Blockchain concept over city background

Ahead of an effort to test the use of blockchain technology to improve the efficiency of securities markets, European regulators are consulting on whether rule changes are needed.

The European Securities and Markets Authority (ESMA) has published a paper seeking feedback on possible changes to regulatory standards and reporting requirements when deploying distributed ledger technology (DLT) for securities trading and settlement.

The consultation comes in the wake of plans for a pilot regime for trading and settling “tokenized” securities — digital versions of traditional securities — using DLT.

The so-called DLT Pilot “is part of a package of measures proposed by the [European Commission] to further enable and support the potential of digital finance in terms of innovation and competition while mitigating the associated risks,” the paper noted.

ESMA is asking whether securities regulators should change pre-and post-trade transparency and data reporting requirements to cover securities issued, traded and recorded on DLT. ESMA is also seeking feedback on how regulators should collect information on these transactions.

“The aim is to ensure more efficient, secure, and cost-effective management of the data stored on DLTs while preserving its quality, usability and comparability,” the paper said.

The consultation will run until March 4. If rule changes are needed, they would go out for consultation, with the DLT Pilot expected to start in early 2023.