More than 50% of customers show high interest in the issuance of crypto securities
The new Electronic Securities Act (eWpG) came into force on June 10, 2021. This will make the purely digital issuance of securities possible for the first time. As we at Cashlink have been eagerly awaiting this regulatory change, we were curious to see how the market perceives this new law. We concluded that more than 50% of our clients showed interest in crypto securities and their use cases. But what are the exact advantages of crypto securities? Compared to traditional securities, tokenization gives you:
lower costs compared to traditional securities, as the costs of the value chain are drastically reduced through blockchain technology.*
Transferability. Previously illiquid assets can now be transferred easily around the clock, from anywhere in the world.*
Faster processing, as the speed of transactions is significantly increased through the use of tokenized securities.*
More transparency, as transactions are stored in an unchangeable and transparent manner. This strengthens trust between market participants.*
*More on this in our pricing study in cooperation with Finoa: Click here for your free pricing study.
And what are the differences to the well-known security tokens? In our latest whitepaper, we answer this and more. Since the topic of electronic securities is still relatively new, we wanted to use this whitepaper to create a general understanding of the topic and present different use cases to showcase the benefits of the new law. Click here to get your free whitepaper (In cooperation with Annerton).
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The most important information at a glance
The Path to Today's law
The 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.
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.
Frequently asked questions about the eWpG
Your questions, our answers.
Will security tokens now be replaced by electronic securities?
No, because tokenized debt securities are so-called securities sui generis, which are considered securities by BaFin only in the sense of prospectus law. If you look at the whole thing from a regulatory and civil law point of view, STOs do not meet these standards – Because civil law requires a securities certificate. However, the new legislation brings the electronic security one step closer to the classic paper security, as the same protection of ownership and circulation will apply in the future. It is important to note, however, that the new Electronic Securities Act does not create a new security of its own kind, but merely a new form of issuance that issuers can use as an option. The term “electronic security” therefore refers to securities issued electronically.
If you want to learn more about this topic, click here to get our free whitepaper on the topic: Comparing crypto securities and security tokens – How the new electronic securities act is changing the capital market.
Will physical global certificates be completely replaced?
No, these will still exist in parallel, at least temporarily. Since the eWpG does not require dematerialization, the issuance of physical global certificates will continue to be legally possible. But these can be replaced by central register securities at any time without the consent of the holders, unless this is otherwise excluded (the consent of the holders is required, however, if the holder and the beneficiary are the same person, partnership or custodian). Thus, physical global certificates will most likely gradually disappear.
When do electronic securities legally come into existence?
Electronic securities are created immediately upon entry in the relevant electronic securities register. Upon registration, an electronic security then has the same legal effect as if it were evidenced by a physical document. In addition, it is deemed to be an object by virtue of a legal fiction within the meaning of section 90 of the German Civil Code.
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.
Any questions about the product packages?I’m Michael, co-founder and CEO of Cashlink. I’m happy that you are interested in our product! If you have questions about the product packages, I am happy to answer your questions. Don’t hesitate to get in touch!
All information on the pages of this website is for general information purposes. It does not constitute legal advice in individual cases, nor can and should it replace such advice.