Published on August 11, 2020, the draft law on e-securities (i.e. security tokens) introduces new rules into German law. Initially, the law will only be applicable to bearer bonds; however, at later stages, other e- securities (e.g. e-shares or investment fund units) will be introduced as well.
In practice, organizing corporate financing, including via e-securities, requires using blockchain technology. However, since issuing paper certificates requires launching an IPO in Germany, German legislation continues to prohibit it.
Given that other EU states have passed legislation regulating the issue of securities electronically, the German authorities believe that their country may end up becoming less attractive as a financial center unless registering securities electronically in the state of Germany becomes a common practice.
The recently approved piece of legislation contains a solution aimed at achieving consumer protection & providing financial markets with the functionality they need. Ans this, in its turn, is going to ensure that the issuing & transferring security tokens in Germany will be more transparent.
The bill is also meant to increase the number of benefits for ECBs without significant losses to the sector of financial services. It’s mainly geared toward adaptation of the current civil & supervisory legislation to the new realia. Modelled on the FDM Law, they also contain a requirement for electronically issued government bonds to be thought of & handled as physical objects & registered with the Debt Registry.
Amendments contained in the bill are also meant to put in place a single system of regulation of e-securities in Germany.
It’s planned that paper certificates will be replaced with their electronic equivalents, following which the latter will be entered into specialized registers of e-securities. The only difference between the two will be the way in which they’ll be issued. Creating them will be pretty much identical, namely:
- an agreement is reached between issuers & holders (an issue agreement);
- a certificate in the paper form is issued or an entry is made in specialized registers.
Those seeking to register e-securities on a German stock exchange shouldn’t forget that the responsibility for managing specialized registers lies with a centralized e-securities depository whose activities get monitored & controlled by BaFin.
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