Regulation (EU) on a pilot regime for market infrastructures based on distributed ledger technology

On 2 June 2022, Regulation (EU) 2022/858 of the European Parliament and of the Council, of 30 May 2022, on a pilot regime for market infrastructures based on distributed ledger technology ("DLT Pilot Regulation") was published in the Official Journal of the European Union and will be generally applicable as of 23 March 2023.

The main objective of the DLT Pilot Regulation is to enable the development of crypto-assets that are considered financial instruments, commonly referred to as security tokens, as well as their issuance, trading and settlement through the use of distributed ledger technology (“DLT”). The fundamental axes of the DLT Pilot Regulation are the following:

• The definition of “financial instrument” in MiFID II is amended to clarify that those issued by means of DLT will also be considered as such, therefore now covered by the regulatory framework applicable to financial instruments.
• The introduction of a “controlled testing environment” approach or sandbox, that allows DLT-based market infrastructures to request temporary exemptions from some of the requirements of the applicable legislation in the matter of financial instruments that limit or impede the use of DLT, in exchange for the imposition of certain countermeasures.
• There are three market infrastructures that may benefit from this pilot regime: (i) DLT multilateral trading facilities; (ii) DLT settlement systems; and (iii) DLT trading and settlement systems, in all three cases as long as they are based on DLT and have received a specific authorization according to the DLT Pilot Regulation.
• ESMA will submit a report to the Commission on the functioning of the pilot regime, in view of which the Commission will propose to the European Parliament and the Council the extension of the pilot regime for a maximum of three years, its extension to other financial instruments, its conversion into a permanent regime or its termination.

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