The issuance of the first financial instruments registered on a distributed ledger technology (DLT) on the LuxSE official securities list (LuxSE SOL) is part of “a broader context marked by the accelerating digitalisation of markets using blockchain technology, including the imminent adoption of the MiCA (Markets in Crypto-Assets) Directive, the EU's pilot regime, which is expected to come into force in 2022, and which will allow for the processing of security tokens by market infrastructures in compliance with applicable EU regulations during a transitional period,” LuxSE and Société Générale said in a joint statement.
A new step in the integration of crypto-assets
This is one more step for the market in its desire to integrate crypto-assets into the range of financial instruments and underlying assets for financial products.
The CSSF also published on 24 January a white paper on “distributed ledger technology” (DLT) and blockchain. This is a non-binding document “aimed at guiding interested professionals in conducting their due diligence process related to DLT and its use in the provision of services in the Luxembourg financial sector”. It is the result of a collaboration between the CSSF's ICT risk supervision and financial innovation teams and a panel of external contributors.
For the Luxembourg Stock Exchange “this new development in the DLT sphere is a natural next step in LuxSE's ambitious digital programme, underlining the exchange's commitment to digitise and modernise the capital markets”.
This is another significant step towards the digital transformation of the Luxembourg Stock Exchange.
“The admission of secure tokens to the official securities list of the Luxembourg Stock Exchange represents a real milestone for the EU financial markets, as it provides a unique, innovative, robust and publicly accessible solution for issuers and investors of these instruments. This is another significant step towards the digital transformation of the Luxembourg Stock Exchange, and a very important first step in our contribution to price discovery and transparency of financial instruments issued using DLT,” said Julie Becker, CEO of LuxSE.
In addition to the listing of SG Forge's financial instruments, “in order to clarify the eligibility criteria and to guide security token issuers in the admission process", LuxSE has published the guidelines for the registration of DLT financial instruments. "To be considered for admission, security tokens will have to comply with these guidelines as well as the LuxSE SOL Rulebook.”
The process is still in its infancy, however. For the time being, "given the complex nature of security tokens”, LuxSE's new service will only be available to experienced issuers and applicants with a proven track record in capital markets transactions.
Most importantly, the proposed service is limited to admission and any trading on LuxSE markets is excluded. “The registration of DLT securities will provide increased visibility for security tokens and their issuers, and will further facilitate the dissemination of indicative prices and security data on this new form of financial instrument.”
A plus for market efficiency and transparency
A token replicates what happens in the traditional world of financial services, whether it be loans, mortgages, savings, investments, or even derivatives. “DLT native security tokens enable a fully digital issuance process and lifecycle. Due to their innovative features, native security tokens have the potential to significantly improve the efficiency and transparency of financial markets and make transactions more secure and resilient--while offering similar benefits to conventionally issued financial instruments,” state the Luxembourg Stock Exchange and Société Générale.
The three series of listed secure tokens were issued by SG Forge, the digital assets subsidiary of Société Générale Group. They belong respectively to the ethereum and tezos universes. They are digital covered bonds (OFH Tokens) and structured products. They qualify as financial instruments and debt securities under French law and are compliant with the open source CAST (”compliant architecture for security tokens”) interoperability and securitisation framework.
Since April 2019, Société Générale and its subsidiary SG Forge have structured several DLT-deployed native security token issues for their clients. The latest being the €100m European Investment Bank (EIB) digital bond issued in 2021.
This story was first published in French on . It has been translated and edited for Delano.