The EU’s DLT Pilot Regulation (Regulation (EU) 2023/1113) offers the opportunity to test tradability of so-called DLT market infrastructures and obtain temporary exemptions from existing regulations to develop new, DLT-based trading and settlement processes. The pilot regime’s central aspects are:
  • DLT MTF: Multilateral trading facilities based on DLT that contain exemptions from Markets in Financial Instruments Directive (MiFID II) provisions and other requirements to facilitate trading in DLT-based financial instruments (including crypto shares). These exemptions relate to transparency obligations, trading surveillance, and trading infrastructure requirements.
  • DLT SS: Settlement systems based on DLT that contain exemptions from Central Securities Depositories Regulation (CSDR) provisions. These exemptions relate to transaction settlement requirements, securities custody, and settlement timeline compliance.
  • DLT TSS: DLT trading and settlement systems that combine trading and settlement systems and contain exemptions from both MTF and central securities depository requirements. These exemptions relate to separation of trading and settlement activities, transparency requirements, and infrastructure requirements.

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Advantages of the Pilot Regime:

  • Testing Environment: The pilot regime provides a testing environment for new trading models and infrastructures based on DLT, enabling functionality and impact testing of new technologies in a real environment.
  • Exemptions from Existing Rules: DLT market infrastructures can apply for temporary exemptions from certain regulatory requirements that have previously hindered crypto share trading, to develop and test innovative business models.
  • Knowledge Gain: The pilot regime aims to contribute to understanding DLT market infrastructure functionality, associated risks, and impacts on financial system stability.

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Potential:

The DLT Pilot Regime has the potential to create a liquid and secure market for crypto shares by combining DLT flexibility with investor protection, market integrity, and financial stability of regulated markets. The DLT Pilot Regulation can thus help increase institutional investor acceptance of crypto shares and promote crypto market development.

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Challenges:

However, implementing the pilot regime involves significant challenges, e.g., regarding interoperability between different DLT systems, regulatory requirement compliance, market participant acceptance, and ensuring investor security.

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Role of ecrop:

ecrop can play an important role as a potential participant in the DLT Pilot Regime (via a partner or directly). The platform can utilize DLT advantages to promote efficient, transparent, and secure crypto share trading. ecrop can also help meet the pilot regime’s regulatory requirements, ensure interoperability between different DLT systems, and thus drive development of a regulated market for crypto shares. ecrop will closely monitor developments under the DLT Pilot Regime and adapt the platform accordingly.