The European Securities and Markets Authority (ESMA) has published a Discussion Paper on the application of distributed ledger technology to securities markets.

At this stage ESMA does not express any opinion on distributed ledger technology (DLT) but rather presents in a factual and objective manner the results of its preliminary analysis on the possible impacts the DLT may have on securities markets.

ESMA is of the view that initially the DLT will primarily be explored for post-trading activities, i.e. clearing, settlement, and securities servicing. Therefore the Discussion Paper focuses on the main EU pieces of legislation on post-trading activities, namely the European Market Infrastructure Regulation, the Securities Finality Directive and the Central Securities Depositories Regulation. However, other pieces of EU legislation are discussed including the Markets in Financial Instruments Directive, the UCITS Directive and the Alternative Investment Fund Managers Directive for the record-keeping ownership. ESMA notes that other pieces of EU legislation such as the Securities Financing Transaction Regulation, the Directive on Financial Collateral Arrangements, the Market Abuse Regulation, the Third Anti-Money Laundering Directive and the Short Selling Regulation could also be relevant but are not discussed in the Discussion Paper. Notwithstanding the binding legislation likely to apply, ESMA notes that some principles like the CPMI-IOSCO Principles for Financial Market Infrastructures may also provide useful guidance on the requirements that would need to be applied to the DLT if it were to replace the existing market infrastructures.

‘Distributed ledgers’ and ‘Blockchain’ are often used interchangeably when discussing the technology. However, the Blockchain is a particular type of distributed ledger originally designed and used for Bitcoins. In the Discussion Paper ESMA uses the term ‘distributed ledger technology or DLT’ when referring to distributed ledgers in general.

The deadline for comments on the Discussion Paper is 2 September 2016.

ESMA will use the feedback to the Discussion Paper to develop a position on the use of the DLT in securities markets and in particular to assess whether a regulatory response may be needed.

View ESMA assesses usefulness of distributed ledger technologies, 2 June 2016