Over 30 years after the dematerialisation of transferable-securities, French securities law has taken another step forward by enabling their registration using distributed ledger technology (DLT, also known as Dispositif d'Enregistrement Electronique Partagé, or DEEP, in French). DLT refers in particular to blockchain technology, hailed as being particularly promising in post-trade activities, but remains voluntarily "broad and neutral as regards the various processes in order to not exclude future technological developments"1.
This technology had already been recognised in French law under order no. 2016-520 dated 28 April 2016 pertaining to short-term notes (in French, "bons de caisse") and which introduced the possibility for mini-bonds2 to be issued and disposed of using DLT.
Next came order no. 2017-1674 dated 8 December 2017, which followed two industry-wide consultations with stakeholders. In applying this reform, French law now provides that DLT registration of certain financial securities equates registration in a securities account3. This DLT registration goes for both establishing the property of said securities4 and their disposal5. The choice of using DLT rather than account registration falls to the issuer.
This innovative approach concerns securities that are not admitted to transactions by a central securities depository. The report submitted to the French President as part of this order usefully indicates that this category includes equity securities and debt securities that are not traded on a trading venue, as well as negotiable debt securities and units or shares of collective investment undertakings, i.e. precisely areas in which the market had high expectations.
This decree changes certain provisions of the French Commercial Code and the French Monetary and Financial Code. In particular, it provides:
- that the DLT on which the securities are registered must be designed and implemented "in such a way as to guarantee the registration and integrity of registrations and enable, whether directly or indirectly, the identification of the security owners, the nature and the number of securities held";
- that DLT registrations must be subject to "an updated activity continuity plan, which includes in particular an external mechanism for the periodic safeguarding of data"; and
- the conditions according to which these securities could be pledged.
Although certain uncertainties regarding the application of the new mechanism must still be clarified, France maintains its status as a pioneer in matters of blockchain legislation and stays ahead of its European neighbours, for instance Luxembourg whose government has recently published a draft law6 with a similar purpose.
1 Report to the French President of the Republic on order no. 2017-1674 dated 8 December 2017 pertaining to the use of distributed ledger technology for the representation and disposal of financial securities.
2 Mini-bonds are a sub-category of short-term notes that can be offered via an investment services provider (ISP) or an adviser in equity investments.
3 CMF, art. L.211-3.
4 CMF, art. L.211-7.
5 CMF, art. L.211-17.
6 Draft law amending law amended on 1 August 2001 on the circulation of securities, initiated by the Finance Ministry of the Grand Duchy of Luxembourg and filed with the Deputy Chamber on 27 September 2018.
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