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.