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The Central Securities Depository (CSD) is leading innovation in the European capital market with the introduction of DLT (Distributed Ledger Technology). This technology has the potential to revolutionize the financial sector, particularly in the way securities are recorded and trades are settled.

The CSD was the very first institution in the world to be authorized under the European DLT Pilot Regulation to operate a DLT settlement system. The CSD received the authorization from the Czech National Bank with notification from the European regulator ESMA. As a result, the CSD can offer issuers of book-entry securities registration of issues in the newly created DLT-based registry from November 18, 2024. This technology allows not only the maintenance of a securities account, but also the crediting of shares or bonds to this account as part of a primary subscription, an issue increase or a transfer from another account based on an agreement with the counterparty. These operations can be carried out with or without cash settlement. Anyone can open an account with the CSD simply by using BankID and accessing it through the web or mobile application available at https://www.cdcp.cz/?lang=en. However, the platform will also be open for other financial market companies to become one of the DLT nodes of record, which will open up the possibility for them to open DLT accounts for clients and enter transfers in their systems within their client applications.

“The new European regulation has allowed us to implement DLT on a meaningful project. I believe that this will contribute to the development of the capital market in our country, as this platform will bring alternatives for financing small and medium-sized companies through the subscription of bonds or shares without the need for additional intermediaries. This platform will have a great added value for companies offering employee stock ownership plans (ESOPs) and also opens up huge opportunities for fintech companies such as crowdfunding platforms that can connect directly to DLT from the position of a node and offer their clients additional service in the securities field “, says Ondřej Dusílek, CEO of CDCP.

DLT registration is fully compliant with Czech law and thus meets all the requirements of book-entry securities, in particular the requirements of the Civil Code or the Commercial Corporations Act.

Only one type of account can be opened in the DLT records, namely the owner’s account. An owner account means that the account holder is also considered the owner of the securities held in the account and can thus exercise shareholder or other rights associated with the security.

The web or mobile applications then inform the account holder of the status and changes to the asset account, current debits or transactions, including money transfers, and send notifications of any changes to the mobile phone. The apps are available 24 hours a day and 7 days a week.

What are the advantages of the new DLT registration? “First of all, it should simplify the entire book-entry process for both issuers and security holders, while maintaining the transparency and security of the current central CSD registry. Compared to paper securities, book-entry in the form of tokenization in the DLT registry brings additional services for all entities with full digital access without any worries and legal uncertainties,” adds Ondřej Dusílek.

More information can be found on the website of the Central Depository https://www.cdcp.cz/?lang=en in the DLT chapter.

Please note all customers (issuers, issue administrators, participants, public authorities, etc.) that with effect from 18 November 2024 (inclusive), the output structures (XML format) of the electronic services of the My Depository portal will change in connection with the change of the interface of the Confidential Information Services Interface 7.5. The change concerns services submitted:

• via the external interface
• via the My Depository portal
• via forms and processed by CDCP Employees

The new interface with a description of the changes is available at www.cdcp.cz in the Technical Information section or at the following link here.

Please also note in particular informatuon about the country of residence for tax purposes and the death of the account holder.

Country of residence for tax purposes

As of November, country of residence for tax purposes will be recorded for the asset account as agreed with the CSD participants. Filling in the information then means the person, through the participant, declares that he or she is the ultimate owner and subject to taxation in that country. In this situation, the administrator may apply a 15% rate when taxing the proceeds of the securities without further documentation if the country in question has a double taxation treaty with the Czech Republic and if the proceeds are not assigned to another person. If the country in question applies a rate lower than 15%, the person must prove his tax residency to the administrator in order for this lower rate to be applied.

Indication of the death of the account holder

By amending Act No 256/2004 Coll. on Capital Market Business, the CDCP was granted temporary access to the basic registers. The CSD intends to obtain information on the owners of unclassified accounts during the first half of 2025 and to register the death data for these accounts. The CSD does not record the date of death of the account holder, only the fact of death. The information will be included in the issuance record statement and in the unallocated account holder’s account statement. The CSD notes that, due to the temporary nature of access to the basic registers, it cannot guarantee that the date of death will be recorded for all deceased persons in the future.

CDCP participants are advised that with effect from 18/11/2024 (inclusive), a new version of the communication interface (for follow-up records) in version 7.5 will be deployed to the operating environment.

A new version of the interface with an updated description of the communication structure can be found on our company’s website in the section: Description of the My Depository Communication Interfaces and on internal website.

Schedule of implementation of new ISB interface for follow-up records