Regulation (EU) 2022/858 on a pilot regime for market infrastructures based on distributed ledger technology (DLT Pilot Regime)
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Summary
Regulation (EU) 2022/858 establishes an EU pilot regime for market infrastructures using distributed ledger technology (DLT) to trade and/or settle certain financial instruments. It creates a specific permission for operating a DLT multilateral trading facility (DLT MTF), DLT settlement system (DLT SS) or DLT trading and settlement system (DLT TSS), and allows competent authorities to grant targeted, time-limited exemptions from selected requirements under MiFID II/MiFIR and the CSDR subject to safeguards. The regime is limited to eligible DLT financial instruments and quantitative thresholds, with reporting, investor protection, operational resilience and exit/transition obligations.
Who is affected?
Investment firms, market operators and central securities depositories seeking authorisation to operate DLT market infrastructures (DLT MTF, DLT SS, DLT TSS), as well as their participants/members, issuers of eligible instruments and investors/clients using these venues and settlement systems.
Scope
Applies to the operation in the EU of DLT-based trading and/or settlement infrastructures for eligible financial instruments within defined size and market value thresholds, under a time-limited pilot permission and supervisory framework.
Key Points
- Creates an EU-wide specific permission to operate DLT market infrastructures (DLT MTF, DLT SS, DLT TSS) under a pilot regime
- Permits competent authorities to grant targeted, time-limited exemptions from certain MiFID II/MiFIR and CSDR requirements, subject to conditions and compensatory measures
- Restricts the regime to eligible DLT financial instruments and quantitative thresholds (including aggregate market value limits), with ongoing monitoring and reporting
- Requires robust ICT, cyber and operational resilience arrangements, transparent rulebooks/contractual terms, and governance and risk management measures
- Includes investor protection and asset safeguarding/segregation requirements, complaint handling and redress mechanisms, and liability provisions for operators
- Requires a transition/exit strategy (including scaling down or migration to traditional infrastructures) when thresholds are exceeded or permissions/exemptions end
Related Regulations
Frequently Asked Questions
Who must comply with the DLT Pilot Regime?
Investment firms, market operators, and central securities depositories seeking to operate DLT-based market infrastructures (DLT MTF, DLT SS, or DLT TSS) within the EU must comply with this regulation. Participants, issuers of eligible instruments, and investors using these infrastructures are also subject to certain obligations.
What is the scope of the DLT Pilot Regime?
The regime applies to the operation of DLT-based trading and/or settlement infrastructures for eligible financial instruments within the EU. It is limited to instruments and activities that fall within defined quantitative thresholds, such as aggregate market value limits.
What are the key obligations for DLT market infrastructure operators?
Operators must obtain specific permission, implement robust ICT and cyber resilience measures, ensure investor protection and asset safeguarding, and maintain transparent rulebooks and governance structures. They must also have reporting mechanisms and a clear exit or transition strategy.
What financial instruments are eligible under the DLT Pilot Regime?
Only certain financial instruments, such as shares, bonds, and units in collective investment undertakings that meet defined eligibility and market value thresholds, can be admitted to DLT market infrastructures under this regime.
What exemptions can be granted under the DLT Pilot Regime?
Competent authorities may grant targeted, time-limited exemptions from selected requirements under MiFID II/MiFIR and the CSDR, provided operators meet compensatory conditions and safeguards. These exemptions are subject to ongoing supervision and may be withdrawn if conditions are not met.
What are the penalties for non-compliance?
Penalties for non-compliance are determined by national competent authorities and may include fines, withdrawal of permissions, or other supervisory measures. Persistent or serious breaches can result in exclusion from the pilot regime.
How does the DLT Pilot Regime interact with other EU financial regulations?
The regime operates alongside MiFID II, MiFIR, and CSDR, allowing for certain exemptions but maintaining core investor protection and market integrity standards. Operators must still comply with non-exempted provisions of these regulations.
What are the reporting and monitoring requirements?
Operators must regularly report to competent authorities on their activities, compliance with thresholds, operational incidents, and investor protection measures. Authorities monitor these reports to ensure ongoing eligibility and risk management.
What is required for the exit or transition from the pilot regime?
Operators must have a documented exit or transition strategy, detailing how activities will be scaled down or migrated to traditional infrastructures if thresholds are exceeded or permissions expire. This is to ensure continuity and protection for investors and market participants.
How long does the pilot regime last and can it be extended?
The pilot regime is time-limited, with the possibility for review and extension by the European Commission based on its effectiveness and market developments. Individual permissions and exemptions are also granted for limited periods, subject to renewal or withdrawal.
Key Terms
- DLT Multilateral Trading Facility (DLT MTF)
- A trading venue using distributed ledger technology to facilitate the buying and selling of eligible financial instruments among multiple parties.
- DLT Settlement System (DLT SS)
- A system based on distributed ledger technology that enables the settlement of transactions in eligible financial instruments.
- DLT Trading and Settlement System (DLT TSS)
- A combined platform using DLT to provide both trading and settlement services for eligible financial instruments.
- Eligible DLT Financial Instruments
- Financial instruments such as shares, bonds, and units in collective investment undertakings that meet specific eligibility and market value criteria defined by the regulation.
- Quantitative Thresholds
- Predefined limits on the aggregate market value or volume of eligible financial instruments that can be admitted to DLT market infrastructures under the pilot regime.
- Targeted Exemptions
- Specific, time-limited waivers from certain requirements of MiFID II, MiFIR, or CSDR, granted to DLT market infrastructure operators under strict conditions.
- Compensatory Measures
- Additional safeguards or requirements imposed on operators as a condition for granting exemptions, to ensure investor protection and market integrity.
- Operational Resilience
- The ability of DLT market infrastructures to maintain critical functions and recover from ICT-related incidents, cyberattacks, or other operational disruptions.
- Exit/Transition Strategy
- A documented plan outlining how a DLT market infrastructure will scale down or migrate operations to traditional systems if required by the regulation.
- Competent Authority
- The national regulatory body responsible for supervising and granting permissions to DLT market infrastructure operators within each EU Member State.