Everything you need to know about the new Electronic Securities Act (eWpG)
The most important information about eWpG summarized for you!
With eWpG to the capital market 2.0
In Germany, shareholders and unitholders are entitled to global securitization. Since physical global certificates are typically immobilized in collective custody in a central securities depository system, this costly process has always involved multiple intermediaries and thus no longer met the requirements of digital finance. The new “Gesetz für elektronische Wertpapiere” now aims to enable the trading of electronic securities and crypto securities, ultimately leading to a faster and more cost-efficient capital market. Thus, Germany manages to maintain and strengthen the attractiveness of the financial location.
This makes Germany one of the stragglers in Europe, as most European countries have been offering a dematerialized securities system as an additional option for some time now. For example:
- France: Have completely dematerialized securities since 1984 (but still with the need for a central securities depository)
- United Kingdom: Have stored their securities in an electronic database (CREST) since 1996
- Switzerland: Have allowed electronic “book effects” since 2009
- Luxembourg: Passed 2019 blockchain framework law for digital securities
The path to today's law
The last three milestones for the Electronic Securities Act (eWpG)
May 6, 2021
The Bundestag passes the new Electronic Securities Act (eWpG).
June 9, 2021
The Electronic Securities Act (eWpG) is announced in the Bundesgesetzblatt.
June 10, 2021
The new Electronic Securities Act (eWpG) officially comes into force.
However, the detachment of the deed obligation is already an ongoing topic since 2019
Electronic central registry securities
Electronic central registry securities are securities that are not evidenced by a certificate in accordance with the definition of securities in German legal norms, but only in digital form (section 4 (2) eWpG). The term “central securities registry security” covers various classes of electronic securities: (i) central register securities held in collective custody at a central securities depository, (ii) central registry securities held in collective custody at a custodian bank, and (iii) individually registered central registry securities. As the certificates are digitally represented in practice, trading takes place in a de facto dematerialized manner, thus replacing the physical global certificate used to date.
The subcategory of central registry securities is often also referred to as electronic securities, which can lead to misunderstandings. Here, therefore, differentiation is of great importance.
TThe crypto security is an electronic security entered in a crypto securities registry and thus a sub-type of electronic securities (Section 4 (3) eWpG). It can be issued as a total issuance through a collective entry as well as by way of an individual entry. Three things are essential for the issuance: a designation as crypto security, a publication in the “Bundesanzeiger” and a notification to the supervisory authority.
The entry into a regulated registry and the new issuance process distinguish the new crypto securities from the “classic” tokenization as security tokens.
Often, the subcategory of crypto securities is also referred to as electronic securities, which can lead to misunderstandings. So here, too, differentiation is of great importance.
Central electronic securities registry
Crypto securities registry
Pursuant to Section 4 (1) no. 2 eWpG-E, a “crypto securities registry” is a registry in which electronic securities are entered. It is required that it be kept on a tamper-proof recording system in which data is logged in chronological order and stored in a manner protected against unauthorized deletion and subsequent modification. Although the law is intended to be technology-neutral, the term “crypto securities registry” probably refers to a distributed ledger that makes use of blockchain technology.
The register may be maintained by companies appropriately licensed for this purpose, which must ensure that certain minimum information is stored in the register for the crypto securities entered in the register. In particular, the entry of the essential content of the securities rights and a securities identification number, information about the issuer and the holder as well as any impediments to disposal, rights of third parties as well as the indication of whether individual or collective custody exists shall be required. In contrast to the electronic securities registry, the registry keeper can be determined by the issuer itself. Thus, this register can be maintained by anyone who has been commissioned by the issuer – as long as a regulatory permit as well as the supervision of BaFin is given.
4 Steps in the issuance of electronic securities
How exactly does the issuance of electronic securities according to the eWpG work?
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Frequently asked Questions about the eWpG
Will security tokens now be replaced by electronic securities?
Will physical global certificates be completely replaced?
When do electronic securities legally come into existence?
Who is the holder and who is the beneficiary?
These two points are clearly defined in the law. The holder is the person who is entered as the owner in the electronic securities register, while the beneficiary is the person who holds the right arising from a security.
Who can be entered as a holder in the electronic securities register depends on whether a collective entry or an individual entry is to be made:
In the case of a collective entry (electronic counterpart to securities evidenced by individual or collective certificates held in collective custody), a securities clearing and deposit bank (custodian) is the registered holder of electronic securities. In this case, therefore, the formal holders are not the same as holders of rights (material beneficiaries), unless the electronic securities are the own holdings of the collective securities depository or custodian bank registered as the holder. In order to carry out a collective registration with crypto securities nevertheless, there is the omnibus wallet solution. Here, there are several investors behind a token, which in turn are managed by a custodian. With the custodian, it is important that a custodian license is available.
In the case of a single registration, any natural person or legal entity, or partnership with legal capacity, can be the holder of the electronic securities. Unlike in the case of a collective registration, the (formal) holder is regularly also the (material) beneficiary of the electronic security (personal union).
Is the law already fully developed?
Yes, but it is worded “openly” in several respects. The government draft is clearly intended to preserve the current status quo, but also to create new opportunities. The aim is to be able to take advantage of the benefits of electronic securities without major conversion effort. To this end, the new regulations to be created should fit as smoothly as possible into existing civil and supervisory law. In particular, the use of electronic securities will not be “prescribed,” but rather offered as an option.
Those who do not make use of it can issue securities in the usual way using the established and well-functioning process. Those who do make use of it, however, can be assured of the continued validity of previous, highly developed legal principles through the applicability of property law, and thus have extensive legal certainty when entering the new terrain. Furthermore, the aim is to anticipate the market as little as possible, i.e. merely to create a certain framework in which the market can develop. This is done against the background that both the market and the technology are still in the development stage, despite all the progress that has been made.
The legislative materials also show that further digitization is at least being considered by the legislature. In the course of its deliberations on the eWpG, for example, the German government was expressly called upon to evaluate the new regulations after just three years and to make proposals for regulations on the introduction of electronic shares at the beginning of the next legislative period.
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