DLT Pilot

The pilot mode of distributed ledger technology (DLT) is designed to be accessible not only to existing financial market participants, but also to new entities wishing to engage in innovative solutions in the field of market infrastructures. Entities that do not yet have a license under Regulation (EU) No. 909/2014 or Directive 2014/65/EU (MiFID II) may apply for the relevant license together with a special license to operate under the DLT pilot regime. In such cases, the competent authority shall assess the application in accordance with this Regulation and shall not assess the requirements for which an exemption has been requested. In this way, both new and existing entities can operate market infrastructures based on DLT in accordance with the rules of the pilot regime. Upon expiry of the specific authorisation, that authorisation shall be revoked unless the entity submits a complete application for authorisation in accordance with the relevant European legislation.

The pilot mode of distributed ledger technology (DLT) is designed to be accessible not only to existing financial market participants, but also to new entities wishing to engage in innovative solutions in the field of market infrastructures. Entities that do not yet have a license under Regulation (EU) No. 909/2014 or Directive 2014/65/EU (MiFID II) may apply for the relevant license together with a special license to operate under the DLT pilot regime. In such cases, the competent authority shall assess the application in accordance with this Regulation and shall not assess the requirements for which an exemption has been requested. In this way, both new and existing entities can operate market infrastructures based on DLT in accordance with the rules of the pilot regime. Upon expiry of the specific authorisation, that authorisation shall be revoked unless the entity submits a complete application for authorisation in accordance with the relevant European legislation.

The DLT MTF system is a multilateral trading facility that enables trading in financial instruments based on distributed ledger technology (DLT). It is operated by an investment firm or market operator that is authorized under Directive 2014/65/EU (MiFID II) and has also obtained a specific authorization under the DLT Market Infrastructure Pilot Regime Regulation. Credit institutions authorized to provide investment services under Directive 2013/36/EU (CRD IV) may operate a DLT MTF only if they have also been authorized as an investment firm or market operator under MiFID II. DLT MTFs and their operators are subject to all requirements applicable to multilateral trading facilities and their operators under Regulation (EU) No 600/2014 (MiFIR), Directive 2014/65/EU (MiFID II) and other relevant European Union financial services legislation, except for those requirements from which they have been exempted by the competent authority under the pilot regime.

The DLT SS system is a settlement system based on distributed ledger technology (DLT) that enables the settlement of transactions with DLT financial instruments, as well as their recording and storage in a digital environment. It is operated by a central securities depository that is authorized under Regulation (EU) No. 909/2014 (CSDR) and has also obtained a specific authorization to operate the DLT SS system under the regulation on the pilot regime for DLT market infrastructures. DLT SS systems and their operators are subject to all relevant requirements set out in the CSDR and other European Union financial services legislation, with the exception of those requirements from which they have been exempted by the competent authority in accordance with the pilot regime. These exemptions are intended to enable the development of innovative models for clearing and settling transactions in a DLT environment, while always being accompanied by appropriate compensatory measures to protect investors, preserve market integrity and ensure financial stability. Where a DLT system is operated by the European Central Bank, a national central bank or another public authority entrusted with the management or administration of public debt within the European Union, those entities are not subject to the obligation to obtain a specific authorization under this Regulation. This is because such institutions are not subject to the normal reporting obligations to the competent authorities and are only subject to a limited scope of requirements under the CSDR.

The DLT TSS system is an infrastructure that combines trading and settlement functions within a single platform based on DLT technology. It can be operated by an investment firm or market operator with a special license as a DLT MTF system extended with DLT SS functions, or by a central securities depository as a DLT SS system extended with DLT MTF functions. Investment firms and market operators must comply with the requirements applicable to DLT MTF systems, while central securities depositories are governed by the rules for DLT SS. Since DLT TSS allows for a combination of trading and settlement services, entities must comply with the requirements of both systems. Under the pilot regime, investment firms and market operators may be temporarily exempted from certain obligations under the CSDR, while central securities depositories may be exempted from parts of the requirements under MiFID II. However, these exemptions are time-limited and do not apply to infrastructures outside the pilot regime. ESMA has the power to supervise the appropriate application of technical rules and risk management in the operation of DLT TSS systems.

The pilot regime allows market participants to test innovative solutions based on distributed ledger technology (DLT) in a controlled environment. To promote innovation and reduce administrative burdens, eligible entities may request exemptions from certain regulatory requirements that would normally apply under existing EU legislation, such as Regulation (EU) No 909/2014 (CSDR) or Directive 2014/65/EU (MiFID II). These exemptions allow for more flexible testing of new business models without the need for immediate full compliance with traditional regulatory rules and requirements, more efficient use of DLT technology in the operation of trading platforms and settlement systems, and gradual verification of the functionality, security, and benefits of innovative solutions for financial markets. Exemptions are granted for a limited period and under clearly defined conditions.