ESMA seeks feedback on tokenized collateral at EU clearing houses

The European Securities and Markets Authority is seeking industry input on the legal, operational and liquidity risks of tokenized collateral at EU central counterparties (CCPs). The call for evidence, published on Oct. 9, explores whether using distributed ledger technology changes how eligible assets are moved, protected and realized, and whether existing EU rules remain adequate. CCPs stand between buyers and sellers in cleared markets, collecting margin and default fund contributions from clearing members to cover the risk of a default. Under the European Market Infrastructure Regulation, collateral must be legally certain, liquid, of good credit quality, prudently valued and quickly realizable. Tokenization represents assets, rights or cash as digital tokens on DLT, allowing transfers and lifecycle events to be recorded and potentially automated. ESMA’s central question is whether existing safeguards remain adequate for tokenized collateral, so that CCPs can still manage defaults and access collateral when needed. Tokenization projects are advancing beyond the pilot stage, with a string of public-sector efforts including the ECB’s Pontes, which connects DLT platforms to TARGET...