Crypto advocates interests were sparked this week after the Depository Trust & Clearing Corporation (DTCC) released a whitepaper describing fair security token business practices. The whitepaper primarily focuses on post-trade concerns. The release of this document highlights the growing interests of investors in tokenized securities.
The paper lays out a concise market infrastructure in which security tokens must operate within the same rules as traditional securities. While security tokens are subject to the same regulations up to the initial trade, post-trade regulations are lax and in many instances, non-existent. The DTCC wants all players in the arena to operate in the same manner.
The DTCC proposes an identifiable governance structure to institute these regulations. The paper lays out seven areas of concern which the firm believes are critical in protecting investors and facilitating market growth.
- Demonstrable Legal Basis – All distributed ledger platforms must have clear and concise guidelines surrounding any financial products offered.
- Identifiable Governance Structure – Platforms offering security tokens must have appropriate governance support systems in place. These systems provide risk management.
- Identifiable Procedures and Systems to Ensure Settlement Finality – All security tokens are required to provide clear settlement of all transactions.
- Security Token Issuance, Custody, and Asset Servicing – Security tokens should have safety control measures in place to mitigate the chance of loss. These measures should include internal controls and robust accounting practices.
- Resilience – All security tokens must prove that they can operate securely in the marketplace.
- Required Record Keeping – All security token platforms must be able to secure their client's information. Additionally, this information needs to be available to regulators upon request.
The DTCC is a US-based firm that provides financial markets with clearing and settlement services. Originally, the DTCC's task involved updating the aging securities token processes in use during the 1970s and prior. During these times brokers hand to physically exchange certificates. As you could imagine the process was expensive and time-consuming. Today, the DTCC performs securities exchanges on behalf of investors. The firm is a central securities depositary that provides custodial services to the global financial markets.
As the central securities depository, the company holds incredible sway in the market. To give you an idea of just how large the firm is, in 2011 DTCC settled $1.7 quadrillion in transactions in the US alone. The company works with regulators from across the globe to help quell security concerns in the market.
Today, the DTCC works with lawmakers, regulators, and key stakeholders in the US, Asia, Australia, and Europe. The company is an advocate for sound public policy. In the past, the DTCC collaborated on both national and local financial regulations.
DTCC and Global Regulations
You can expect that these latest recommendations influence the future regulations of many nations moving forward. Consequently, these guidelines could create momentum for global security token regulations in the near future. For now, many governments are still clueless on how to handle the digitization of the economy.