Market Structures Based on Blockchains are Now a Reality
By Magnus Almqvist, Head of Sales, Exberry
The European parliament and commission published new regulations titled “pilot regime for market infrastructures based on distributed ledger technology” on 30 May 2022, and these regulations come into force on 23 March 2023.
The regulations details how multilateral trading facilities (MTFs) and custodians can operate using blockchain technology separately or as a combined entity, and highlights that these are acting under the same framework as MTFs and custodians on traditional systems, and must cooperate with national competent authorities and ESMA.
These regulations should be viewed in conjunction with markets in crypto-assets (MiCA), which The Council presidency and the European Parliament reached a provisional agreement on the 30th June 2022.
This is transformative news for the industry as it allows securities to be created, processed, and stored on DLT and are equal to any other financial security created by a custodian, investment firm, or regulated market, traded, and kept with a traditional custody organisation today.
This is a large step in the right direction. For digitised assets to gain momentum and acceptance, their use must be regulated and put on an equal footing with traditionally defined and processed securities and other assets.
Given these recent events, it’s important for companies to select software vendors whose services and systems measure up to capital markets regulations. This is true even if this is not strictly required for all asset classes that are traded on the systems provided by these vendors. The increase of regulatory pressure was already in plain sight and it is very welcome to see that this is now becoming the standard. The adoption will speed up the inevitable evolution leading to all markets being digitised in the future.
The ‘tokenisation’ of financial instruments, that is to say, the digital representation of financial and other tradable instruments on distributed ledgers or traditional asset classes in the tokenised form to enable them to be issued, stored, and transferred on a distributed ledger, is a great opportunity for the industry. This technical evolution is predicted to open up opportunities for efficiency improvements in the trading and post-trading process across the board. This is where software vendors with technology that is ready for these changes and offers asset class agnostic systems with close to no coding and no time to market can support innovation and significantly lower costs of entry.
This matters, as innovation and lower barriers to entry, will produce more efficient markets and offer greater choice to market participants, and ultimately drive down the costs of investing and trading.
How Can We help?
For Exberry, this new legislation aligns with our key offerings. Both the Matching Engine and Nebula are exactly what you are looking for when getting ready to take full advantage of these new regulations.