
Pilot Regime: the AMF publishes an in-depth report on the implementation of the regulation
To support the implementation of the Pilot Regime for DLT market infrastructures, the AMF has published an in-depth report describing the main measures of the European regulation and the exemptions it grants under existing frameworks. It also provides a reminder on how to submit an application to the French financial authorities.
Three distinct player categories
Being part of a series of measures on digital finance in Europe, the Pilot Regime allows for the issuance, recording, transfer and storage of distributed ledger financial instruments known as “tokenized” (“DLT financial instruments”) on dedicated market infrastructures (“DLT market infrastructures”). It grants certain exemptions from existing regulatory frameworks applicable to trading and settlement activities of financial securities, while aiming to promote innovation and experimentation within a framework to ensure investor protection, market integrity and financial stability.
This regime enables market infrastructures - whether already authorized or new entrants - to carry out activities on DLT financial instruments, and thus defines a new category of players in the form of market infrastructures using Distributed Ledger Technology (DLT), divided into three distinct categories:
- DLT Multilateral Trading Facilities (DLT MTFs): multilateral trading facilities for tokenized securities that only admit DLT financial instruments to trading;
- DLT Settlement Systems (DLT SS): tokenized securities settlement systems that settle transactions on DLT financial instruments; and
- DLT Trading and Settlement Systems (DLT TSS): a new type of player not covered by existing regulations, providing both the services of a multilateral trading facility and a DLT financial instrument settlement system, enabling a single entity to combine the trading and settlement of tokenized financial securities.
A period of experimentation
Under the Pilot Regime, the experimentation of activities on DLT financial instrument are limited to an initial period of three years, which may be extended to a total of six years. The European Commission has publicly stated in a letter to the European Securities and Markets Authority (ESMA) however that the Regime will not have an expiry date - and is restricted to certain types of instruments with a capped market value. In the event of an exit from the Regime, participants must establish a strategy to transfer their activities to a traditional market infrastructure.
Finally, the Pilot Regime allows DLT market infrastructures to benefit from a number of exemptions. These include the possibility of admitting participants other than those prescribed in the European Markets in Financial Instruments Directive (MiFID II) or the Central Securities Depositories Regulation (CSDR), the exemption from transaction reporting for a DLT multilateral trading facility, and the exemption from using a securities account as part of a DLT settlement service. These exemptions must be justified and are subject to certain conditions and compensatory measures that the national competent authorities may require in return.
A dedicated in-depth report
In addition to the elements of the regime outlined above, the in-depth report published by the AMF sets out the French legal framework applicable to DLT financial instruments and intermediation for financial securities admitted to trading on a DLT market infrastructure.
It details the various forms of registration for DLT financial instruments in France, and specifies the framework applicable to intermediation for financial securities admitted to trading on a DLT market infrastructure, notably with regards to holding the means of access to the client's securities.
Finally, the report also details how to apply for permission to the French authorities, detailing the procedure to follow when submitting an application and the contact points according to the status or activity sought.
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Head of publications: The Executive Director of AMF Communication Directorate. Contact: Communication Directorate – Autorité des marches financiers 17 place de la Bourse – 75082 Paris cedex 02