The Central Securities Depository in Prague (CSD Prague) – a subsidiary of the Prague Stock Exchange and thus part of the Vienna-Prague Stock Exchange Group – has been authorised to operate a distributed ledger technology (DLT) market infrastructure. CSD Prague is the first institution worldwide to receive this authorisation under the EU's DLT pilot regime. The approval was granted by the Czech National Bank and confirmed by the European Securities and Markets Authority (ESMA). From 18 November 2024, CSD Prague will offer issuers of securities to register their issues in the newly created DLT-based register.
"DLT is often associated with blockchain and cryptocurrencies, but it also presents a valuable opportunity for us as an infrastructure service provider to enhance efficiency and transparency in securities settlement. We are proud to work on pioneering technological advancements within the capital market," says Christoph Boschan, CEO of the Vienna Stock Exchange.
The technology enables the management of a securities account and subsequently the transfer of shares or bonds to this account as part of an initial subscription, a capital increase or a transfer from another account on the basis of an agreement with the counterparty. These transactions can be carried out with or without cash settlement. Settlement via DLT has the potential to simplify the process of booking securities reducing the administrative burden for both issuers and security holders. At the same time, the transparency and security of the current central CSD register will be maintained. This will also be possible for private investors by using the electronic identification solution "BankID" to open an account with the CSD and access it via a web or mobile application. The apps are available 24 hours a day, seven days a week.
"During the implementation of the project, we benefited from two key advantages – integrated post-trading in the form of CSD Prague, which gives us a perfect overview of all the processes associated with the registration and settlement, and our expert IT team with 20 years of experience in securities business. Thanks to this we were able to develop the system in a very short time", says Petr Koblic, Member of the Board of the Vienna Stock Exchange and CEO of the Prague Stock Exchange.
Financial service providers can also become a node in the DLT system and thus open DLT accounts for their customers and record transfers in their systems within their customer applications. Overall, this should create added value for companies with employee participation programmes, FinTechs and crowdfunding platforms that connect to DLT and offer their customers an additional service in the securities sector. For SMEs, the subscription of bonds or shares without additional intermediaries offers an alternative financing option.
About distributed ledger technology & the EU DLT pilot regime
A distributed ledger can be described as an information store that contains records of transactions. It is transferred to a number of nodes and synchronised everywhere using a so-called consensus mechanism. To add a block to the ledger, each node in the network must verify and validate it. This means that the system does not need intermediaries to verify transactions. The DLT pilot regime has been in place in the EU since 23 March 2023 and is intended as a temporary "regulatory sandbox" to – among other things – facilitate the establishment of new types of market infrastructures, including DLT settlement systems.
