Electronic Securities Bill: Risks and Side Effects

A strong framework, but the details have to be talked about again: In its statement, the Stuttgart Stock Exchange criticized the federal government’s bill on digital securities.

Boerse Stuttgart also took up to the draft bill on electronic securities position

While the draft law offers a chance for a German pioneering role in the regulated crypto market, the exchange also identifies a number of opportunities for improvement. The stock exchange particularly emphasizes the risk of less fair competition.

One construction site is the non-guaranteed liquidity of the secondary market for crypto-securities. Investors trade among themselves on the secondary market, so this is where most of the capital is to be found. Without this safeguard, however, there would be a lack of legal certainty, transparency and an actually functioning trading system. According to the Stuttgart stock exchange, the draft law does not refer far enough to digital securities to be able to counteract this risk.

The bill says: A CSD must hold digital securities. Clearstream, a subsidiary of Deutsche Börse, does this for conventional shares. The requirement for digital securities would make competition more difficult and hinder innovation in the crypto area. The entire financial technology (FinTech) in Germany would suffer as a result. A monopoly position of the largest German stock exchange in the still very young crypto market is therefore unfavorable. Other bodies have also criticized this point, such as the Blockchain Federal Association .

Competition is at risk

The infrastructure regulation also needs to be revised: If the draft came into force now, investors would not be able to trade the crypto-securities on the stock exchange. The gray market would therefore grow while investor protection would decrease. Especially in view of future dematerialized forms of security, protection would suffer, according to the Stuttgart stock exchange. She hopes that stocks and fund shares will soon also be digitally tradable. The legislature must therefore include trading on a stock exchange in the draft.

At the same time, clearer rules are needed. While the exchange explicitly emphasizes that a central securities registry makes sense, it is less the planned use of blockchain technology. There are still some questions that need to be resolved before the law is passed.

The finality of transactions requires definition: After how many new blocks on the blockchain is a transaction considered to have been carried out? There is also no security mechanism that actually safeguards data protection. Likewise, liability and processing are subject areas that need to be re-examined, according to the opinion of the exchange.

Börse Stuttgart expects clear regulations

Like Bitkom , the stock exchange is also calling for a clearer demarcation between crypto securities registries and central securities depositories. Central securities depositories already have licenses that the newly created registry administrators would have to apply for. An interim solution would therefore be appropriate to exclude a competitive advantage for already established market participants. The interim solution creates time so that even small companies – start-ups in particular are often found in the crypto market – can position themselves in the market.

Ultimately, the Stuttgart Stock Exchange fears that legislation in Europe will be overly complex and fragmented. If this happens, the market would become less transparent and investor protection would also decline. The gray market would grow again. The trading center therefore hopes that the federal government will quickly adapt its own laws in the event of an EU-wide regulation.