The Depository Trust & Clearing Corporation (DTCC), a global post-trade market infrastructure giant, has published a white paper outlining guiding principles for the post-trade processing of tokenized securities. News of the white paper was announced in an official DTCC press release on March 13.
The paper — targeted at regulators and other market participants — identifies the characteristics that are unique to the emerging tokenized security asset class and its market structure. In the press release, DTCC proposes that:
“The market for trading crypto assets that are security tokens where the post-trade processing uses distributed ledger technology (DLT), has created a need for safety, security and reliability around these transactions to protect market stability.”
DTCC deems that global policy standards for traditional market infrastructures are often applicable, and broadly useful for stakeholders to identify the legal and other types of responsibilities that pertain to a security token platform offering post-trade services.
The white paper cites the example of “Principles for financial market infrastructures,” or PFMIs, as offering useful guidance for determining such post-trade responsibilities. Nonetheless, the white paper outlines that in some instances, principles that have been created by international standard setting bodies and other “existing regulations might not squarely apply.”
In such cases, DTCC advises regulators, security token platform operators, and other market participants to determine legal and other requirements based on the platform’s functions and services — and the prospective risks involved. These, according to DTCC, can be divided into custody, principal, and operational risks.
The white paper continues by transposing relevant, international standards for traditional post-trade responsibilities worldwide into the context of security tokens and crypto assets, identifying the key principles that must be enforced in order to foster market stability and investor confidence.
These include an “identifiable governance structure, identifiable risk management procedures and systems, [and] identifiable procedures and systems to ensure settlement finality,” among others.
Mark Wetjen — Managing Director, Head of Global Public Policy, DTCC, and Chairman of the Board, DTCC Deriv/SERV LLC — gave a statement in which he emphasized that:
“ [U]sually [most people are] focused on what happens before or to the point of execution of a trade. But what occurs after a trade is executed is critically important and this [...] has not been broadly discussed within the context of tokenized securities or crypto assets more generally”
As previously reported, DTCC has been testing the replatforming of its Trade Information Warehouse (TIW) using DLT in recent months. A 19-week DTCC-led study last fall found that DLT is scalable enough to support daily trade volumes of the United States equity market.