The International Capital Markets Association (ICMA) has released the latest reference guidance on distributed ledger technology (DLT)-based debt securities.
The paper has been developed in reaction to the growing interest in tokenised and DLT-based bonds. By providing issuance, trading, settlement and distribution guidelines, ICMA aims to improve clarity around tokenised debt securities and allow market participants to identify opportunities and risks across global markets.
Efforts have been made to accelerate the adoption of DLT-based securities in 2024, from the Monetary Authority of Singapore’s Guardian Fixed Income Framework and Guardian Funds Framework to work in the Eurozone to settle DLT transactions in central bank money.
However, challenges in DLT-based debt securities markets remain. These include legal and regulatory fragmentation, poor interoperability between legacy and DLT systems, and a lack of investor participation, common standards and digital cash in key markets.
ICMA’s guidance includes 50 practical questions on the entire lifecycle of the asset, from pre-issuance considerations to registration and safekeeping, trading and settlement and third-party engagement.
“Each stakeholder, whether directly or indirectly involved in a DLT-based bond transaction, must carefully assess these aspects in consultation with legal counsel,” ICMA stated.
The guidance has been developed in collaboration with the ICMA DLT bonds working group, investors, issuers, custodians, banks, market infrastructure providers and law firms. “In light of the rapid evolution of technology, it will be reviewed and updated as and when necessary,” the association concluded.
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