Abstract
This article examines current technological trends in the securities post-trading system and the role of law in shaping these developments. Against this backdrop, we analyse (i) recent initiatives that aim at technologically improving the traditional post-trade system, (ii) projects that aim at enhancing the efficiency of post-trade processes related to traditional securities by using distributed ledger technology and (iii) post-trade issues related to the rise of crypto-assets and decentralised finance. We argue that the current role of law in shaping these technological trends is different in these three contexts. Regarding crypto-assets, the law can be likened to the hare in the Brother Grimms’ well-known fairy tale: It struggles in vain to keep up with developers in the crypto-asset system (who represent the hedgehog in the fairy tale). With regard to projects that aim at bringing distributed ledger technology to the post-trading of traditional securities, the roles are, in our view, reversed – the law plays the role of the hedgehog that, maybe unfairly, prevents the innovators (the hare) from succeeding. Finally, as regards two important technological trends in the traditional post-trading system that we analyse in this article different relationships emerge: In one case, the law (as hedgehog) “coaches” the industry (as hare) in its quest to implement technological improvements. In the other case, the law (as hedgehog) needs to prod the industry (the hare) into relevant action.
References
Anker-Sørensen, L. & Zetzsche, D. A. (2021). From centralized to decentralized finance – the issue of “Fake-DeFi”. Available at SSRN. https://ssrn.com/abstract=3978815 10.2139/ssrn.3978815Search in Google Scholar
Aramonte, S., Huang, W., & Schrimpf, A. (2021). DeFi risks and the decentralisation illusion. BIS Quarterly Review, December 2021. https://www.bis.org/publ/qtrpdf/r_qt2112b.pdf Search in Google Scholar
Arner, D. W., Barberis, J. N., & Buckley, R. P. (2016). The evolution of Fintech: A new post-crisis paradigm. University of New South Wales Law Research Series No. 2016-62. Available at SSRN. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2676553 10.2139/ssrn.2676553Search in Google Scholar
Athanassiou, P. (2020). Payment systems. In Amtenbrink, & Herrman (Eds.), The EU law of economic and monetary union (p. 722 ff). Oxford University Press.10.1093/oso/9780198793748.003.0029Search in Google Scholar
Bain. P. (2022). Blockchain consensus mechanisms: A primer for supervisors. IMF Fintech Note. https://www.imf.org/en/Publications/fintech-notes/Issues/2022/01/25/Blockchain-Consensus-Mechanisms-511769 10.5089/9781616358280.063Search in Google Scholar
Bazinas, S. V. (2022). Enforcement of security interest in securities under uniform law. In Keijser (Ed.), Transnational securities laws (2nd ed., p. 92 ff). Oxford University Press.Search in Google Scholar
BCBS, CPMI, FSB, IOSCO. (2018). Incentives to centrally clear over-the-counter (OTC) derivatives; A post-implementation evaluation of the effects of the G20 financial regulatory reforms – final report. https://www.fsb.org/wp-content/uploads/R191118-1-1.pdf Search in Google Scholar
BCBS, CPMI, IOSCO. (2021). Review of margin practices. https://www.bis.org/bcbs/publ/d526.pdf Search in Google Scholar
Bech, M., Hancock, J., & Wadsworth, A. (2020). On the future of securities settlement. BIS Quarterly Review, March 2020, pages 81 ff. (Annex). https://www.bis.org/publ/qtrpdf/r_qt2003i.pdf Search in Google Scholar
Bech, M., Shimizu, Y., & Wong, P. (2017). The quest for speed in payments. In BIS quarterly review March 2017 (p. 57 ff). https://www.bis.org/publ/qtrpdf/r_qt1703g.pdf#:∼:text=The%20quest%20for%20speed%20in%20payments1%20This%20feature,adopted%20globally%20within%20a%20span%20of%2030%20years Search in Google Scholar
Biancotti, C. (2022). What’s next for crypto? Bank of Italy Occasional Paper Forthcoming. Available at SSRN. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4188362 10.2139/ssrn.4462817Search in Google Scholar
Biondi, Y. (2018). Banking, money and credit: A systemic perspective. Accounting, Economics, and Law: A Convivium, 8(2), 20170047. doi:https://doi.org/10.1515/ael-2017-0047.Search in Google Scholar
Biondi, Y. (2020). Ownership (lost) and corporate control: An enterprise entity perspective. Accounting, Economics, and Law: A Convivium, 10(3), 20190025. doi:https://doi.org/10.1515/ael-2019-0025.Search in Google Scholar
Biondi, Y. & Zhou, F. (2017). Interbank credit and the money manufacturing process. A systemic perspective on financial stability. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2924402 10.2139/ssrn.2924402Search in Google Scholar
Buch, C. (2019). The Deutsche Bundesbank’s 2019 Financial Stability Review, Speech by Prof Claudia Buch, Vice-President of the Deutsche Bundesbank, at the presentation of the 2019 Financial Stability Review of the Deutsche Bundesbank, Frankfurt am Main, 21 November 2019. Search in Google Scholar
Carstens, A., Claessens, S., Restoy, F., & Shin, H. S. (2021). Regulating bigtechs in finance. BIS Bulletin No 45. https://www.bis.org/publ/bisbull45.pdf 10.2139/ssrn.3901736Search in Google Scholar
Chan, D., Fontan, F., Rosati, S., & Russo, D. (2007). The security custodies industry. ECB Occasional Paper No 68, 2007. https://www.ecb.europa.eu/pub/pdf/scpops/ecbocp68.pdf Search in Google Scholar
Chiu, I. (2021). England: The UK’s regulatory sandbox and pro-innovation policy. In Möslein, & Omlor (Eds.), Fintech-Handbuch (2nd ed., p. 949 ff). C.H. Beck.Search in Google Scholar
Coffee, J. C. (2014). Extraterritorial regulation: Why E.T. can’t come home. European Corporate Governance Institute (ECGI) – Law Working Paper No. 236/2014. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2347556# Search in Google Scholar
Crisanto, J. C., Ehrentraud, J., & Fabian, M. (2021). Big techs in finance: Regulatory approaches and policy options. FSI Brief No 12. https://www.bis.org/fsi/fsibriefs12.pdf Search in Google Scholar
Deutsche Börse, Deutsche Bundesbank. (2020). How can collateral management profit from DLT;? Project BLOCKBASTER. https://www.deutsche-boerse.com/resource/blob/1738116/946044d7f949f27cb373e6c7a7e32749/data/20200123-dlt-buba.pdf Search in Google Scholar
Deutsche Bundesbank. (2021). Crypto tokens and decentralised financial applications. Montly Report July 2021, pages 31 ff. https://www.bundesbank.de/resource/blob/873132/74fc658db07569219ff74f4e4e55c36f/mL/2021-07-kryptotoken-data.pdf?msclkid=7f060ceaa6c411ec95040f73c5f56423 Search in Google Scholar
Di Noia, C., & Filippa, L. (2021). Looking for new lenses. In Binder, & Saguato (Eds.), Financial market infrastructures (p. 16 ff). Oxford University Press.Search in Google Scholar
Droll, T., Podlich, N., & Wedow, M. (2016). Out of sight, out of mind? On the risk of sub-custodian structures. Journal of Banking & Finance, 68, 47–56. doi:https://doi.org/10.1016/j.jbankfin.2016.03.005.Search in Google Scholar
EBA, EIOPA, ESMA. (2022). Joint European supervisory authority response to the European Commission’s February 2021 call for advice on digital finance and related issues. https://www.esma.europa.eu/sites/default/files/library/esa_2022_01_esa_final_report_on_digital_finance.pdf Search in Google Scholar
ECB. (2018). Tiber EU-framework, how to implement the European framework for threat intelligence-based ethical red teaming. https://www.ecb.europa.eu/pub/pdf/other/ecb.tiber_eu_framework.en.pdf Search in Google Scholar
ESMA. (2022a). Report on trends, risks and vulnerabilities. No 1 2022. https://www.esma.europa.eu/file/122881/download?token=rjth9Skk Search in Google Scholar
ESMA. (2022b). Review of RTS No 153/2013 with respect to procyclicality of margin, consultation paper. https://www.esma.europa.eu/sites/default/files/esma91-372-1975_consultation_paper_on_review_of_emir_rts_on_apc_margin_measures.pdf Search in Google Scholar
ESRB. (2020a). Mitigating the procyclicality of margins and haircuts in derivatives markets and securities financing transactions. https://www.esrb.europa.eu/pub/pdf/reports/esrb.report_200109_mitigating_procyclicality_margins_haricuts∼0f3e9f9e48.en.pdf Search in Google Scholar
ESRB. (2020b). Liquidity risks arising from margin calls. https://www.esrb.europa.eu/pub/pdf/reports/esrb.report200608_on_Liquidity_risks_arising_from_margin_calls_3∼08542993cf.en.pdf?8380a2a90041200ca6e5c008138a127e Search in Google Scholar
ESRB. (2022). Mitigating systemic cyber risk. https://www.esrb.europa.eu/pub/pdf/reports/esrb.SystemiCyberRisk.220127∼b6655fa027.en.pdf?bd2b11e760cff336f84c983133dd23dc Search in Google Scholar
Eurosystem Advisory Groups on Market Infrastructures for Securities and Collateral and for Payments. (2021). The use of DLT in post-trade processes. https://www.ecb.europa.eu/pub/pdf/other/ecb.20210412_useofdltposttradeprocesses∼958e3af1c8.en.pdf Search in Google Scholar
Ferran, E., & Hickman, E. (2021). Central securities depositaries in the EU. In Binder, & Saguato (Eds.), Financial market infrastructures (p. 333 ff). Oxford University Press.Search in Google Scholar
Frame, W. S., Wall, L. D., & White, L. J. (2019). Technological change and financial innovation in banking: Some implications for FinTech. In Berger, Molyneux, & Wilson (Eds.), The Oxford handbook of banking (3rd ed., p. 262 ff). Oxford University Press.10.1093/oxfordhb/9780198824633.013.10Search in Google Scholar
FSB. (2018). Cyber Lexicon. November 2018. https://www.fsb.org/wp-content/uploads/P121118-1.pdf Search in Google Scholar
FSB. (2022). Assessment of risks to financial stability from crypto-assets. February 2022. https://www.fsb.org/wp-content/uploads/P160222.pdf Search in Google Scholar
Garcimartin, F., Guillaume, F., & Keiyser, T. (2022). Conflict-of-laws rules. In Keijser (Ed.), Transnational securities laws (2nd ed., p. 361 ff). Oxford University Press.Search in Google Scholar
Giovannini Group. (2001). Cross-border clearing and settlement arrangements in the European Union. https://ec.europa.eu/info/sites/default/files/first_giovannini_report_en.pdf Search in Google Scholar
Gogel, D. (2021). DeFi beyond the hype, the emerging world of decentralized finance. https://wifpr.wharton.upenn.edu/wp-content/uploads/2021/05/DeFi-Beyond-the-Hype.pdf Search in Google Scholar
Grothe, M., Pancost, N. A., & Tompaidis, S. (2021). Empirical analysis of collateral at central counterparties. ESRB Working Paper Series No 131, December 2021. https://www.esrb.europa.eu/pub/pdf/wp/esrb.wp131∼ebd64ea5df.en.pdf?8f565a59a2e15d51c1b53e2bbb9f842c Search in Google Scholar
Gullifer, L., & Payne, J. (2021). Intermediated securities, the European perspective. In Binder, & Saguato (Eds.), Financial market infrastructures (p. 396 ff). Oxford University Press.Search in Google Scholar
Haentjens, M. (2021). Transatlantic crossings, the case of securities and derivatives. In Binder, & Saguato (Eds.), Financial market infrastructures (p. 438 ff). Oxford University Press.Search in Google Scholar
IOSCO. (2022). IOSCO decentralized finance report. https://www.iosco.org/library/pubdocs/pdf/IOSCOPD699.pdf Search in Google Scholar
Kaulartz, M. (2021). Blockchain-technologien. In Möslein, & Omlor (Eds.), Fintech-Handbuch (2nd ed., p. 93 ff). C.H. Beck.Search in Google Scholar
Krüger, P. S. & Brauchle, J. -P . (2021). The European Union, cybersecurity, and the financial sector: A primer. https://carnegieendowment.org/files/Krueger_Brauchle_Cybersecurity_legislation.pdf Search in Google Scholar
Law Commission. (2020). Intermediated securities: Who owns your shares? A scoping paper. https://s3-eu-west-2.amazonaws.com/lawcom-prod-storage-11jsxou24uy7q/uploads/2020/11/Law-Commission-Intermediated-Securities-Scoping-Paper-1.pdf Search in Google Scholar
Lewis, R. & Murphy, D. (2022). What kind of thing is a central counterparty? The role of clearing houses as a source of policy controversy. LSE Law, Society and Economy Working Papers 8/2022. Available at SSRN. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4069312 10.2139/ssrn.4069312Search in Google Scholar
Makarov, I. & Schoar, A. (2022). Cryptocurrencies and decentralized finance (DeFi). BPEA conference draft. https://www.brookings.edu/wp-content/uploads/2022/03/SP22_BPEA_MakarovSchoar_conf-draft.pdf 10.3386/w30006Search in Google Scholar
Maume, P. (2022). Financial services regulation. In Maume, Maute, & Fromberger (Eds.), The law of crypto assets, a handbook (p. 227 ff). C.H. Beck, Hart Publishing, Nomos.10.17104/9783406792762Search in Google Scholar
Menkveld, A. J., & Vuillemey, G. (2021). The economics of central clearing. Annual Review of Financial Economics, 13(2021), 153 ff. doi:https://doi.org/10.1146/annurev-financial-100520-100321.Search in Google Scholar
Micheler, E. (2015). Custody chains and asset values: Why crypto-securities are worth contemplating. The Cambridge Law Journal, 74, 509 ff.10.1017/S0008197315000598Search in Google Scholar
Micheler, E. (2021). The No-look-through principle: Investor rights, distributed ledger technology, and the market. LSE Law, Society and Economy Working Papers 11/2021. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3871369 10.2139/ssrn.3871369Search in Google Scholar
Minto, A., Prinz, S., & Wulff, M. (2021). A risk characterization of regulatory arbitrage in financial markets. European Business Organization Law Review, 22, 719–752. doi:https://doi.org/10.1007/s40804-021-00219-x.Search in Google Scholar
Müller, M. W., & Pieper, C. (2021). eWpG. In Commentary. C.H. Beck.Search in Google Scholar
OECD. (2022). Why decentralised finance (DeFi) matters and the policy implications. https://www.oecd.org/daf/fin/financial-markets/Why-Decentralised-Finance-DeFi-Matters-and-the-Policy-Implications.pdf Search in Google Scholar
Paech, P. (2016). Securities, intermediation and the blockchain – an inevitable choice between liquidity and legal certainty? LSE Legal Studies Working Paper 20/2015 (update 2016). https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2697718&msclkid=5826f876a9ea11ecab4655aa483793fa# Search in Google Scholar
Papathanassiou, C. (2021). From a systemic assessment of the financial market infrastructures landscape: FMI groups and their implications. In J. H. Binder & P. Saguato (Eds.). Financial market infrastructures: Law and regulation (87–109). Oxford: Oxford University Press.Search in Google Scholar
Restoy, F. (2021). Fintech regulation: How to achieve a level playing field. FSI Occasional Papers, no 17. https://www.bis.org/fsi/fsipapers17.pdf Search in Google Scholar
Rogers, J. S. (1996). Policy perspectives on revised U.C.C. Article 8. Boston College Law School Faculty Papers. https://lawdigitalcommons.bc.edu/cgi/viewcontent.cgi?article=1346&context=lsfp&msclkid=70984edfa9e611ecb212a8043d4fe099.Search in Google Scholar
Rosati, S., & Vacirca, F. (2019). Interdependencies in the euro area derivatives clearing network: A multi-layer network approach. ECB Working paper Series No 2342, December 2019. https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2342∼ab1a8078c3.en.pdf 10.2139/ssrn.3515396Search in Google Scholar
Schär, F. (2021). Decentralized finance: On blockchain- and smart contract-based financial markets. https://research.stlouisfed.org/publications/review/2021/02/05/decentralized-finance-on-blockchain-and-smart-contract-based-financial-markets 10.2139/ssrn.3571335Search in Google Scholar
Schrimpf, A., Shin, H. S., & Sushko, V. (2020). Leverage and margin spirals in fixed income markets during the Covid-19 crisis. Bank for International Settlements Bulletin No 2, 2 April 2020. https://www.bis.org/publ/bisbull02.htm 10.2139/ssrn.3761873Search in Google Scholar
Schwarz, S. (2016). Globaler Effektenhandel. Mohr Siebeck.10.1628/978-3-16-154248-0Search in Google Scholar
SIFMA, ICI, DTCC. (2021). Accelerating the U.S. securities settlement cycle to T+1. Report. https://www.sifma.org/resources/submissions/accelerating-u-s-securities-settlement-cycle-to-t1/?msclkid=8ca108dda6b711ecbabe2be1d1b9f772 Search in Google Scholar
Spindler, G. (2019). Fintech, digitalization, and the law applicable to proprietary effects of transactions in securities (tokens): A European perspective. Uniform Law Review, 24(4), 724–737. doi:https://doi.org/10.1093/ulr/unz038.Search in Google Scholar
Steinrötter, B. (2022). International jurisidiction and applicable law. In Maume, Maute, & Fromberger (Eds.), The law of crypto assets, a handbook (p. 69 ff). C.H. Beck, Hart Publishing, Nomos.10.17104/9783406792762-69Search in Google Scholar
Thevenoz, L. (2007). Intermediated securities, legal risk, and the international harmonisation of commercial law. Stanford Journal of Law, Business & Finance, 13(2008), 284 ff.Search in Google Scholar
Veil, R. (2021). European Capital Markets Law. Hart Publishing.10.5040/9781509942145Search in Google Scholar
Vig, Z. (2022). Inhaberschuldverschreibungen auf der Blockchain. Zeitschrift für Bank- und Kapitalmarktrecht, 6/2022, 442 ff.Search in Google Scholar
Vuillemey, G. (2020). The value of central clearing. The Journal of Finance, LXXV(4), 153 ff. doi:https://doi.org/10.1111/jofi.12902.Search in Google Scholar
Wendt, F. (2015). Central counterparties: Addressing their too important to fail nature. International Monetary Fund Working Paper 15/21, January 2015. https://www.imf.org/external/pubs/ft/wp/2015/wp1521.pdf 10.5089/9781475572933.001Search in Google Scholar
Wymeersch, E. (2021). Central securities depositories and reform of the settlement process. Journal of Securities Operations & Custody, 14(2021/2022), 13–41.Search in Google Scholar
Zetzsche, D. A., & Woxholth, J. (2021). The DLT sandbox under the pilot-regulation. EBI working paper no, 92, 2021. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3833766.10.2139/ssrn.3833766Search in Google Scholar
© 2022 CONVIVIUM, association loi de 1901