Boosting Blockchain: Germany To Introduce Electronic Securities – Technology


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In short

The situation: The requirement of a paper note for issuing securities under German law was an obstacle to the use of security tokens in Germany. With the release of a bill (the “bill”) allowing the issuance of electronic bearer bonds under German law, Germany is paving the way for the digitization of its financial markets.

The result: The invoice now proposes to remove the global note requirement. It establishes a legal framework for issuing electronic bearer bonds, including those issued as security tokens on a blockchain. The bill is another milestone in providing legal certainty for blockchain-based securities in Germany following the introduction of the crypto custody license starting January 1, 2020.

Looking forward: The bill will provide legal certainty for issuers and institutional investors and increase the use of distributed ledger technology (“DLT”) for issuing blockchain-based security tokens under German law. Enable the exchange of existing traditional securities into electronic securities (“e-Securities”) (e the other way around) and the consolidation of both types of securities will open the market to institutional investors. This legislation anticipates a planned EU-wide legislative initiative on crypto assets towards the end of 2020.


Under German civil law, the issuance of a bearer bond requires a paper document with a signature in wet ink (with the exception of some government bonds). Although a security issued as a paper (global) note can be electronically transferred through the securities settlement system, the requirement for a paper (global) note has an important practical restriction on issuing German-law securities in symbolic form on a blockchain. As a result, security tokens under German law have, to date, taken the form of a subordinate participation right which is not subject to the paper note obligation.


The bill allows the issuance of securities in electronic format. For now, these e-Securities are limited to bearer bonds, but the bill is designed to allow the electronic issuance of other forms of securities, such as shares or fund shares, in the future.

The logs

The bill provides that for e-Securities the requirement of a paper note is replaced by the registration of e-Securities in a register managed by a supervised entity. The registry may be a central registry that must be managed by a central securities depository (“CSD”) with a CSD license. Alternatively, the registry can also be a decentralized registry, a so-called cryptographic security registry (Kryptowertpapierregister), in order to allow the issuance of blockchain-based e-Securities as a security token, which the bill defines crypto security and treats as a sub-category of e-Securities. The cryptocurrency ledger can be managed by the issuer or by a third party registrar appointed by the issuer. The crypto registrar will be subject to regulatory oversight by the Federal Financial Supervisory Authority, or BaFin, and will require a license to provide cryptographic security registration services (Kryptowertpapierregisterführung) with an initial capital requirement of EUR 730,000. This license must be distinguished from the license for the provision of cryptocurrency custody services (Cryptocurrency) for others (including the custody of private keys for crypto assets and cryptographic securities). This is a separate license which only requires a capital of 125,000 euros.

Terms and conditions and transfers

The terms and conditions of e-Securities (and any amendments thereto) must be submitted to the registrar in electronic format. The e-Securities issue must also be published in the official German gazette, the Bundesanzeiger. The transfers will be made through an agreement between the buyer and the seller and an instruction from the buyer to the registrar to register the buyer as the new owner of the e-Securities.

Consolidation with traditional securities

The bill also provides for an exchange and consolidation mechanism that will help revive the e-Securities market. Issuers can trade their existing securities into e-Securities and the other way aroundand both can be consolidated into a single series. E-Securities can also be registered in the name of a CSD and can therefore be cleared and settled under existing systems. For regulatory purposes, including the Markets in Financial Instruments Directive (“MiFID”) and prospectus requirements, they are treated in the same way as traditional securities. The exchange and consolidation mechanism and regulatory treatment in line with traditional securities will facilitate the generation of the significant volume and liquidity of securities necessary for a functioning market and will make it attractive to both issuers and (institutional) investors.

Three key points

  1. Although security tokens have to date been issued in the form of participation rights, the bill proposes a new framework to provide legal certainty for issuing bearer bonds in electronic format by removing the requirement for a (global ) in printed form. These e-Securities can also be issued as security tokens on a blockchain as crypto securities. For regulatory purposes (including MiFID and prospectus requirements), e-Securities (including crypto securities) are treated in the same way as traditional securities.
  2. The issuance will take place by registering the e-Securities in a register which may (i) be a central register managed by a regulated CSD or (ii) in order to allow blockchain-based cryptocurrencies, a decentralized register managed by the issuer or a registrar of the register of third parties appointed by the issuer. Operation of a decentralized registry will require a license from the German regulator.
  3. Under the proposed framework, traditional securities can be exchanged for electronic securities and
    the other way around. E-Securities can also be consolidated with traditional securities of the same series. This will help generate the significant volume and liquidity of e-Securities needed to launch the e-Securities market (including crypto securities) and attract institutional investors.

The content of this article is intended to provide general guidance on the subject. Specialist advice on specific circumstances should be sought.

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