The primary goal of the standards will be to ensure that securities issued on different distributed ledger technologies are stored and transactions are settled according to common rules. Technical requirements will be defined to enable tokenized bond, fund, or equity infrastructures to work together with existing banking and capital market systems.
European Union institutions have warned that each company using different technology and transaction rules could fragment the tokenization market. Platforms unable to communicate with each other could lead to fragmented liquidity, the same asset being traded at different prices, and cross-border transactions becoming more difficult. It is stated that the group being formed may also present regulatory proposals to encourage companies to adopt common standards.
The work will support Europe’s Appia initiative for tokenized financial markets. The Eurosystem also launched its Pontes infrastructure in September. Pontes allows financial institutions to settle wholesale transactions in tokenized assets using central bank money.
The new initiative doesn’t directly constitute a binding law. However, the technical standards to be developed could form the basis of future tokenization legislation and market infrastructure in Europe.
*This is not investment advice.
