For 
instance,  a  CSD  should  be  able  to  request  an  exemption  from  some  definitions  of 
Regulation  (EU)  909/2014  (the  Central  Securities  Depositories  Regulation),  such  as 
the  notion  of  ‘dematerialised  form’,  ‘security  account’,  ‘transfer  orders’  as  well  as 
exemptions from provisions which refers to the notion of ‘security account’, such as 
the rules  on the recording of securities, integrity  of issue or segregation of accounts. 
CSDs  operate  securities  settlement  system  by  crediting  and  debiting  the  securities 
accounts of its participants. However, double-entry (or multiple-entry) book keepings 
securities accounts may not always exist in a DLT system. Therefore, a CSD operating 
a DLT securities settlements system should be able to request an exemption from the 
rules referring to the notion of ‘securities account’ or ‘book-entry form’ should it be 
necessary to allow the recording of DLT transferable securities on a distributed ledger, 
to ensure the integrity of the DLT transferable security issue on the distributed ledger 
and  the  segregation  of  the  DLT  transferable  securities  belonging  to  various 
participants.   

44 

Proposal  for  a  Directive  of  the  European  Parliament  and  of  the  Council  amending  Directive 
EU/2013/36,  Directive  2014/65/EU,  Directive  (EU)  2015/2366,  Directive  2009/138/EC,  Directive 
EU/2016/2341,  Directive  2009/65/EC,  Directive  2011/61/EC  and  Directive  2006/43/EC, 
- 
COM(2020)596 

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(21)  Under Regulation (EU) No 909/2014 (the Central Securities Depositories Regulation), 
a  CSD  can  only  outsource  one  of  its  core  activities,  after  receiving  an  authorisation 
from the competent authority. The CSD is also required to respect several conditions, 
so  that  the  outsourcing  does  not  result  in  a  delegation  of  its  responsibility  or  in  a 
modification  of  the  obligations  of  the  CSD  towards  its  participants  or  issuers. 
Depending on its business plan, a CSD operating a DLT securities settlement system 
could be willing to share the responsibility of running its distributed ledger on which 
the  transferable  securities  are  recorded  with  other  entities,  including  with  its 
participants.  The  DLT  securities  settlement  system  should  be  able  to  request  an 
exemption  from  the  outsourcing  requirements  to  develop  such  innovative  business 
models. In such a case, they should demonstrate that the provisions on outsourcing are 
incompatible with the use of DLT as envisaged in their business plan and they should 
also demonstrate that some minimum requirements on outsourcing are met.  

(22)  The obligation of intermediation through a credit institution or an investment firm so 
that retail investors are not able to obtain direct access to the settlement and delivery 
systems  operated  by  a  CSD  could  potentially  create  a  regulatory  obstacle  to  the 
development  of  alternative  models  of  settlement  based  on  a  DLT  that  allow  direct 
access  by  retail  clients.  Therefore,  the  CSD  operating  a  DLT  securities  settlement 
system should be allowed to  request  an exemption  from  the notion of participant, as 
set  out  by  Regulation  (EU)  No  909/2014  (the  Central  Securities  Depositories 
Regulation). Where seeking an exemption from the obligation of intermediation under 
Regulation  (EU)  No  909/2014  (the  Central  Securities  Depositories  Regulation),  the 
CSD operating a securities settlement system should ensure that these persons are of 
sufficient good repute and fit and proper for the purpose of anti-money laundering and 
combatting  the  financing  of  terrorism.  The  CSD  operating  the  securities  settlement 
system  should  also  ensure  that  these  participants  have  sufficient  level  of  ability, 
competence, experience and knowledge of post-trading and the functioning of DLTs.  

(23)  The entities that are eligible to participate in a CSD covered by Regulation (EU) No 
909/2014  (the  Central  Securities  Depositories  Regulation)  are  based  on  the  entities 
that are eligible to participate in a securities settlement system that is designated and 
notified  in  accordance  with  Directive  98/26/EC  (the  Settlement  Finality  Directive) 
because  Regulation  (EU)  No  909/2014  (the  Central  Securities  Depositories 
Regulation) requires securities settlement systems operated by CSDs to be designated 
and  notified  under  Directive  98/26/EC.  A  DLT  securities  settlement  system  that 
applies  to  be  exempted  from  the  participation  requirements  of  Regulation  (EU)  No 
909/2014  (the  Central  Securities  Depositories  Regulation)  would  not  be  compliant 
with the participation requirements of Directive 98/26/EC. Consequently, such a DLT 
securities settlement system could not be designated and notified under that Directive.  
However,  this  would  not  preclude  a  DLT  securities  settlement  system  that  complies 
with  all  of  the  requirements  of  Directive  98/26/EC  from  being  so  designated  and 
notified.    

(24)  Regulation  (EU)  No  909/2014  (the  Central  Securities  Depositories  Regulation) 
encourages the settlement of transactions in central bank money. Where the settlement 
of  cash  payments  in  central  bank  money  is  not  available  and  practicable,  this 
settlement can take place in commercial bank money. That provision can be difficult 
to  apply  for  a  CSD  operating  a  DLT  securities  settlement  system,  as  such  a  CSD 
would have to effect movements in cash accounts at the same time as the delivery of 
securities on the DLT. A CSD operating a DLT securities settlement system should be 
allowed to request an exemption from the rules of Regulation (EU) No 909/2014 (the 

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16 

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Central  Securities  Depositories  Regulation)  on  cash  settlement  in  order  to  develop 
innovative  solutions,  such  as  the  use  of  settlement  coins  or  ‘e-money  tokens’  as 
defined  in the Regulation No 2021/XX on Markets in Crypto-Assets45.  

(25)  Regulation  (EU)  No  909/2014  (the  Central  Securities  Depositories  Regulation) 
requires  that  a  CSD  gives  access  to  another  CSD  or  to  other  market  infrastructures. 
The access to a CSD operating a DLT securities settlement system can be burdensome 
or difficult to achieve, as the interoperability of legacy systems with DLT has not been 
tested  yet.  A  DLT  securities  settlement  system  should  also  be  able  to  request  an 
exemption from such rules, if it can demonstrate that the application of such rules are 
disproportionate to the size of the DLT securities settlement system.  

(26) 

Irrespective of the rule for which an exemption is requested, a CSD operating a DLT 
securities  settlement  system  should  demonstrate  that  the  exemption  requested  is 
proportionate and justified by the use of DLT. The exemption should also be limited to 
the DLT securities settlement system and not cover other securities settlement systems 
operated by the same CSD.    

(27)  DLT  market  infrastructures  should  also  be  subject  to  additional  requirements, 
compared  to  traditional  market  infrastructures.  These  requirements  are  necessary  to 
avoid risks raised by the use of DLT or by the new way the DLT market infrastructure 
would carry out its activities. Therefore, DLT market infrastructure should establish a 
clear business plan that details how the DLT would be used and the legal arrangements 
put in place. 

(28)  A  CSD  operating  a  DLT  securities  settlement  system,  or  DLT  MTF  where  they  are 
permitted to  settle the transactions in  DLT transferable securities themselves, should 
establish  the rules on the functioning of the proprietary DLT they operate, including 
the rules to access and admission on the DLT, the rules for the participating nodes and 
the  rules  to  address  potential  conflicts  of  interest,  as  well  as  risk  management 
measures.  

(29)  A  DLT  market  infrastructure  should  be  required  to  inform  members,  participants, 
issuers and clients on how they intend to perform their activities and how the use of 
DLT will create deviations compared to the way the service is normally provided by a 
traditional MTF or a CSD operating a securities settlement system.  

(30)  A  DLT  market  infrastructure  should  have  specific  and  robust  IT  and  cyber 
arrangements related to the use of DLT. These arrangements should be proportionate 
to the nature, scale and complexity of the DLT market infrastructure’s business plan. 
These  arrangements  should  also  ensure  the  continued  reliability,  continuity  and 
security  of  the  services  provided,  including  the  reliability  of  smart  contracts  that  are 
potentially used. DLT market infrastructures should also ensure the integrity, security, 
confidentiality, availability and accessibility of data stored on the DLT. The competent 
authority  of  a  DLT  market  infrastructure  should  be  allowed  to  request  an  audit  to 
ensure that the overall IT and cyber arrangements are fit for purpose. The costs of such 
an audit should be borne by the DLT market infrastructure.  

(31)  Where  the  business  plan  of  a  DLT  market  infrastructure  would  involve  the 
safekeeping  of  clients’  funds,  such  as  cash  or  cash  equivalent,  or  DLT  transferable 
securities, or the means of access to such DLT transferable securities, including in the 

45  Proposal  for  a  Regulation  of  the  European  Parliament  and  of  the  Council  on  markets  in  crypto-assets,  and 

amending Directive (EU) 2019/1937 – COM(2020)593  

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17 

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form  of  cryptographic  keys,  the  DLT  market  infrastructure  should  have  adequate 
arrangements  in  place  to  safeguard  their  clients’  assets.  They  should  not  use  clients’ 
assets on own account, except with prior express consent from their clients. The DLT 
market infrastructure should segregate clients’ funds or DLT transferable securities, or 
the  means  of  access  to  such  assets,  from  its  own  assets  or  other  clients’  assets.  The 
overall  IT  and  cyber  arrangements  of  DLT  market  infrastructures  should  ensure  that 
clients’ assets are protected against fraud, cyber threats or other malfunctions.  

(32)  At  the  time  where  the  specific  permission  is  granted,  DLT  market  infrastructures 
should also  have a credible exit strategy in  place in  case the regime on  DLT market 
infrastructures  should  be  discontinued  or  the  specific  permission  or  some  of  the 
exemptions granted should be withdrawn.   

(33)  The  specific  permission  granted  to  a  DLT  market  infrastructure  should  follow  the 
same  procedures  as  the  authorisation  of  a  traditional  MTF,  or  a  CSD  where  such  a 
CSD  is  seeking  to  operate  a  new  securities  settlement  system.  However,  when 
applying  for  a  permission,  the  applicant  DLT  infrastructure  should  indicate  the 
exemptions  it  would  be  seeking.  Before  granting  a  permission  to  a  DLT  market 
infrastructure,  the  competent  authority  should  consult  ESMA.  ESMA  should  issue  a 
non-binding  opinion  and  make  any  recommendations  on  the  application  or  the 
exemptions  requested.  ESMA  should  also  consult  the  competent  authorities  of  the 
other  Member  States.  Where  issuing  its  non-binding  opinion,  ESMA  should  aim  at 
ensuring financial stability, market integrity and investor protection. In order to ensure 
the  level-playing  field  and  fair  competition  across  the  single  market,  ESMA’s  non-
binding opinion should also aim at ensuring the consistency and proportionality of the 
exemptions granted by different competent authorities across the Union.  

(34)  The  competent  authority  which  would  examine  the  application  submitted  by  a 
prospective  DLT  market  infrastructure  should  have  the  possibility  to  refuse  a 
permission if there were reasons to believe that the DLT market infrastructure would 
pose  a  threat  to  financial  stability,  investor  protection  or  market  integrity  or  if  the 
application were an attempt to circumvent existing requirements.  

(35)  The  specific  permission  given  by  a  competent  authority  to  a  given  DLT  market 
infrastructure  should 
that  DLT  market 
infrastructure. Such a permission should be valid for the Union. ESMA should publish 
on its website the list of DLT market infrastructures and the list of exemptions granted 
to each of them.  

the  exemptions  granted 

indicate 

to 

(36)  The specific permission and the exemptions granted by national competent authorities 
should be granted on a temporary basis, for a period of up to six years from the date of 
the specific permission. After a five-year period from the entry into application of the 
Regulation, ESMA and the Commission would be required to make an assessment of 
this  pilot  regime  for  market  infrastructures  based  on  digital  ledger  technology.  The 
aforementioned six-year period provides DLT market infrastructures sufficient time to 
adapt their business models to any modifications of this regime and operate under the 
pilot in a commercially viable manner. It would allow ESMA and the Commission to 
gather a useful data set encompassing around three calendar years of the operation of 
the  pilot  regime  following  the  grant  of  a  critical  mass  of  specific  permissions  and 
related  exemptions  and  to  report  thereon.  It  would  also  allow  time  for  DLT  market 
infrastructures  to  take  the  necessary  steps  either  to  wind  down  their  operations  or  to 
transition  to  a  new  regulatory  framework  following  ESMA’s  and  the  Commission’s 
reports.     

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18 

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(37)  Without  prejudice  to  the  relevant  provisions  of    Directive  2014/65/EU  (Markets  in 
Financial  Instruments  Directive,  MiFID  II)  or  Regulation  (EU)  No  909/2014  (the 
Central Securities Depositories Regulation), the competent authorities should have the 
power  to  withdraw  the  specific  permission  or  any  exemptions  granted  to  the  DLT 
market infrastructure, where a flaw has been discovered in the underlying technology 
or the services or activities provided by the DLT market infrastructure, and provided 
that  this  flaw  outweighs  the  benefits  provided  by  the  service  at  stake,  or  where  the 
DLT  market  infrastructure  has  breached  any  conditions  attached  to  the  exemptions 
imposed  by  the  competent  authority  at  the  time  of  the  granting  of  the  specific 
permission, or where the DLT market infrastructure has recorded financial instruments 
that do not meet the conditions of DLT transferrable securities under this Regulation. 
In the course of its activity, a DLT market infrastructure should have the possibility to 
ask for additional exemptions to those requested at the time of the permission. In such 
a  case,  these  additional  exemptions  requested  by  the  DLT  market  infrastructures 
should  be  subject  to  a  specific  permission  by  the  competent  authorities,  in  the  same 
way  as  those  requested  at  the  time  of  the  initial  permission  of  the  DLT  market 
infrastructure.  

(38)  Since DLT market  infrastructures  could  receive  temporary  exemptions  from  existing 
Union  legislation,  they  should  closely  cooperate  with  competent  authorities  and  the 
European Securities and Markets Authority (ESMA) during the time of their specific 
permission.  DLT  market  infrastructures  should  inform  the  competent  authorities  and 
ESMA  about  any  material  change  to  its  business  plan  and  its  critical  staff,  any 
evidence of cyber threats or attacks, fraud or serious malpractice, of any change in the 
information  provided  at  the  time  of  the  initial  application  for  permission,  of  any 
technical difficulties, and in particular those linked to the use of DLT, and of any new 
risks  to  investor  protection,  market  integrity  and  financial  stability  that  was  not 
envisaged  at  the  time  where  the  specific  permission  was  granted.  Where  notified  of 
such  a  material  change,  the  competent  authority  should  request  the  DLT  market 
infrastructure  to  apply  for  a  new  permission  or  exemption  or  it  should  take  any 
corrective  measures  it  deems  appropriate.  DLT  market  infrastructures  should  also 
provide any relevant data to competent authorities and ESMA, whenever such data is 
requested.  To  ensure  investor  protection,  market  integrity  and  financial  stability,  the 
competent  authority  which  granted  the  specific  permission  to  the  DLT  market 
infrastructure should be able to recommend any corrective measures, after consultation 
with ESMA.  

(39)  DLT  market  infrastructures  should  also  make  regular  reports  to  their  competent 
authorities and ESMA. ESMA should organise discussions on these reports to enable 
all competent authorities across the Union to gain experience on the impact of the use 
of DLT and on any adaptations to the Union financial services legislation that could be 
necessary to allow for the use of DLT on a greater scale.  

(40)  Five years after the entry into application of this Regulation, ESMA should report to 
the Commission on this pilot regime for DLT market infrastructures, including on the 
potential  benefits  linked  to  the  use  of  DLT,  the  risks  raised  and  the  technical 
difficulties.  Based  on  ESMA’s  report,  the  Commission  should  report  to  the  Council 
and European Parliament. This report should assess the costs and benefits of extending 
this regime on DLT market  infrastructures for another period of time, extending this 
regime  to  new  type  of  financial  instruments,  making  this  regime  permanent  with  or 
without  modifications,  bringing  modifications  to  the  Union  financial  services 
legislation or terminating this regime.   

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(41)  Some potential gaps have been identified in the existing EU financial services rules as 
regards  their  application  to  crypto-assets  that  qualify  as  financial  instruments46.  In 
particular, some regulatory technical standards under the Regulation EU No 600/2014 
(the  Markets  in  financial  instruments  Regulative)  relative  to  certain  data  reporting 
requirements and pre-  and post-trade transparency requirements are not  well adapted 
to financial instruments issued on a distributed ledger technology. Secondary markets 
in financial instruments issued on distributed ledger technology or similar technology 
are  still  nascent  and  therefore  their  features  may  differ  from  markets  in  financial 
instruments using traditional technology. The rules set out in these regulatory technical 
standards  should  be  capable  of  being  effectively  applied  to  all  financial  instruments, 
regardless of the technology used. Therefore, ESMA should be mandated to carry out 
a  comprehensive  assessment  of  these  regulatory  technical  standards  adopted  in 
application  of  Regulation  EU  No 600/2014  and  propose  any  needed  amendments 
aimed at ensuring that the rules set out therein can be effectively applied to financial 
instruments  issued  on  distributed  ledger  technology.  In  carrying  out  this  assessment, 
ESMA should take into account the specificities of those financial instruments issued 
on a distributed ledger technology and whether they require adapted standards which 
would allow for their development without undermining the objectives of the rules laid 
down  in  the  regulatory  technical  standards  adopted  in  application  of  Regulation  EU 
No 600/2014. 

(42)  Where  the  objectives  of  this  Regulation  cannot  be  sufficiently  achieved  by  the 
Member States, because any regulatory obstacles to the development of DLT market 
infrastructures  for  crypto-assets  that  qualify  as  financial  instruments  under  Directive 
2014/65/EU (Markets in Financial Instruments Directive, MiFID II) are embedded in 
Union  financial  services  legislation  such  objectives  can  rather  be  better  achieved  at 
Union  level.  Therefore,  the  Union  may  adopt  measures,  in  accordance  with  the 
principle  of  subsidiarity  as  set  out  in  Article  5  of  the  Treaty  on  European  Union.  In 
accordance  with  the  principle  of  proportionality  as  set  out  in  that  Article,  this 
Regulation does not go beyond what is necessary in order to achieve those objectives.  

(43) 

In order for the Union to keep pace with innovation, it is important that the regime of 
DLT  market  infrastructures  enters  into  application,  as  soon  as  possible,  after  the 
transposition by Member States of the Directive (EU) .../... of the European Parliament 
and of the Council47.   

(44)  The  European  Data  Protection  Supervisor  and  the  European  Data  Protection  Board 
were consulted in accordance with Article 42(1) of Regulation (EU) 2018/1725(EC) of 
the European Parliament and of the Council48, and delivered their opinion on…[date 
of the opinion(s)], 

46 

47 

48 

European Securities and Markets Authority’s, Report with advice on Initial Coin Offerings and Crypto-
Assets (ESMA50-157-1391) 
Proposal  for  a  Directive  of  the  European  Parliament  and  of  the  Council  amending  Directives 
2006/43/EC, 2009/65/EC, 2009/138/EU, 2011/61/EU, EU/2013/36, 2014/65/EU, (EU) 2015/2366 and 
EU/2016/2341 - COM(2020)596 
Regulation (EU) 2018/1725 of the European Parliament and of the Council of 23 October 2018 on the 
protection of natural persons with regard to the processing of personal data by the  Union institutions, 
bodies, offices and agencies and on the free movement of such data, and repealing Regulation (EC) No 
45/2001 and Decision No 1247/2002/EC (OJ L 295, 21.11.2018, p. 39). 

EN 

20 

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HAVE ADOPTED THIS REGULATION: 

Article 1 

Subject matter and scope  

(1) 

This  Regulation  lays  down  requirements  on  multilateral  trading  facilities  and 
securities  settlement  systems  using  distributed  ledger  technology  ‘DLT  market 
infrastructures’,  which  are  granted  with  a  specific  permissions  to  operate  in 
accordance with Article 7 and Article 8.  

(2) 

This Regulation establishes the requirements for:  

(a) 

granting and withdrawing such specific permissions;  

(b)  granting, modifying and withdrawing related exemptions; 

(c)  mandating,  modifying  and  withdrawing  attached  conditions,  compensatory  or 

corrective measures;  

(d)  operating such DLT market infrastructures;   

(e) 

(f) 

supervising such DLT market infrastructures; and 

cooperation  between  operators  of  DLT  market  infrastructures,  competent 
authorities and ESMA. 

Article 2 

Definitions 

For the purposes of this Regulation, the following definitions apply: 

(1) 

(2) 

(3) 

(4) 

(5) 

‘distributed  ledger  technology’  or  ‘DLT’  means  a  class  of  technologies  which 
support the distributed recording of encrypted data; 

‘DLT  market  infrastructure’  means  either  a  ‘DLT  multilateral  trading  facility’  or  a 
‘DLT securities settlement system’;      

‘DLT    multilateral  trading  facility’  or  ‘DLT  MTF’  means  a  ‘multilateral  trading 
facility’,  operated  by  an  investment  firm  or  a  market  operator,  that  only  admits  to 
trading  DLT  transferable  securities  and  that  may  be  permitted,  on  the  basis  of 
transparent, non-discretionary, uniform rules and procedures, to:  

(a) 

ensure the initial recording of DLT transferable securities;  

(b) 

settle transactions in DLT transferable securities against payment; and  

(c) 

provide  safekeeping  services  in  relation  to  DLT  transferable  securities,  or 
where applicable, to  related payments and collateral,  provided using the DLT 
MTF;  

‘DLT securities settlement system’ means a securities settlement system, operated by 
a  ‘central  securities  depository’,  that  settles  transactions  in  DLT  transferable 
securities against payment;  

‘DLT  transferable  securities’  means  ‘transferable  securities’  within  the  meaning  of 
Article  4(1)(44)  (a)  and  (b)  of  Directive  2014/65/EU  that  are  issued,  recorded, 
transferred and stored using a DLT;    

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21 

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(6) 

(7) 

(8) 

(9) 

(10) 

(11) 

(12) 

‘multilateral  trading  facility’  means  a  ‘multilateral  trading  facility’  as  defined  in 
Article 4(1)(22) of Directive 2014/65/EU; 

‘central  securities  depository’  or  ‘CSD’  means  a  ‘central  securities  depository’  as 
defined in Article 2(1) of Regulation (EU) No 909/2014; 

‘financial instrument’ means a ‘financial instrument’ as defined in Article 4(1)(15) of  
Directive 2014/65/EU; 

‘settlement’  means  ‘settlement’  as  defined  in  Article  2(7)  of  Regulation  (EU)  No 
909/2014;  

‘business day’ means ‘business day’ as defined in Article 2(14) of Regulation (EU) 
No 909/2014;  

‘delivery  versus  payment  mean’  or  ‘DVP’  means  ‘delivery  versus  payment’  as 
defined in Article 2(27) of Regulation (EU) No 909/2014; 

‘settlement fail’ means a ‘settlement fail’ as defined in Article 2(1)(15) of Regulation 
(EU) No 909/2014; 

(13) 

‘sovereign bond’ means a bond issued by a sovereign issuer which is either:  

(a) 

(b) 

the Union; 

a  Member  State  including  a  government  department,  an  agency  or  a  special 
purpose vehicle of a Member State or another sovereign entity;  

(c) 

a sovereign entity which is not listed under points (a) and (b);  

(14) 

‘other public bond’ means a bond issued by any of the following public issuers:  

(a) 

in the case of a federal Member State, a member of that federation;  

(b) 

a special purpose vehicle for several Member States; 

(c) 

an international financial institution established by two or more Member States 
which has the purpose of mobilising funding and providing financial assistance 
to  the  benefit  of  its  members  to  safeguard  the  stability  of  the  euro  area  as  a 
whole.; 

(d) 

the European Investment Bank; 

(e) 

a public entity which is not an issuer of a sovereign bond as specified in point 
(13).  

‘convertible  bond’  means  an  instrument  consisting  of  a  bond  or  a  securitised  debt 
instrument  with  an  embedded  derivative,  such  as  an  option  to  buy  the  underlying 
equity;  

‘covered bond’ means bonds as referred to in Article 52(4) of Directive 2009/65/EC 
of the European Parliament and of the Council49;  

‘corporate bond’ means a bond that is issued by a Societas Europaea  established in 
accordance  with  Council  Regulation  (EC)  No  2157/200150  or  a  type  of  company 

Directive  2009/65/EC  of  the  European  Parliament  and  of  the  Council  of  13  July  2009  on  the 
coordination  of  laws,  regulations  and  administrative  provisions  relating  to  undertakings  for  collective 
investment in transferable securities (UCITS) (OJ L 302 17.11.2009, p. 32). 
Council Regulation (EC) No 2157/2001 of 8 October 2001 on the Statute for a European company (SE) 
OJ L 294, 10.11.2001, p. 1–21  

(15) 

(16) 

(17) 

49 

50 

EN 

22 

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listed in Annex I of Directive 2017/1132/EC51 of the European Parliament and of the 
Council or equivalent in third countries;  

‘other  bond’  means  a  bond  that  does  not  belong  to  any  of  the  types  of  bonds 
specified in points (13) to (17);  

‘investment  firm’  means  an  ‘investment  firm’  as  defined  in  Article  4(1)(1)  of 
Directive 2014/65/EU;  

‘market  operator’  means    a  ‘market  operator’  as  defined  in  Article  4(1)(18)  of 
Directive 2014/65/EU;  

‘competent authority’ means one or more competent authorities designated either in 
accordance with:  

(18) 

(19) 

(20) 

(21) 

(a)  Article  67  of  Directive  2014/65/EU  for  investment  firms  and  market 

operators operating a DLT MTF;  

(b)  Article 11 of Regulation (EU) No 909/2014 for a CSD operating a DLT 

securities settlement system;  or  

(c) 

otherwise  designated  by  the  Member  States  for  the  purposes  of 
overseeing the application of this Regulation. 

(22) 

‘home  Member State’ means in the case of:  

(a) 

(b) 

(c) 

an investment firm operating a DLT MTF, the Member State determined 
in accordance with Article 4(55)(a) (ii) and (iii) of Directive 2014/65/EU;  

a market operator operating a DLT MTF, the Member State in which the 
market operator of the DLT MTF is registered or, if under the law of that 
Member State it has no registered office, the Member State in which the 
head office of the marker operator of the DLT MTF is situated;    

a CSD operating a DLT securities settlement  system, the Member State 
determined  in  accordance  with  Article  2(23)  of  Regulation  (EU)  No 
909/2014/EU.   

(23) 

‘e-money  tokens’  means  ‘e-money  tokens’  as  defined  in  Article  XX  of  Regulation 
No 2021/XX on Markets in Crypto-Assets52. 

Article 3 

Limitations on the transferable securities admitted to trading on or settled by a DLT market 
infrastructure  

1. 

51 

52 

Only DLT transferable securities that meet the following conditions may be admitted 
to trading on a DLT MTF and recorded on a distributed ledger by a CSD operating a 
DLT securities settlement system 

(a) 

shares,  the  issuer  of  which  has  a  market  capitalisation  or  a  tentative  market 
capitalisation of less than EUR 200 million; or 

Directive (EU) 2017/1132 of the European Parliament and of the Council of 14 June 2017 relating to 
certain aspects of company law (OJ L 169, 30.6.2017, p. 46) 
Proposal for a Regulation of the European parliament and of the Council on Markets in  Crypto-assets 
and amending Directive (EU) 2019/1937 – COM(2020)593  

EN 

23 

  EN 

                                                 
2. 

3. 

4. 

5. 

(b) 

convertible  bonds,  covered  bonds,  corporate  bonds,  other  public  bonds  and 
other bonds, with an issuance size of less than EUR 500 million.   

An  investment  firm  or  market  operator  operating  a  DLT  MTF  shall  not  admit  to 
trading  sovereign  bonds  under  this  Regulation.  A  CSD  operating  a  DLT  securities 
settlement  system,  or  an  investment  firm  or  market  operator  that  is  permitted  to 
record DLT transferable securities on a DLT MTF, in accordance with paragraphs 2 
and 3 of Article 4, shall not record sovereign bonds under this Regulation.  

The total market value of DLT transferable securities recorded in a CSD operating a 
DLT  securities  settlement  system  shall  not  exceed  EUR  2.5  billion.  Where  a  DLT 
MTF records the DLT transferable securities instead of a CSD, in  accordance  with 
paragraphs  2  and  3  of  Article  4,  the  total  market  value  of  the  DLT  transferable 
securities  recorded  by  the  investment  firm  or  market  operator  operating  the  DLT 
MTF shall not exceed EUR 2.5 billion. 

For  the  purposes  of  determining  and  monitoring  the  total  market  value  of  DLT 
transferable  securities  under  paragraph  1,  the  total  market  value  of  the  DLT 
transferable securities shall be: 

(a) 

(b) 

determined daily, either by the CSD or the investment firm or market operator 
concerned; and 

equal to the sum of: the daily closing price of each DLT transferable security 
admitted  for  trading  on  a  DLT  MTF,  multiplied  by  the  number  of  DLT 
transferable securities with the same ISIN that are settled on the DLT securities 
settlement  system  or  DLT  MTF  concerned  on  that  day,  whether  in  full  or  in 
part. 

The operator of a DLT market infrastructure shall submit to the competent authority 
that  granted  the  specific  permission,  in  accordance  with  Article  7  or  Article  8, 
monthly  reports,  demonstrating  that  all  the  DLT  transferable  securities  that  are 
recorded  and  settled  on  a  DLT  MTF  permitted  to  do  so,  in  accordance  with 
paragraphs 2 and 3 of Article 4, or by a CSD on a DLT securities settlement system, 
fulfil the conditions under paragraphs 1 to 3. 

Where  the  total  market  value  of  the  DLT  transferable  securities  reported  under 
paragraph 1, has reached EUR 2.25 billion, the investment  firm  or market  operator 
operating  the  DLT  MTF  concerned,  or  the  CSD  operating  the  DLT  securities 
settlement  system  concerned  shall  activate  the  transition  strategy,  referred  to  in 
Article  6(6).    They  shall  notify  the  competent  authority  of  the  activation  of  their 
transition strategy, in their monthly report and of the time-horizon for such transition.   

The  competent  authority  concerned  may  permit  the  DLT  market  infrastructure 
concerned to continue to operate until the total market value of the DLT transferable 
securities  reported  under  paragraph  1  reaches  EUR  2.75  billion  provided  that  such 
leeway is requested by the operator of the DLT market infrastructure concerned and 
that  it  is  objectively  necessary  for  the  orderly  implementation  of  the  transition 
strategy.     

6. 

Regulation (EU) No 596/2014 shall apply to DLT transferable securities admitted to 
trading on a DLT MTF.  

EN 

24 

  EN 

Article 4 

Requirements and exemptions regarding DLT multilateral trading facilities 

1. 

A  DLT  MTF  shall  be  subject  to  all  the  requirements  applicable  to  an  MTF  under 
Directive  2014/65/EU and Regulation (EU) No 2014/600, except if the investment 
firm or the market operator operating the DLT MTF:  

(a) 

has requested an exemption as specified in paragraph 2 or under Directive (EU) 
.../...53 and has been granted such an exemption by the  competent authority that 
granted the specific permission in accordance with Article 7; and 

(b) 

complies with the obligations set out in Article 6; and 

(c) 

complies  with  the  conditions  set  out  in  paragraphs  2  to  4  and  with  any 
additional compensatory measures that the competent authority which granted 
the specific permission  may deem  appropriate in order to  meet  the objectives 
pursued by the provisions from which an exemption is requested or to ensure 
investor protection, market integrity and/or financial stability.  

2. 

At its request, an investment firm or a market operator operating a DLT MTF may be 
permitted to  admit  to  trading DLT transferable securities that  are not  recorded in  a 
CSD  in  accordance  with  Article  3(2)  of  Regulation  (EU)  909/2014  but  instead 
recorded on the DLT MTF’s distributed ledger.  

An  investment  firm  or  market  operator  requesting  an  exemption  pursuant  to 
paragraph 1 shall propose compensatory measures to meet the objectives pursued by 
the provisions from which an exemption is requested, and ensure at a minimum: 

(a) 

(b) 

(c) 

the  recording  of  the  DLT  transferable  securities  on  the  digital  ledger 
technology;  

that  the  number  of  DLT  transferable  securities  recorded  on  the  DLT  MTF 
equals  the  total  number  of  such  DLT  transferable  securities  in  circulation  on 
the digital ledger technology at any given time;  

that the DLT MTF keeps records which enable the investment firm or market 
operator operating the DLT MTF, without delay at any given time, to segregate 
the DLT transferable securities of a member, participant, issuer or client from 
those of any other member, participant, issuer or client. 

Where no request for an exemption has been made by the DLT MTF in accordance 
with the first subparagraph, the DLT transferable securities shall either be recorded 
in  book-entry  form  in  a  CSD  or  on  the  distributed  ledger  technology  of  a  CSD 
operating a DLT securities settlement system.   

Where an investment firm or a market operator operating a DLT MTF has requested 
an exemption under paragraph 2, it shall ensure, by means of robust procedures and 
arrangements that, the DLT MTF:     

(a) 

guarantees that the number of DLT transferable securities in an issue or in part 
of  an  issue  admitted  by  the  investment  firm  or  market  operator  operating  the 

Proposal  for  a  Directive  of  the  European  Parliament  and  of  the  Council  amending  Directives 
2006/43/EC, 2009/65/EC, 2009/138/EU, 2011/61/EU, EU/2013/36, 2014/65/EU, (EU) 2015/2366 and 
EU/2016/2341 - COM(2020)596 - - COM(2020)596 

3. 

53 

EN 

25 

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DLT MTF, is equal to the sum of DLT transferable securities making up such 
an issue or part of an issue, recorded on the DLT, at any given time;  

(b)  guarantees the safekeeping of any DLT transferable securities, as well as any 
funds  to  effect  payments  for  such  securities  or  any  collateral  provided  in 
respect of such transactions using the DLT MTF;  

(c) 

enables clear, accurate and timely confirmation of the details of transactions in 
DLT transferable securities including any payments made in respect thereof as 
well as the discharge of or calling for any collateral in respect of the same;  

(d)  provides clear, accurate and timely information in relation to the settlement of 
transactions, including settlement finality, by  defining the moment from which 
transfer  orders  or  other  pre-identified  instructions  may  not  be  revoked  by  a 
member, participant, issuer or client;  

(e) 

settles transactions in DLT transferable securities close to real time or intraday, 
and in any case, no later than on the second business day after the conclusion 
of the trade;  

(f) 

ensures delivery versus payment.   

The  settlement  of  payments  may  be  carried  out  through  central  bank  money 
where  practicable  and  available,  or  where  not  practicable  and  available, 
through  commercial  bank  money,  including  commercial  bank  money  in  a 
token-based form, or in e-money tokens.  

Where settlement occurs through commercial bank money or e-money tokens, 
the investment firm or market operator operating the DLT MTF shall identify, 
measure,  monitor,  manage,  and  minimise  any  counterparty  risk  arising  from 
the use of such money; and 

(g) 

either prevents or, if not possible, addresses settlement fails.    

4. 

Where  an  investment  firm  or  a  market  operator  operating  a  DLT  MTF  requests  an 
exemption in accordance with paragraph 2 or with Directive (EU) .../...54, it shall in 
any case demonstrate that the exemption requested is:    

(a) 

(b) 

proportionate to and justified by the use of a DLT; and 

limited to the DLT MTF and does not extended to any other MTF operated by 
the said investment firm or market operator.  

Article 5 

Requirements and exemptions regarding DLT securities settlement system 

A  CSD  operating  a  DLT  securities  settlement  system  shall  be  subject  to  the 
requirements  applicable  to  a  CSD  under  Regulation  (EU)  No  909/2014,  except  if 
such a CSD:  

Proposal  for  a  Directive  of  the  European  Parliament  and  of  the  Council  amending  Directives 
2006/43/EC, 2009/65/EC, 2009/138/EU, 2011/61/EU, EU/2013/36, 2014/65/EU, (EU) 2015/2366 and 
EU/2016/2341 - - COM(2020)596 

1. 

54 

EN 

26 

  EN 

                                                 
 
(a) 

has  requested  exemptions  as  specified  in  paragraphs  2  to  6  and  has  been  
granted  such  exemptions  by  the  competent  authority  that  granted  the  specific 
permission in accordance with Article 8;  

(b) 

complies with the obligations set out in Article 6; and 

(c) 

complies  with  the  conditions  set  out  in  paragraphs  2  to  7  and  with  any 
additional compensatory measures that the competent authority which granted 
the specific permission  may deem  appropriate in order to  meet  the objectives 
pursued by the provisions from which an exemption is requested or to ensure 
investor protection, market integrity and/or financial stability.   

At its request, a CSD operating a DLT securities settlement system may be exempted 
by  the  competent  authority  from  the  application  of  Article  2(4)  on  dematerialised 
form, Article 2(9) on transfer of orders, Article 2(28) on securities accounts, Article 
3 on the recording of securities, Article 37 on the integrity of issue, Article 38 on the 
segregation  of  assets  of  Regulation  (EU)  No  909/2014,  provided  that  the  CSD 
operating the DLT securities settlement system:   

demonstrates that the use of a ‘securities account’ as defined under Article 2(28) of 
Regulation (EU) No 909/2014 or the use of book-entry form are incompatible with 
the use of its particular DLT;  

proposes  compensatory  measures  to  meet  the  objectives  pursued  by  the  provisions 
from which an exemption is requested, and ensures at minimum that: 

the recording of the DLT transferable securities on the distributed ledger;  

the number of DLT transferable securities in an issue or in part of an issue admitted 
by the CSD operating the DLT settlement  securities system, is  equal  to  the sum  of 
DLT transferable securities making up such issue or part of an issue, recorded on the 
distributed ledger at any given time; and 

it keeps records which enable the CSD, without delay at any given time, to  segregate 
the DLT transferable securities of a member, participant, issuer or client from those 
of any other member, participant, issuer or client.    

At its request, a CSD operating a DLT securities settlement system may be exempted 
by  the  competent  authority  from  the  application  of  Article  19  and  Article  30  of 
Regulation (EU) No 909/2014, provided that:  

(a) 

(b) 

such provisions are incompatible with the use of a DLT as envisaged by 
the particular DLT operated by the CSD concerned; and 

the CSD operating the DLT securities settlement system ensures that the 
conditions set out in points (c) to (i) of Article 30(1) and in Article 30(2) 
of Regulation (EU) No 909/2014 are complied with.  

At its request, a CSD operating a DLT securities settlement system may be exempted 
by the competent authority from the application of Article 2(19) of Regulation (EU) 
No  909/2014  on  participants  and  may  be  permitted  to  admit  as  participants  natural 
and  legal  persons  other  than  those  referred  to  in  Article  2(19),  provided  that  such 
persons:  

(a) 

are of sufficient good repute and are fit and proper; and 

(b)  have sufficient level of ability, competence, experience and knowledge of 

the post-trading and the functioning of DLT.   

2. 

(a) 

(b) 

(c) 

(d) 

(e) 

3. 

4. 

EN 

27 

  EN 

5. 

6. 

7. 

8. 

1. 

At its request, a CSD operating a DLT securities settlement system may be exempted 
by the competent authority from the application of Article 40 of Regulation (EU) No 
909/2014  on  cash  settlement,  provided  that  the  CSD  ensures  delivery  versus 
payment.   

The settlement of payments may be carried out through central bank money, where 
practicable  and  available,  or  where  not  practicable  and  available,  through 
commercial bank money, including commercial bank money in a token-based form, 
or in e-money tokens.  

Where  settlement  occurs  through  commercial  bank  money  or  e-money  tokens,  the 
investment firm or market operator operating the DLT MTF shall identify, measure, 
monitor,  manage,  and  minimise  any  counterparty  risk  arising  from  the  use  of  such 
money.  

At its request, a CSD operating a DLT securities settlement system may be exempted 
by the competent authority from the application of Articles 50 and/or Article 53 on 
standard link access and access between a CSD and another market infrastructure of 
Regulation (EU) No 909/2014, provided that it demonstrates that the use of a DLT is 
incompatible  with  legacy  systems  of  other  CSDs  or  other  market  infrastructures  or 
that  granting  such  access  to  another  CSD  or  another  market  infrastructure  using 
legacy  systems  would  trigger  disproportionate  costs,  given  the  size  of  the  DLT 
securities settlement system.    

Where  a  CSD  operating  a  DLT  securities  settlement  system  has  requested  an 
exemption  in  accordance  with  the  first  sub-paragraph,  it  shall  give  access  to  other 
CSDs operating a DLT securities settlement system or to DLT MTFs.   

Where a CSD operating a DLT securities settlement system requests an exemption in 
accordance with paragraphs 2 to 6, it shall in any case demonstrate that:    

(a) 

(b) 

the exemption requested is proportionate to and justified by the use of its DLT, 
and;  

the exemption requested is limited to the DLT securities settlement system and 
does not extend to any other securities settlement system as defined in Article 
2(10) of Regulation (EU) No 909/2014 operated by the same CSD.   

Where a CSD has requested and been granted an exemption under paragraph 3, the 
requirement in Article 39(1) of Regulation (EU) No 909/2014/EU for Member States 
to  designate  and  notify  the  securities  settlement  system  operated  by  the  CSD  in 
accordance with Directive 98/26/EC shall not apply to the DLT securities settlement 
system.  The  foregoing  shall  not  preclude  Member  States  from  designating  and 
notifying a DLT securities settlement system in accordance with Directive 98/26/EC 
where  the  DLT  securities  settlement  system  fulfils  all  of  the  requirements  of  that 
Directive.        

Article 6 

 Additional requirements on DLT market infrastructures 

The  operators  of  DLT  market  infrastructures  shall  establish  a  clear  and  detailed 
business  plan  describing  how  they  intend  to  carry  out  their  services  and  activities, 
including a description of critical staff, technical aspects, the use of the DLT and the 
information required in paragraph 3.  

EN 

28 

  EN 

2. 

3. 

4. 

5. 

They  shall  also  have  up-to-date,  clear  and  detailed  publically  available  written 
documentation, which may be made available by electronic means, defining the rules 
under which the DLT market infrastructure shall operate, including the agreed upon 
associated legal terms defining the rights, obligations, responsibilities and liabilities 
of  the  operator  of  the  DLT  market  infrastructure,  as  well  as  that  of  the  members, 
participants,  issuers  and/or  clients  using  the  DLT  market  infrastructure  concerned. 
Such  legal  arrangements  shall  specify  the  governing  law,  the  pre-litigation  dispute 
settlement mechanism and the jurisdiction for bringing legal action.   

A  CSD  operating  a  DLT  securities  settlement  system,  and  an  investment  firm  or  a 
market operator operating a DLT MTF requesting an exemption from Article 3(2) of 
Regulation  (EU)  No  909/2014,  shall  establish  rules  on  the  functioning  of  the  DLT 
they operate, including the rules for accessing the distributed ledger technology, the 
participation  of  the  validating  nodes,  addressing  potential  conflicts  of  interest,  and 
risk management including any mitigation measures.   

The  operators  of  DLT  market  infrastructures  shall  provide  their  members, 
participants,  issuers  and  clients  with  clear  and  unambiguous  information  on  their 
website  on  how  they  carry  out  their  functions,  services  and  activities  and  how  this 
performance  of  functions,  services  and  activities  deviates  from  an  MTF  or  a 
securities settlement system. This information shall include the type of DLT used.  

The  operators  of  DLT  market  infrastructures  shall  ensure  that  the  overall  IT  and 
cyber  arrangements  related  to  the  use  of  their  DLT  are  proportionate  to  the  nature, 
scale  and  complexity  of  their  business.  These  arrangements  shall  ensure  the 
continued  transparency,  availability,  reliability  and  security  of  their  services  and 
activities,  including  the  reliability  of  smart  contracts  used  on  the  DLT.  These 
arrangements shall also ensure the integrity, security and confidentiality of any data 
stored, and the availability and accessibility of such data.  

The  operators  of  DLT  market  infrastructures  shall  have  a  specific  operational  risk 
procedure  for  the  risks  posed  by  the  use  of  a  DLT  and  crypto-assets  and  on  how 
these risks would be addressed if they materialised.   

To assess the reliability of the overall IT and cyber arrangements of a DLT market 
infrastructure, the competent authority may require an audit. The competent authority 
shall  appoint  an  independent  auditor  to  carry  out  the  audit.  The  DLT  market 
infrastructure shall bear the costs of such an audit. 

Where  the  operator  of  a  DLT  market  infrastructure  ensures  the  safekeeping  of 
participants’, members’, participants’, issuers’ or clients’ funds, collateral  and DLT 
transferable  securities,  as  well  as  the  means  of  access  to  such  DLT  transferable 
securities,  including  in  the  form  of  cryptographic  keys,  the  operators  of  such  DLT 
market infrastructures shall have adequate arrangements in place to prevent the use 
of the said funds, collateral or DLT transferable securities on their own account other 
than  with  the  express  consent,  evidenced  in  writing,  which  may  be  made  through 
electronic means, of the participant, member, issuer, or client concerned.  

The  operator  of  a  DLT  market  infrastructure  shall  maintain  safe,  accurate,  reliable 
and retrievable records of the funds, collateral and DLT transferable securities held 
by its DLT market infrastructure for members, participants, issuers or clients as well 
as of the means of access to such assets. 

The operator of a DLT market infrastructure shall segregate the funds, collateral and 
DLT  transferable  securities  as  well  as  the  means  of  access  to  such  assets,  of  the 

EN 

29 

  EN 

members, participants, issuers or clients using its DLT market infrastructure from its 
own assets as well as from the same assets of other members, participants, issuers or 
clients.  

The overall IT and cyber arrangements, referred to in paragraph 4, shall ensure that 
the  said  funds,  collateral  and  DLT  transferable  securities,  as  well  as  the  means  of 
access  to  such  assets,  are  protected  from  the  risks  of  unauthorised  access,  hacking, 
degradation, loss, cyber-attack or theft. 

The  operator  of  a  DLT  market  infrastructure  shall  establish  a  clear,  detailed  and 
publically  available  strategy  for  transitioning  out  of  or  winding  down  a  particular 
DLT market infrastructure (referred to herein as the ‘transition strategy’), ready to be 
deployed  in  a  timely  manner,  in  the  event  that  the  permission  or  some  of  the 
exemptions granted in accordance with Article 4 or Article 5 have to be withdrawn 
or otherwise discontinued, or in the event of any voluntary or involuntary cessation 
of the business of the DLT MTF or DLT securities settlement system. The transition 
strategy shall set out how members, participants, issuers and clients shall be treated, 
in the event of such withdrawal, discontinuation or cessation. The transition strategy 
shall  be  updated  on  an  ongoing  basis  subject  to  the  prior  consent  of  the  competent 
authority  which  granted  the  permission  to  operate  and  related  exemptions  under 
Article 4 and Article 5.     

Article 7 

Specific permission to operate a DLT multilateral trading facility 

A  legal  person  authorised  either  as  an  investment  firm  or  to  operate  a  regulated 
market, under Directive 2014/65/EU, may apply for a specific permission to operate 
a DLT MTF under this Regulation. 

Applications for a specific permission to operate a DLT MTF under this Regulation 
shall be accompanied by the following information: 

the information required under Article 7(4) of Directive 2014/65/EU;  

the  business  plan,  rules  of  the  DLT  MTF  and  associated  legal  arrangements  as 
referred to in Article 6(1) as well the information regarding the functioning, services 
and activities of the DLT MTF as referred to in Article 6(3);  

where  applicable,  the  functioning  of  its  proprietary  DLT  as  referred  to  in  Article 
6(2);  

its overall IT and cyber arrangements as referred to in Article 6(4);  

where  applicable,  a  description  of  the  safekeeping  arrangements  of  clients’  DLT 
transferable securities as referred to in Article 6(5);  

its transition strategy, as referred to in Article 6(6);  and 

the exemptions it is requesting in accordance with Article 4, the justification for each 
exemption  sought,  any  compensatory  measures  proposed  as  well  as  the  means 
envisaged to comply with the conditions attached to such exemptions under Article 
4. 

Before deciding on an application for a specific permission to operate a DLT MTF 
under  this  Regulation,  the  competent  authority  of  the  home  Member  State  shall 
notify  and  provide  all  relevant  information  on  the  DLT  MTF  to  ESMA,  an 

6. 

1. 

2. 

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

(g) 

3. 

EN 

30 

  EN 

4. 

5. 

6. 

explanation  of  the  exemptions  requested,  their  justifications  and  any  compensatory 
measures proposed by the applicant or required by the competent authority.   

Within  three  months  of  receipt  of  the  notification,  ESMA  shall  provide  the 
competent  authority  with  a  non-binding  opinion  on  the  application  and  shall  make 
any  recommendations  on  the  exemptions  requested  by  the  applicant,  that  are 
necessary  to  ensure  investor  protection,  market  integrity  and  financial  stability. 
ESMA shall also promote the consistency and proportionality of exemptions granted 
by  competent  authorities  to  investment  firms  or  market  operators  operating  DLT 
MTFs  across  the  Union.    In  order  to  do  so,  ESMA,  shall  consult  the  competent 
authorities  of  the  other  Member  States  in  a  timely  manner  and  take  the  utmost 
account of their views in its opinion.     

Without  prejudice  to  Article  7  and  Article  44  of  Directive  2014/65/EU,  the 
competent authority shall refuse to grant the applicant a permission to operate a DLT 
MTF  under  this  Regulation  if  there  are  objective  grounds  for  believing  any  of  the 
following:  

(a) 

(b) 

significant risks to investor protection, market integrity or financial stability are 
not properly addressed and mitigated by the applicant; or 

the specific permission  to operate a  DLT MTF under this Regulation  and the 
exemptions  requested  are  sought  to  circumvent  legal  and/or  regulatory 
requirements.   

The specific permission granted to either an investment firm or a market operator to 
operate a DLT MTF shall be valid throughout the Union for up to six years from the 
date  of  the  specific  permission.  It  shall  specify  the  exemptions  that  are  granted,  in 
accordance with Article 4.  

ESMA shall publish on its website the list of DLT MTFs, the start and end dates of 
their specific permissions and the list of exemptions granted to each of them.  

Without  prejudice  to  Article  8  and  Article  44  of  Directive  2014/65/EU,  the 
competent authority which granted a specific permission under this Regulation shall 
withdraw such permission or any of the exemptions granted, after consultation with 
ESMA, in accordance with paragraph 3, if any of the following has occurred: 

(a) 

(b) 

(c) 

(d) 

a flaw has been discovered in the functioning of the DLT or in the services and 
activities  provided  by  the  operator  of  the  DLT  MTF  that  poses  a  risk  to 
investor protection, market integrity or financial stability, which outweighs the 
benefits of the services and activities under experimentation;  

the investment firm or market operator operating the DLT MTF has breached 
the conditions attached to the exemptions granted by the competent authority;  

the investment firm or market operator, operating a DLT MTF has admitted to 
trading  financial  instruments  that  do  not  fulfil  the  conditions  laid  down  in 
Article 3(1) and 3(2);  

the  investment  firm  or  market  operator,  operating  a  DLT  MTF,  that  has 
requested  an  exemption  from  Article  3(2)  of  Regulation  (EU)  No  909/2014, 
has  recorded  DLT  transferable  securities  that  do  not  fulfil  the  conditions  laid 
down in Article 3(1) and 3(2);  

(e) 

the  investment  firm  or  market  operator,  operating  a  DLT  MTF,  that  has 
requested specific permission to be exempted from Article 3(2) of Regulation 

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7. 

1. 

2. 

(EU)  No  909/2014,  has exceeded  the  thresholds  referred  to  in  Article  3(3)  or 
(5), third subparagraph; or   

(f) 

the  competent  authority  becomes  aware  that  the  investment  firm  or  market 
operator that applied for a specific permission to operate a DLT MTF, obtained 
such permission or related exemptions on the basis of misleading information 
including any material omission.   

Where in the course of its activity, an investment firm or a market operator operating 
a DLT MTF proposes to introduces a material change to the functioning of the DLT, 
or to its services or activities, which requires a new permission, a new exemption, or 
the  modification  of  one  or  more  of  its  existing  exemptions  or  of  any  conditions 
attached  to  it,  it  shall  request  such  permission,  exemption  or  modification  in 
accordance  with  Article  4.  Such  permission,  exemption  or  modification  shall  be 
processed by the competent authority, in accordance with paragraphs 2 to 5.  

Where in the course of its activity, an investment firm or a market operator operating 
a  DLT  MTF  requests  a  new  permission  or  exemption,  it  shall  do  so  in  accordance 
with  Article  4.  Such  permission  or  exemption  shall  be  processed  by  the  competent 
authority, in accordance with paragraphs 2 to 5.  

Article 8 

  Specific permission to operate a DLT securities settlement system 

A legal person authorised as a CSD under Regulation (EU) No 909/2014, may apply 
for  a  specific  permission  to  operate  a  DLT  securities  settlement  system  under  this 
Regulation.  

Applications for a specific permission to operate a DLT securities settlement system 
under this Regulation shall be accompanied by the following information: 

(a) 

(b) 

the information required under Article 7(9) of Regulation (EU) No 909/2014;  

the business plan, rules of the DLT securities settlement system and associated 
legal  arrangements  as  referred  to  in  Article  6(1)  as  well  as  information 
regarding  the  functioning,  services  and  activities  of  the  DLT  securities 
settlement system as referred to in Article 6(3);  

(c) 

the functioning of its proprietary DLT as referred to in Article 6(2);   

(d) 

its overall IT and cyber arrangements as referred to in Article 6(4);  

(e) 

(f) 

(g) 

the safekeeping arrangements as referred to in Article 6(5);  

the transition strategy as referred to in Article 6(6); 

the exemptions it is requesting, in accordance with Article 5, the justifications 
for  each  exemption  sought,  any  compensatory  measures  proposed  as  well  as 
the  measures  envisaged  to  comply  with  the  conditions  attached  to  such 
exemptions under Article 5. 

3. 

Before deciding on an application for a specific permission to operate a DLT MTF 
under this  Regulation,  the competent  authority shall notify  and provide all  relevant 
information on the DLT securities settlement system to ESMA and an explanation of 
the  exemptions  requested,  their  justification  and  any  compensatory  measures 
proposed by the applicant or required by the competent authority.   

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4. 

5. 

6. 

Within  three  months  of  receipt  of  the  notification,  ESMA  shall  provide    the 
competent  authority  with  a  non-binding  opinion  on  the  application  and  shall  make 
any  recommendations  on  the  exemptions  requested  by  the  applicant,  that  are 
necessary  to  ensure  investor  protection,  market  integrity  and  financial  stability. 
ESMA shall also promote the consistency and proportionality of exemptions granted 
by  competent  authorities  to  CSDs  operating  DLT  securities  settlement  systems, 
across the Union.  In order to do so, ESMA, shall consult the competent authorities 
of the other Member States in a timely manner and take the utmost account of their 
views in its opinion. 

Without  prejudice  to  Article  17  of  Regulation  (EU)  No  909/2014,  a  competent 
authority shall refuse to grant a specific permission under this Regulation, if there are 
grounds for believing any of the following:  

(a) 

(b) 

significant risks to investor protection, market integrity or financial stability are 
not properly addressed and mitigated by the applicant; or 

the specific permission to operate a DLT securities settlement system and the 
exemptions  requested  are  sought  to  circumvent  legal  and/or  regulatory 
requirements.    

The specific permission granted to operate a DLT securities settlement system shall 
be  valid  throughout  the  Union  for  up  to  six  years  from  the  date  of  the  specific 
permission.  It  shall  specify  the  exemptions  that  are  granted,  in  accordance  with 
Article 5.  

ESMA shall publish on its website the list of DLT securities settlement systems, the 
start and end dates of their specific permissions and the list of exemptions granted to 
each of them.  

Without prejudice to the application of Article 20 of Regulation (EU) No 909/2014, 
the competent authority which granted the specific permission, under this Regulation 
shall withdraw such permission or any of the exemptions granted, after consultation 
with ESMA, in accordance with paragraph 3, if any of the following has occurred: 

(a) 

a  flaw  has  been  discovered  in  the  functioning  of  the  DLT  or  in  the 
services  and  activities  provided  by  the  CSD  operating  a  DLT  securities 
settlement system that poses a risk to market integrity, investor protection 
or  financial  stability,  which  outweighs  the  benefits  of  the  services  and 
activities under experimentation; or 

(b) 

(c) 

(d) 

(e) 

the  CSD  operating  the  DLT  securities  settlement  system  has  breached  the 
conditions attached to the exemptions granted by the competent authority; or 

the  CSD  operating  the  DLT  securities  settlements  system  has  recorded 
financial  instruments  that  do  not  fulfil  the  conditions  laid  down  Article  3(1) 
and (2); or  

the  CSD  operating  the  DLT  securities  settlements  system  has  exceeded  the 
thresholds referred to in Article 3(3) and (5), third subparagraph; or  

the  competent  authority  becomes  aware  that  the  CSD  operating  the  DLT 
securities settlement system that applied for a specific permission to operate a 
DLT  securities  settlement  system,  obtained  such  permission  or  related 
exemptions  on  the  basis  of  misleading  information  including  any  material 
omission.    

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7. 

Where  in  the  course  of  its  activity,  a  CSD  operating  a  DLT  securities  settlement 
system proposes to introduces a material change to the functioning of the DLT, or to 
its  services  or  activities,  which  require  a  new  permission,  a  new  exemption  or  the 
modification of one or more of its existing exemptions or of any attached conditions, 
it  shall  request  such  permission,  exemption  or  modification,  in  accordance  with 
Article  5.    Such  permission,  exemption  or  modification,  shall  be  processed  by  the 
competent authority, in accordance with paragraphs 2 to 5.  

Where  in  the  course  of  its  activity,  a  CSD  operating  a  DLT  securities  settlement 
system requests a new permission or exemption, it shall request such permission or 
exemption,  in  accordance  with  Article  5.  Such  permission  or  exemption  or 
modification  shall  be  processed  by  the  competent  authority,  in  accordance  with 
paragraphs 2 to 5. 

Article 9 

 Cooperation between operators of DLT market infrastructures, competent authorities and 
ESMA 

1. 

Without  prejudice  to  the  application  of  any  relevant  provisions  of  Directive 
2014/65/EU  and  Regulation  (EU)  No  909/2014,  the  operators  of  DLT  market 
infrastructures  shall  cooperate  with  the  competent  authorities  which  are  entrusted 
with granting specific permissions under this Regulation and with ESMA.  

In particular, immediately upon becoming aware of any of the matters listed below, 
the  operators  of  DLT  market  infrastructures  shall  notify,  the  said  competent 
authorities and ESMA, thereof.  Such matters include, without limitation:  

(a) 

(b) 

(c) 

(d) 

(e) 

any proposed material change to their business plan including critical staff, the 
rules  of  the  DLT  market  infrastructure  and  associated  legal  arrangements  at 
least  four  months  before  the  change  is  planned,  notwithstanding  whether  the 
proposed  material  change  requires  a  change  in  the  specific  permission  or 
related exemptions or conditions attached thereto, in accordance with Article 7 
or Article 8; 

any  evidence  of  unauthorised  access,  material  malfunctioning,  loss,  cyber-
attacks or other cyber-threats, fraud, theft or other serious malpractice suffered 
by the DLT market infrastructure;  

any  material  change  in  the  information  provided  to  the  competent  authority 
which granted the specific permission;  

any  technical  or  operational  difficulty  in  delivering  the  activities  or  services 
subject  to  the  specific  permission,  including  difficulties  related  to  the 
development or use of the DLT and DLT transferable securities; or 

any risks to investor protection, market integrity or financial stability that have 
arisen  and  were  not  anticipated  in  the  application  requesting  the  specific 
permission or at the time of granting the specific permission. 

Where  notified  of  such  information,  the  competent  authority  may  require  the  DLT 
market infrastructure concerned to make an application under Article 7(7) or Article 
8(7) and/or may take any corrective measures required as referred to in paragraph 3.  

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2. 

3. 

4. 

The  operators  of  DLT  market  infrastructures  shall  provide  the  competent  authority 
which granted the specific permission and ESMA with any relevant information they 
may require.  

The  competent  authority  which  granted  the  specific  permission  may  require  any 
corrective measures to the business plan, the rules of the DLT market infrastructure 
and associated legal  arrangements  to  ensure investor protection, market  integrity or 
financial stability. Before requiring any corrective measures, the competent authority 
shall  consult  ESMA,  in  accordance  with  Article  7(3)  or  Article  8(3).  The  DLT 
market infrastructure shall report on the measures taken to implement any corrective 
measures required by the competent authority, in its reports referred to in paragraph 
4. 

Every  six  months  from  the  date  of  the  specific  permission,  the  operator  of  a  DLT 
market  infrastructure  shall  submit  a  report  to  the  competent  authority  and  ESMA. 
Such report shall include, without limitation:  

(a) 

(b) 

(c) 

(d) 

(e) 

a summary of any information listed in the second sub-paragraph of paragraph 
1;  

the number and value of DLT transferable securities admitted to trading on the 
DLT MTF, the number and value of DLT transferable securities recorded by a 
CSD  operating  DLT  securities  settlement  systems,  and  where  applicable,  the 
number and value of transferable securities recorded by an investment firm or 
market operator operating on a DLT MTF;  

the number and value of transactions traded on a DLT MTF and settled either 
by a CSD operating a DLT securities settlement system, or where applicable, 
by an investment firm or market operator operating a DLT MTF;  

a reasoned assessment of any difficulties in applying Union financial services 
legislation or national law; and 

the  measures  taken  to  implement  any  compensatory  or  corrective  measures 
required  by  the  competent  authority  or  conditions  imposed  by  the  competent 
authority. 

5. 

ESMA shall fulfil a coordination role between competent authorities, with a view to 
building a common understanding of distributed ledger technology and DLT market 
infrastructure as well  as  a common supervisory  culture and convergent  supervisory 
practices, ensuring consistent approaches and convergence in supervisory outcomes.   

ESMA shall inform all competent authorities on a regular basis of:  

(a) 

(b) 

(c) 

the reports submitted in accordance with paragraph 4;  

the specific permissions and exemptions granted in accordance with Article 7 
and Article 8 as well as the conditions attached thereto; 

any  refusal  by  a  competent  authority  to  grant  a  specific  permission  or  any 
exemption in accordance with Article 7 and Article 8, any withdrawal of such a 
specific  permission  or  exemptions  and  any  cessations  of  business  by  a  DLT 
market infrastructure.   

6. 

ESMA shall monitor the application of the specific permissions, related exemptions 
and conditions attached thereto, granted in accordance with Article 7 and Article 8, 
as  well  as  any  compensatory  or  corrective  measures  required  and  shall  submit  an 
annual report to the Commission on how they are applied in practice. 

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Article 10 

Report and review 

1. 

Five  years  from  the  entry  into  application  of  this  Regulation,  at  the  latest,  ESMA 
shall present a report to the Commission on:  

(a) 

(b) 

(c) 

(d) 

(e) 

(f) 

(g) 

(h) 

(i) 

(j) 

the functioning of DLT market infrastructures across the Union;  

the  number  of  DLT  MTFs  and  CSDs  operating  a  DLT  securities  settlement 
system which have been granted a specific permission under this Regulation;  

the type of exemptions requested by DLT market infrastructures and the type 
of exemptions granted by competent authorities;  

the  number  and  value  of  DLT  transferable  securities  admitted  to  trading  on 
DLT MTFs, the number and value of DLT transferable securities recorded by 
CSDs operating DLT securities settlement systems, and where applicable, the 
number and value of transferable securities recorded by DLT MTFs;  

the  number  and  value  of  transactions  traded  on  DLT  MTFs  and  settled  by 
CSDs  operating  DLT  securities  settlement  system,  and  where  applicable,  by 
DLT MTFs;  

the type of DLT used and technical issues related to the use of DLT, including 
the matters referred to in point (b) of the second sub-paragraph of Article 9(1);  

the procedures put in place by DLT MTFs in accordance with Article 4(3)(g);  

any risks presented by the use of a DLT;  

any  interoperability  issues  between  DLT  market  infrastructures  and  other 
infrastructures using legacy systems; 

the  benefits  resulting  from  the  use  of  a  DLT,  in  terms  of  any  efficiency 
improvements  and  risk  reductions  across  the  entire  trading  and  post-trading 
chain,  including  without  limitation,  with  regard  to  the  recording  and 
safekeeping  of  DLT  transferable  securities,  the  traceability  of  transactions, 
corporate actions, reporting and supervision functions at the level of the DLT 
market infrastructure; 

(k) 

any  refusals  by  a  competent  authority  to  grant  specific  permissions  or 
exemptions  in  accordance  with  Article  7  and  Article  8,  modifications  or 
withdrawals  of  such  specific  permissions  or  exemptions  as  well  as  of  any 
compensatory or corrective measures; and 

(l) 

any cessations of business by a DLT market infrastructure and the reasons for 
such cessation.   

2. 

Based on the report referred to in paragraph 1, the Commission shall present a report 
to the European Parliament and Council including a cost-benefit analysis on whether 
the regime for DLT market infrastructures under this Regulation should be: 

(a) 

(b) 

extended for another period; 

extended  to  other  types  of  financial  instruments  that  can  be  issued,  recorded, 
transferred or stored on a DLT;  

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(c) 

amended;   

(d)  made permanent with or without amendment; or 

(e) 

terminated. 

In  its  report,  the  Commission  may  propose  any  appropriate  modifications  to  the 
Union framework on financial services legislation or harmonisation of national laws 
that would facilitate the use of distributed ledger technology in the financial sector as 
well as any measures needed to bridge the transition of DLT market infrastructures 
out of the pilot regime.    

Article 11 

Entry into force and application 

This Regulation shall enter into force on the twentieth day following that of its publication in 
the Official Journal of the European Union.  

It shall apply from … [please insert date 12 months after the date of entry into force of this 
Regulation]. 

Within  three  months  from  the  entry  into  force  of  this  Regulation,  the  Member  States  shall 
notify their competent authorities within the meaning of Article 2(21)(c), if any, to ESMA and 
the Commission.  ESMA shall publish a list of such competent authorities on its website. 

This Regulation shall be binding in its entirety and directly applicable in all Member States. 

Done at Brussels, 

For the European Parliament 
The President 

For the Council 
The President 

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