Conclusions Document on the Development and Results of the "SECURITIZE" Project Tests in the Sandbox.

The document was published on the CNMV (Spanish National Securities Market Commission) website and by the Directorate General for Strategic Policy and International Affairs in December 2024.

What Is the Document About?

The text explores the implementation of blockchain technology for issuing, managing, and trading financial securities in a regulated environment. It highlights key benefits such as increased efficiency, traceability, and cost reduction, demonstrating the feasibility of this approach within the current regulatory framework.

The main objective of the trials was to demonstrate that the platform complies with national and European regulations related to the subscription, admission to trading, trading, and settlement of transferable securities. Specifically, the aim was to verify that the platform substantially meets the requirements established in the Pilot Regime TRD Regulation, ensuring it is ready to apply for the corresponding authorization after completing all documentation required by applicable regulations. Furthermore, the trials aimed to identify exemptions that could be requested within the Pilot Regime TRD, along with the necessary conditions for their use, as well as any compensatory measures that might be required.

As part of the authorization process for the Promoter (SECURITIZE) as a Securities Firm, information was provided on the implications of this activity concerning its organizational capabilities and resources.

To limit risks and complexity, the trials focused exclusively on equity securities, covering the subscription, admission to trading, trading, settlement of operations, and registry management for such shares. Other types of financial instruments or activities unrelated to the management of an SNL (regulated securities ledger) based on TRD were not tested. Additionally, the participation of financial intermediaries as SNL members or links with Central Securities Depositories was not included.

Document Summary: Development and Test Results

This document details the tests conducted to implement a capital increase of 5,000 shares in Mancipi, S.A., using DLT (Distributed Ledger Technology). The shares were represented as tokens and managed through the #Securitize platform within the framework of the regulatory #Sandbox supervised by the #CNMV.

The tests encompassed the entire process, from the initial registration of share issuance to secondary market trading and post-trade management of tokenized securities.

The results were positive, confirming the feasibility of using DLT in the financial sector, with notable improvements in efficiency, regulatory compliance, and traceability.

Breakdown of the Process and Results

Phase 0: Issuance Registration

• Legal and registry procedures were conducted under the new Securities Market Law (LVMSI).
• Initial challenges arose due to the lack of specific regulation for DLT.
• Securitize was designated as the Entity Responsible for Securities Registry (ERIR) under restrictive conditions. ??

Phase 1: Incorporation of the Issuer onto the Platform

• Creation of tokens representing shares, onboarding of shareholders, and configuration of a digital investment management environment.
• Result: Completed without significant issues.

Phase 2: Investor Registration

• Identity verifications (KYC/KYB), suitability tests (MiFID and DLT), and wallet setup for token transactions.
• Result: Completed with minor process adjustments.

Phase 3: Primary Market

• Process for issuing and allocating tokens, including subscription and payment in fiat and Web3 currencies.
• Result: No technical problems; areas for improving user experience were identified.

Phase 4: Secondary Market

• Tests on trading and settlement of tokenized securities in euros and digital stablecoins (euroc).
• Evaluation of market controls, regulatory reports, and delisting processes.
• Result: Satisfactory, with suggestions for further automation.

Phase 5: Post-Trade

• Management of events like token loss, freezes, dividend payments, and ownership changes.
• Result: No major incidents, though opportunities for automation improvements were noted.

Key Conclusions

From the Promoter (Securitize):

• The tests confirmed that DLT technology enhances the financial system by facilitating regulatory compliance, reducing intermediaries, and optimizing operational efficiency.
• Regulatory challenges were identified due to an incomplete framework, though the project was deemed viable under current regulations.

From the CNMV:

• Gained valuable insights into the use of DLT in market infrastructures.
• Evaluated the project positively, acknowledging the need for future regulatory adaptations.

The tests conducted for implementing a capital increase in Mancipi, S.A., using DLT have shown that this innovation can positively transform the financial sector. The ability to tokenize shares and manage their issuance, trading, and post-trade operations through a digital platform like Securitize has demonstrated clear benefits in terms of efficiency, regulatory compliance, and traceability. Despite some regulatory challenges, the approach was concluded to be viable within the current framework, paving the way for broader future applications of this technology in financial markets.

For its part, the CNMV gained valuable knowledge about integrating DLT technologies into market infrastructures, enabling it to evaluate and supervise similar projects with greater precision in the future. While areas for improvement were identified concerning automation and user experience, the results confirm that blockchain technology can effectively optimize financial processes, reduce costs, and ensure greater security in the management of transferable securities.

You can read the CNMV document here.

Thank you for reading! ?? If you want to learn more, I invite you to get the book, which includes a step-by-step guide on token issuance, from configuring the smart contract to drafting a whitepaper, detailing essential requirements such as the MiFID Test, KYC, AML, and subscription agreements, among others.

Available in both digital and print formats via the following links:

• “Blockchain, Tokenomics, and Real Estate”: An in-depth analysis of tokenization’s impact on real estate and decentralized finance, published in Spanish and English.

• RWA - Real World Asset: Guide to Tokenize an ASSET: A comprehensive guide to transforming tangible assets into digital tokens, available in English, Italian, and Spanish.

?Remember, to tokenize assets, it is essential to follow a series of steps that ensure compliance with the regulations and laws applicable to financial instruments based on Distributed Ledger Technology (DLT).