Key Points of EU DLT Pilot Regime

Objectives and Scope

The objective of the DLT Pilot Regime is to promote the development of DLT-based financial instruments and market infrastructures. It seeks to achieve this by:

Encouraging innovation in crypto-assets that qualify as financial instruments.
Establishing DLT market infrastructures, including DLT trading facilities and settlement systems.
Ensuring a high level of investor protection, market integrity, financial stability, and transparency.
Preventing regulatory arbitrage and closing potential loopholes.

Eligibility and Participation

The regime is open to:

Existing investment firms and market operators seeking to operate a DLT based trading venues.
Existing central securities depositories (CSDs) aiming to operate a DLT based settlement systems.
Entities interested in establishing a combined DLT trade and settlement systems
New entrants applying for temporary authorizations as investment firms, market operators, or CSDs, alongside an application under the DLT Pilot Regime.

Key Features

The DLT Pilot Regime functions as a regulatory sandbox, allowing market participants to test DLT-based business models within a controlled and environment for up to six years and under certain thresholds.

The specific caps under the DLT Pilot Regime are:

1. Market Capitalization of Tokenized Securities The total market capitalization of all tokenized securities admitted to trading on a DLT trading and settlement system is capped at EURO 6 billion.

2. Number of Issuers The number of issuers of tokenized securities on a DLT trading facility is limited to 10.

3. Size per Issuer Eligible instruments include shares with a market capitalization below EURO 500 million and bonds with an issuance size under EURO 1 billion.

4. Thresholds for Settlement Tokens For DLT market infrastructures using settlement tokens, the total value of settlement tokens handled by the system must not exceed €500 million.

Participants can request exemptions from specific requirements under existing EU financial services legislation, such as the Markets in Financial Instruments Regulation (MiFIR) and the Central Securities Depositories Regulation (CSDR).

Implementation and Oversight

The European Securities and Markets Authority (ESMA) will play a central role in overseeing the DLT Pilot Regime. By March 2026, ESMA is expected to present a comprehensive report assessing the regime's effectiveness, including:

The number and types of DLT market infrastructures established.
Exemptions requested and granted.
The volume and value of DLT financial instruments admitted to trading.
Technical issues encountered in the application of DLT.

Based on ESMA's findings, the European Commission will determine whether to extend, amend, make permanent, or terminate the DLT Pilot Regime.

The EU's DLT Pilot Regime represents a significant step toward integrating distributed ledger technology into the financial sector.

By providing a structured framework for experimentation, it enables market participants to explore the potential benefits and challenges of DLT in trading and settlement processes.