Electronic Share Basics

Electronic shares and particularly crypto shares offer innovative opportunities for capital markets and revolutionize traditional share management. This section provides a comprehensive overview of electronic shares and crypto shares as digital, blockchain-based securities. The advantages and opportunities for issuers and investors, particularly in the context of the ecrop platform, are explained in detail. Legal foundations, technical implementation, regulatory requirements, and future developments are comprehensively illuminated.

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General Information about Electronic Shares/Crypto Shares

Electronic shares are digital representations of shareholder rights that exist without physical certificates and are maintained in an electronic register, the securities register. They are subject to - unless otherwise regulated in the eWpG (Electronic Securities Act) - the same corporate law regulations of the AktG (Stock Corporation Act).

This transformation enables efficiency increases, higher transparency, improved security and opens new possibilities for capital markets, particularly for small and medium-sized enterprises (SMEs) and startups. Through the digitalization of the share register and the use of blockchain technology, processes can be automated, costs reduced and the tradability of shares increased.

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Definition and Legal Foundations (eWpG, AktG, EU Regulations)

An electronic share is, according to § 2 Para. 1 eWpG (Electronic Securities Act), a security that exists not physically as a certificate but as a digital entry in an electronic securities register. The electronic share is a digital equivalent to the traditional paper share and is subject, unless otherwise regulated in the eWpG, to the same corporate law regulations of the AktG (Stock Corporation Act). The crypto share is a special form of electronic share where the register is based on a Distributed Ledger Technology (DLT). Using a DLT for the share register offers additional advantages regarding transparency, security, and efficiency.

• eWpG: The eWpG forms the central legal framework for electronic securities in Germany and defines the fundamental requirements for maintaining electronic registers (§§ 1 ff. eWpG). In particular, § 2 eWpG regulates the issuance and legal effects of electronic securities.

  Link to eWpG

• AktG: Regulates the fundamental corporate law provisions, such as the rights and obligations of shareholders.

• DepotG: Regulates the custody and transfer of securities, particularly in the context of collective custody.

• HGB: Contains provisions on commercial order papers.

• BörsG: Regulates the operation of stock exchanges and the admission of securities to trading.

• CSDR: EU regulation on central securities depositories, relevant for transaction settlement in regulated markets.

• MiFID II/MAR: European directives and regulations on market abuse and market transparency, relevant for trading on regulated markets.

• DLT Pilot Regulation: EU regulation on a pilot regime for DLT market infrastructures, relevant for future tradability of crypto shares.

• GwG: Regulates the prevention of money laundering and terrorist financing, relevant for registry management and custody of crypto shares.

• KWG: Regulates the activities of credit institutions and financial service providers, particularly in the context of crypto custody.

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Types and Properties of Crypto Shares

Crypto shares, as digital representations of shareholder rights on a Distributed Ledger Technology (DLT), offer greater flexibility and design possibilities compared to traditional, physically certificated shares and electronic central register shares. The choice of underlying DLT model (e.g., Permissioned vs. Permissionless, Public vs. Private) has far-reaching implications for the properties of the crypto share, such as transparency, security, tradability, and costs.

• DLT Models: The choice of DLT model influences the architecture and functionality of the crypto share. There are two main categories:

  • Permissioned vs. Permissionless: This distinction refers to the degree of access restriction to the network and participation in the consensus process.

    • Permissioned Blockchains (e.g., Hyperledger Besu): In permissioned blockchains, access to the network and participation in the consensus process is restricted to a defined group of participants. This increases security and control, as the identity of all participants is known and can be verified. Permissioned blockchains are particularly suitable for applications in the regulated financial sector as they ensure higher security and simpler compliance.

      • Advantages: Higher security, more efficient governance model, simpler compliance.

      • Disadvantages: Lower decentralization, potentially higher transaction costs.

    • Permissionless Blockchains (e.g., Ethereum): Permissionless blockchains are open to anyone. Anyone can participate in the network, validate transactions, and create new blocks. Permissionless blockchains offer higher decentralization and transparency but are also associated with higher security risks and regulatory hurdles.

      • Advantages: Higher decentralization, transparency, potentially lower transaction costs, better scalability.

      • Disadvantages: Lower security, more complex governance model, higher regulatory hurdles.

• Public vs. Private: This distinction refers to transaction and data visibility.

  • Public Blockchains (e.g., Ethereum): All transactions and data are publicly viewable. This increases transparency and trust in the system.

    • Disadvantages: Lower data protection, possible disclosure of sensitive information.

  • Private Blockchains (e.g., Hyperledger Besu): Access to data is restricted to authorized participants. This increases data protection and confidentiality.

    • Disadvantages: Lower transparency, possible distrust due to lack of public verifiability.

• Flexibility of Crypto Shares: Crypto shares offer a higher degree of flexibility compared to traditional shares and enable implementation of innovative business models.

  • Individual Share Conditions (Voting Rights, Dividends, Transfer Restrictions): Issuers can individually design their crypto share conditions and adapt them to their needs, e.g., regarding voting rights, dividend payments, transfer restrictions, and transferability. This enables the creation of tailored shares that meet the specific requirements of issuers and investors and enable innovative financing models.

  • Smart Contracts (Automation, Transparency, Security): The integration of smart contracts enables process automation (e.g., dividend payments, capital measures, voting rights exercise), increases transparency (all contract conditions and transactions are viewable and traceable on the blockchain) and improves security (smart contracts are tamper-proof and forgery-proof). Additionally, smart contracts can be used to represent complex contract conditions and automatically verify compliance with these conditions.

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Advantages of Crypto Shares

Electronic shares, particularly crypto shares, offer numerous advantages over “traditional electronic shares.” These advantages result from using blockchain technology and the digital representation of shareholder rights. This creates new opportunities and efficiency gains for issuers and investors.

• Efficiency and Transparency:

  • Faster Settlement: Transactions and corporate actions can be settled significantly faster through process automation, e.g., through smart contracts, and elimination of manual steps. This reduces time and costs for issuers and investors.

  • More Cost-Effective: Using blockchain technology can reduce transaction costs as intermediaries like banks or brokers can be eliminated. Additionally, administrative costs can be reduced through process automation. This is particularly advantageous for smaller companies and investors.

  • Increased Transparency: All transactions and data are stored tamper-proof on the blockchain and viewable at any time. This increases transparency and trust in the system and enables improved traceability of transactions.

• Security:

  • Tamper Protection: Blockchain technology ensures data tamper protection. Share registers and transaction histories cannot be retroactively altered.

  • High Fail-Safety: Through blockchain’s decentralized architecture, the system is less susceptible to failures and offers high redundancy. There is no single point of failure that could paralyze the entire system. Decentralized data storage across multiple nodes increases fail-safety and minimizes data loss risk.

• Innovation:

  • Access to New Financing Options: Crypto shares open new financing options for companies, e.g., through equity crowdinvestments, and enable access to a broader investor base, including international investors.

  • New Technologies: Blockchain technology enables development of new business models and services in the financial sector, such as asset tokenization, automation of corporate actions, and decentralized custody of shares.

• Flexibility:

  • Customization of Share Conditions: Issuers can customize their crypto share conditions and adapt them to their specific needs, e.g., regarding voting rights, dividend payments, transfer restrictions, and transferability.

  • 24/7 Tradability (future): Crypto shares can be traded around the clock, independent of traditional stock exchange hours. This increases liquidity and flexibility for investors. The tradability of crypto shares on regulated trading venues is currently enabled by the EU’s DLT Pilot Regulation.

  • Fractional Ownership: Blockchain technology enables ownership of share fractions (Fractional Ownership). This opens new investment opportunities for retail investors, lowers the investment threshold, and increases share liquidity.

  • New Business Models: Crypto shares enable development of new business models in the financial sector, e.g., in decentralized finance (DeFi) and asset tokenization.

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Concrete Examples for the Application of Crypto Shares:

• Equity Crowdinvestment – SME Financing: Crypto shares democratize capital access for medium-sized businesses. Through crypto share issuance, SMEs (small and medium enterprises) can more easily and quickly raise capital from a broad investor base without meeting the complex and cost-intensive requirements of a traditional IPO. The ecrop platform provides the necessary infrastructure and legal framework for compliant equity crowdfunding using crypto shares.

  Example: A medium-sized company needs capital for business expansion. Through crypto share issuance via the ecrop platform, the company can raise capital from multiple investors, including retail investors who otherwise wouldn’t have access to such investment opportunities. The reduced costs and simplified process compared to a traditional IPO enable the company to access needed capital more quickly and efficiently.

• Employee Participation – Structuring VSOPs, Integrated into Existing HR Processes/Tools: Crypto shares simplify the structuring and management of employee participation programs (e.g., VSOPs - Virtual Stock Option Plans). Through crypto share issuance, companies can grant employees company shares without the complexity of traditional stock option programs and associated legal and tax challenges. Integration of crypto shares into existing HR processes and tools (e.g., Personio) simplifies administration, reduces administrative effort, and increases transparency for employees. Additionally, vesting rules can be implemented to bind employees long-term to the company and increase motivation.

  Example: A technology company wants to grant employees company shares to increase employee motivation and retention. Through crypto share issuance via the ecrop platform and integration with the existing HR system (e.g., Personio), the company can handle the process simply and efficiently. Employees can manage their crypto shares through the platform and receive transparent insight into their shares’ value.

• Automated Corporate Actions (Dividend Payments, etc.): Smart contracts enable automation of corporate actions like dividend payments, stock splits, capital increases and reductions. Through automated and secure processing of these processes via smart contracts, time expenditure is reduced, error risk minimized, and costs for issuers lowered. Additionally, transparency and traceability of blockchain transactions increases investor trust.

  Example: A company distributes annual dividends to its shareholders. Through smart contract implementation on the ecrop platform, dividend payment can be processed automatically. Dividends are automatically distributed to shareholders’ wallets without manual intervention required. This saves time and costs while minimizing payment error risk.

• Improved Investor Relations (Transparency, Real-Time Information): Crypto shares enable improved investor relations through higher transparency and real-time information provision. All relevant company and crypto share information, such as financial reports, news, company decisions and shareholder rights information, can be published on the ecrop platform and viewed by investors anytime. Information is stored tamper-proof on the blockchain and thus verifiable at any time. This strengthens investor trust, increases company credibility, and promotes long-term engagement.

  Example: A company publishes its quarterly reports on the blockchain. Investors can view and verify reports anytime without waiting for third-party publication. This increases transparency and trust in the company.

• Citizen Participation (e.g., Wind Parks, Public Facilities): Crypto shares enable citizen participation in local projects like wind park construction or public facility financing (swimming pools, museums, etc.). Through crypto share issuance, municipalities or project developers can raise capital from citizens and directly involve them in project success. The ecrop platform provides necessary infrastructure for transparent and compliant processing of such citizen participation projects.

  Example 1: A municipality wants to finance construction of a new swimming pool. Through crypto share issuance via the ecrop platform, community citizens can acquire shares in the swimming pool and thus participate directly in its financing and later success. Investors receive reduced entry fees or other additional benefits.

  Example 2: A project developer plans to build a wind park and wants to involve citizens from surrounding communities in financing. Through crypto share issuance via the ecrop platform, citizens can acquire wind park shares and benefit from its revenues. Returns are distributed cost-effectively and automatically through the ecrop platform. This promotes acceptance of such projects among the population and strengthens the regional economy.

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Transfer and Possession

This section describes in detail the transfer mechanism for electronic shares and crypto shares, particularly in the context of the ecrop platform. It explains the legal consequences of a transfer, the role of the crypto securities register, and advantages over traditional shares. Focus is on technical implementation and legal specificities of crypto shares.

• Transfer of Electronic Shares and Crypto Shares: An Overview The transfer of electronic shares and crypto shares generally occurs through registration in the electronic securities register according to §§ 24, 25 eWpG. This digital transfer replaces physical handover of share certificates and enables more efficient, faster, and secure processing.

• Legal Consequences of a Transfer Transfer of electronic shares and crypto shares has the following legal consequences:

  • Transfer of Ownership: With registration of the new holder in the register, ownership of the electronic share transfers to the acquirer. Until registration, ownership remains with the seller (§ 25 Para. 1 S. 1 eWpG).

  • Rights and Obligations: The new holder acquires all rights and obligations associated with the share upon transfer, e.g., voting rights, dividend entitlement, participation in general meetings.

  • Liability: Liability for registration accuracy lies with the registry-maintaining entity. In case of incorrect registration, the registry-maintaining entity is liable to the injured party.

• The Role of the Crypto Securities Register

  The crypto securities register plays a central role in transferring electronic shares and crypto shares:

  • Evidence Function: The register serves as proof of electronic share ownership.

  • Publicity Function: The register makes ownership relationships public and transparent.

  • Transparency and Security: Blockchain technology ensures tamper-proof and traceable entries.

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Comparison with Traditional Shares

The transfer of electronic shares and crypto shares offers the following advantages over traditional paper shares:

• Efficiency: Faster and more cost-effective processing.

• Transparency: Real-time insight into transaction history.

• Security: Reduced risk of loss, theft, and forgery.

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Technical Implementation at ecrop

The ecrop platform uses blockchain technology for transferring electronic shares and crypto shares.

• Register Entry: Transfer occurs through new owner registration in ecrop’s electronic securities register.

• Smart Contracts: Smart contracts can be used for crypto shares to automate the transfer process and increase security.

• API Connection: The ecrop API enables integration of the transfer function into other systems and applications.

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Crypto Shares vs. Traditional Shares

This section compares crypto shares with traditional shares and highlights key differences and advantages. It’s important to understand that “traditional shares” today no longer necessarily mean physical paper certificates. In modern securities trading, shares are largely managed digitally, typically through systems like Clearstream, which enable electronic registry management and transaction processing. Despite this high level of digitalization, fundamental differences exist with crypto shares, particularly regarding registry management architecture, transparency and security, as well as process flexibility and efficiency.

The following table provides a compact overview of these differences using a three-tier rating scale (+++, ++, +, 0, -, --, ---) to illustrate relative advantages and disadvantages of crypto shares compared to traditionally digitally managed shares.

Subsequent explanations delve into individual aspects in detail and illuminate implications for issuers and investors.

Feature	Crypto Share (Decentralized Register)	Traditional Share (Digital at Central Depositor)	Rating
Registry Management	Decentralized register, DLT-based No intermediary needed Registry management by issuer or licensed crypto securities registrar Regulatory requirements (eWpG, KWG crypto custody license, GwG, DLT Pilot Regulation) BaFin supervision	Centralized register, maintained by central depositor (e.g., Clearstream) Intermediary required Strict regulatory requirements (DepotG, KWG, WpHG, CSDR, MiFID II/MAR) BaFin supervision	+++/+
Transparency	Enhanced, transactions viewable in network	Limited, no direct shareholder access to register	+++/+
Security	Enhanced through DLT (tamper-proof, immutability), cryptography (encryption, key custody)	Dependent on central depositor measures	+++/++
Flexibility	Flexible processes through DLT, smart contracts	Standardized processes, less flexible	+++/+
Efficiency	Real-time transaction processing through DLT	Transaction processing can take up to two banking days	+++/+
Costs	Reduced costs through decentralized registry management and automation	Fees for central depositor and intermediaries	+++/-
Liquidity	Potentially lower market liquidity, dependent on crypto share market development	High market liquidity through regulated market access	+/+++
Exchange Eligibility	Limited, dependent on DLT Pilot Regulation implementation	Yes (upon meeting requirements, e.g., collective custody entry)	+/+++
Investor Protection	Dependent on regulation and crypto share market development	Regulated market, established processes	+/++
Compliance	Meeting eWpG requirements	Meeting traditional securities law requirements	++/++
Integration with Existing Systems	Easy integration with existing financial infrastructure	Easy integration with existing financial infrastructure	+/+++

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Explanations of Individual Aspects from the Table

While traditional shares meeting collective custody requirements can be relatively easily traded on exchanges, crypto share exchange eligibility is more complex. It depends on various factors:

• DLT Pilot Regulation implementation
• Exchange acceptance of chosen DLT
• Development of corresponding trading mechanisms and infrastructures

Investor protection for traditional shares is comparatively high through market regulation and established processes. For crypto shares, investor protection currently depends on market development and regulation. Key aspects include:

• Registry management transparency and security
• Private key custody
• Enforceability of shareholder rights

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Summary:

Despite challenges in liquidity and exchange access, crypto shares offer compelling advantages over traditional digitally managed shares regarding transparency, security, flexibility, efficiency, and costs. Decentralized, DLT-based registry management increases transparency and protects against manipulation, as transactions are tamper-proof and visible to all participants. Smart contracts and real-time processing increase efficiency and reduce costs through automation and elimination of intermediaries.

These advantages make crypto shares particularly attractive for startups, scale-ups, and SMEs often denied access to traditional stock markets due to high costs and administrative effort. Crypto shares enable these companies to access capital market financing while benefiting from DLT’s increased security and transparency.

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Legal Overview of Electronic Shares

TL;DR: Electronic shares exist purely digitally and are maintained in the securities register. Crypto shares are a special form of electronic share based on a blockchain. They offer advantages such as increased transparency, security, and efficiency, as well as reduced costs. The most important legal bases are the eWpG (Electronic Securities Act), the AktG (German Stock Corporation Act), and the DepotG (German Securities Deposit Act). Transfer is effected by registration entry, pledging according to the German Civil Code (BGB). The choice between collective and individual registration has implications for transparency and tradability.

This section provides a detailed legal overview of electronic and crypto shares within the German legal framework. It builds upon the preceding sections and delves deeper into the legal specifics, particularly in comparison to traditional, certificated shares and electronic central registry shares. The focus remains on the implications for both issuers and investors. Electronic shares offer numerous advantages over traditional paper shares and electronic central registry shares, such as increased transparency, enhanced security, greater efficiency, and reduced costs. Concurrently, new challenges arise, especially regarding regulatory requirements and the necessary technical expertise.

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Securitization: Physical vs. Digital Existence

The eWpG revolutionizes German stock corporation law by introducing, alongside the traditional securitization of shares through physical certificates, the possibility of uncertificated, electronic shares. These exist exclusively digitally within the securities register (§ 2 para. 1 eWpG). Although modern securities trading increasingly relies on electronic safekeeping and settlement, the option of securitization through physical certificates remains within German law.

This dual structure offers flexibility but also presents new challenges for legal structuring. Securitization within the context of the eWpG is crucial as it bridges the gap between the physical and digital worlds. It enables the transfer of shares according to the established principles of property law (§§ 929 ff. BGB) and guarantees acquisition in good faith (§ 932 BGB), which is essential for the security and smooth operation of trading. Simultaneously, it allows for integration with existing processes and systems of securities settlement.

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Tokenization: Digital Representation of Shareholder Rights

The tokenization of shares, i.e., the representation of shareholder rights through digital tokens, is a forward-looking concept implicitly enabled by the eWpG. Although the eWpG does not explicitly regulate tokenization, it paves the way for the tokenization of shares through the possibility of securitization as crypto securities. Such a token embodies shareholder rights and can be stored in a decentralized register (blockchain) or a centralized register (e.g., Clearstream).

This digital representation of shareholder rights facilitates more efficient and flexible management and transfer of shares. It simplifies the settlement of transactions, reduces administrative overhead, and opens up new possibilities for the design of shareholder rights.

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Collective vs. Individual Registration: Intermediaries vs. Direct Recording

The eWpG provides for two types of registration entry for crypto shares (§ 8 eWpG), which have significant implications for transparency, cost, and efficiency:

• Collective Registration (§ 8 para. 1 no. 1 eWpG): Similar to traditional collective safe custody, an intermediary (Clearstream Banking AG or a custodian bank) is registered as the holder of the shares in the register. This form of registration allows for the booking of shares into the securities account (§ 12 para. 3 eWpG) and thus simplifies the settlement of transactions on regulated markets (stock exchanges). It is therefore particularly relevant for listed companies. The disadvantage lies in the reduced transparency, as the shareholders are not directly visible in the register, but only through the intermediary.

• Individual Registration (§ 8 para. 1 no. 1 eWpG): The shareholder is recorded directly in the register, in the case of crypto registers under a pseudonym (§ 13 para. 2 sentence 2 eWpG, “by assigning a unique identifier”). This form of registration increases transparency, as the shareholders (or rather their pseudonyms) are directly visible. It also enables direct communication between issuers and shareholders and reduces costs and increases efficiency by eliminating intermediaries.

  The disadvantage lies in the more complex settlement of transactions on regulated markets, as the shares cannot be directly booked into the securities account. This form of registration is therefore particularly attractive for unlisted companies and for shares not primarily intended for trading on regulated markets.

The choice between collective and individual registration depends on the specific needs of the issuer and the intended goals of the share issuance. It should be carefully considered, as it has far-reaching consequences for share administration and shareholder communication.

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Tradability: Regulated vs. Unregulated Markets

The tradability of electronic shares differs depending on the registration form:

• Central Registry Shares: If they meet the requirements of the securities account (in particular, entry into a central register of a central securities depository pursuant to § 12 para. 3 eWpG and Art. 3 para. 1 CSDR), they can be traded on regulated markets (stock exchanges). This allows for high market liquidity and a broad investor base. Trading on regulated markets is subject to strict regulatory requirements, in particular the provisions of MiFID II/MAR (Markets in Financial Instruments Directive/Market Abuse Regulation), which are designed to ensure investor protection and prevent market manipulation.

• Crypto Shares: Are currently not tradable on regulated markets, as they do not meet the requirements of the securities account (specifically Art. 3 para. 1 CSDR) and the necessary infrastructure (e.g., connection to existing settlement systems) has not yet been fully developed. The transfer of shares is conducted OTC on so-called “Bulletin Boards”.

DLT Pilot Regime

The EU DLT Pilot Regime Regulation offers the opportunity to create a regulated secondary market for crypto securities. By granting special permissions to DLT market infrastructures, existing regulatory hurdles (e.g., the obligation to book into the securities account) can be overcome. This has created the possibility, since March 2023 in the EU, to carry out the settlement of crypto shares and other DLT-based financial instruments on regulated exchanges. Under this regulation, shares with a market capitalization of up to EUR 500 million, as well as other financial instruments, can be traded on a blockchain basis.

License Types

The regime distinguishes between three types of licenses:

• DLT MTF (Multilateral Trading Facility)
• DLT SS (Settlement System)
• DLT TSS (Combined Trading and Settlement System)

Tradable Volumes

The total value of all traded DLT financial instruments may not exceed EUR 6 billion upon initial admission and EUR 9 billion during the term.

Practical Implementation

A significant milestone was reached in December 2024 when the first FinTech company from Germany received a DLT TSS license from BaFin. The platform will enable the trading and settlement of tokenized securities starting in the first quarter of 2025.

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Restrictions on Disposability: Transfer and Pledging

The eWpG regulates restrictions on disposability for electronic shares and differentiates between individual and collective registration:

• Individual Registration: Transfer is effected by entry in the register (§ 25 para. 1 eWpG). This replaces the physical transfer of the certificate for certificated shares and constitutes a constitutive act. Pledging is carried out according to the general provisions of the German Civil Code (BGB) (§ 1205 para. 1 BGB), whereby the entry in the register acts as a public act (§ 24 no. 1 eWpG). Other dispositions, such as the assignment of dividend claims, also require an entry in the register (§ 24 no. 2 eWpG).

• Collective Registration: Transfer is carried out according to the established principles of uncertificated securities (giro) transactions, i.e., by assignment pursuant to §§ 398, 413 BGB or by transfer of the co-ownership share in the electronic security pursuant to §§ 929 ff. BGB. Pledging is analogous to certificated shares in collective safe custody, i.e., by agreement and (fictitious) transfer of the co-ownership share pursuant to §§ 1205 ff. BGB.

This distinction in the restrictions on disposability reflects the different characteristics of the two registration forms and ensures legal certainty in handling electronic shares.

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Legal Basis: A Complex Interplay

The legal embedding of electronic shares, and particularly crypto shares, requires a complex interplay of various laws and regulations:

• eWpG: Creates the basis for the electronic securitization of securities, including shares, and governs their issuance, transfer, and safekeeping.

• AktG: Regulates the fundamental provisions of stock corporation law, such as the rights and obligations of shareholders.

• DepotG: Regulates the safekeeping and transfer of securities, particularly in the context of collective safe custody.

• HGB (German Commercial Code): Contains provisions on commercial paper.

• BörsG (Stock Exchange Act): Regulates the operation of stock exchanges and the admission of securities to trading.

• CSDR (Central Securities Depositories Regulation): EU regulation on central securities depositories, relevant for the settlement of transactions on regulated markets.

• MiFID II/MAR (Markets in Financial Instruments Directive/Market Abuse Regulation): European directives and regulations on market abuse and market transparency, relevant for trading on regulated markets.

• DLT Pilot Regime Regulation: EU regulation on a pilot scheme for DLT market infrastructures, relevant for the future tradability of crypto shares.

• GwG (Anti-Money Laundering Act): Regulates the prevention of money laundering and terrorist financing, relevant for the registration and safekeeping of crypto shares.

• KWG (German Banking Act): Regulates the activities of credit institutions and financial service providers, particularly in the context of crypto custody.

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Structure: Registered Shares, Bearer Shares, Central Register, and Blockchain

The structure of electronic shares in the German legal system is characterized by various parameters, which are explained in detail below:

• Electronic Shares vs. Certificated Shares: Electronic shares exist purely digitally in the securities register and are managed under a unique identification number (§§ 13, 17 eWpG). Certificated shares, on the other hand, are represented by physical certificates, for which the AktG continues to provide for the possibility of issuance (§ 10 AktG). This difference has implications for the transfer, safekeeping, and tradability of the shares. While the transfer of electronic shares is effected by entry in the register (§ 25 eWpG), certificated shares are transferred by handing over the certificate (§ 929 BGB). The safekeeping of electronic shares takes place digitally in the securities register, whereas certificated shares must be physically safeguarded. The tradability of electronic shares is currently limited to unregulated markets, while certificated shares can, in principle, also be traded on stock exchanges.

• Registered Shares vs. Bearer Shares: The eWpG permits the issuance of electronic shares both as registered and as bearer shares (§ 1 no. 2, 3 eWpG). With registered shares, the shareholder is registered by name in the share register (§ 67 AktG), whereas with bearer shares, the holder is not registered by name in the register. However, under the eWpG, electronic bearer shares are only permissible as central registry shares (§ 1 no. 3 eWpG), i.e., they must be registered in a central register maintained by a central securities depository (e.g., Clearstream) or a custodian bank. This restriction serves to prevent money laundering, as it facilitates the identification of shareholders. The eWpG currently does not provide for the issuance of crypto bearer shares. The distinction between registered and bearer shares has implications for shareholder communication and the exercise of shareholder rights. With registered shares, the company can directly contact the shareholders, while with bearer shares, communication must take place through the custodian bank. The exercise of voting rights is simpler with registered shares, as the shareholders are directly entered in the share register.

• Central Registry Share vs. Crypto Share: Central registry shares are maintained in a central register operated by a central securities depository (e.g., Clearstream) or a custodian bank (§ 4 para. 2, 12 eWpG). Crypto shares, on the other hand, are maintained in a decentralized register based on blockchain technology (§ 4 para. 3, 16 eWpG). This difference has far-reaching implications for transparency, security, and efficiency. The decentralized register management of crypto shares increases transparency, as all transactions are visible on the network. It also increases security, as the data is tamper-proof and immutable. DLT also enables real-time settlement of transactions and the automation of processes through smart contracts, which increases efficiency and reduces costs.

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Differences to Traditional Shares: Transfer, Tradability, Transparency, and Costs

The main differences between electronic/crypto shares and traditional, certificated shares have already been addressed in the previous sections and are summarized here once again:

• Transfer: Electronic shares are transferred by entry in the register (§ 25 eWpG), traditional shares by handing over the certificate (§ 929 BGB). This difference simplifies the transfer and reduces administrative overhead.

• Tradability: Central registry shares can be traded on regulated markets (stock exchanges) if they meet regulatory requirements. Crypto shares, on the other hand, are currently not tradable on stock exchanges and are traded on unregulated markets. The DLT Pilot Regime Regulation will enable the tradability of crypto shares in the future.

• Transparency: Electronic registered shares increase transparency, as the holder is registered by name in the share register (§ 67 AktG). Crypto shares further enhance transparency through the public blockchain, where all transactions are visible.

• Costs: Electronic shares reduce costs, as the physical safekeeping and shipping of certificates are eliminated. Crypto shares offer even greater cost reduction potential due to the elimination of intermediaries and the automation of processes.

These key differences demonstrate the innovative potential of electronic and crypto shares and their significance for the future of the capital market. They present both issuers and investors with new opportunities and challenges.