02 August 2016

EBF: TARGET Working Group response to the ESMA discussion paper – The distributed ledger technology applied to securities markets

The TARGET Working Group (TWG) limited its response to issues relevant to the TWG scope and to Target 2. Given the nature of its comment, the TWG deliberately did not answer specific questions in the Discussion Paper but merely sought to ensure that its comments contain a clear rationale.

TWG note that section 80 of the DP paper states that the rest of the document focuses on the SFD applied to securities settlement systems and not payment systems, which fall under the scope of the European Banking Authority (EBA). However, an increasing number of cash transfers arising directly from individual securities transactions are being settled across TARGET 2 Securities (T2S) Dedicated Cash Accounts (DCAs) which for legal purposes form part of a payment system, namely TARGET 2.

TWG does not dispute that DLT gives rise to a number of complex issues in relation to CSDs. TWG makes no comment on these and where bulk settlement of netted amounts occurs using one of the T2 ancillary system interfaces (ASIs), TWG accepts that the moments of entry and irrevocability in T2 are probably outside the scope of the DP.

However, the moments of entry and irrevocability of cash transfers being settled on an individual basis through T2S are subject to the T2 Guideline irrespective of the IT architecture used by the relevant CSD. Consequently, TWG recommends that a reference to this is added in the paper. It may also be appropriate to mention other currencies that may join T2S in future although so far as TWG is aware only the Danish krone is foreseen at the present time and the exact implications are unknown.

Full position

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