ECB: potential impact of DLTs on securities post trading harmonization and on the wider EU financial market integration

The European Central Bank released a report examining the potential impacts of distributed ledger technologies on existing financial markets infrastructures, and “interoperability” was a key takeaway from the central bank’s recommendations.

Since it is not yet clear what specific use DLTs may have in the future and what DLT model will possibly be adopted by market participants, the analysis in the report revolves around different implementation scenarios.

Regarding collateral management processes, cross-border mobilisation is found to remain a challenge, although DLT-based solutions could bring benefits from the purely operational point of view. For issuers and investors to have improved access to the capital markets, it is necessary for DLT models to be interoperable and for the same securities to be available through different mechanisms. Creating a post-trade environment where the accounts of different DLT networks would merely coexist without interoperating is not an optimal outcome, as it would create a fragmented post trade landscape.

DLT adoption could impact T2S harmonisation activities in a number of ways depending on the different adoption models. DLTs can in principle accommodate omnibus account structures, including for the provision of appropriate The potential impact of DLTs on securities post-trading harmonisation and on the wider EU financial market integration 11 services on those accounts. This means that agreed T2S standards could in principle be kept in the case of DLT adoption, but it does not ensure that developers and adopters of the technology will take a unanimous decision in that respect. An instance where DLT solutions currently under development appear to be diverging from standards agreed in the T2S community is that of securities and cash account numbering (T2S harmonisation activities 15 and 16 – Securities accounts numbering and Dedicated cash account numbering), where the use of public keys to identify DLT users may diverge from T2S agreed standards. If DLT and

An instance where DLT solutions currently under development appear to be diverging from standards agreed in the T2S community is that of securities and cash account numbering, where the use of public keys to identify DLT users may diverge from T2S agreed standards. If DLT and non-DLT solutions are to coexist, interoperability between the two approaches needs to be ensured.

Read the full report

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