The government delivers on its commitment to make the introduction of electronic securities a priority in implementing the blockchain strategy set in 2019. The eWpG is limited to bearer bonds (Inhaberschuldverschreibungen) and does not yet deal with equity instruments like limited liability or stock company shares nor any other type of debt instrument, which are announced to be included at a later stage. Notwithstanding the phased approach beginning with bearer bonds, the draft is a significant step forward on the digitisation roadmap for the German finance sector.
The eWpG-E provides for the registration of securities in electronic registers as equal substitute for the conventional deed required for the creation of bonds up to now. The proposed draft permits the exchange between already issued paper-based securities into electronic securities and vice versa as well as split issuances (partly paper-based and electronic). It does not only allow for integrating the new electronic securities into the existing paper-based securities' issuance, trading and clearing infrastructure but also a fluent exchange between the legacy and upcoming system. Market participants will quickly adjust their systems to include electronic securities which will open up the market for institutional investors.
In addition, the eWpG-E is more innovative in a number of other aspects. It expressly takes into account the existence of distributed ledger based security tokens and registries and permits crypto registers to be run by entities not being central securities depositories (CSD). Although operating decentralised registries for third party issuers requires the newly introduced financial services license more competition will be created for the German securities market, which is currently dominated by one CSD monopolist.
The draft legislation also provides for comprehensive bona fides status for registered information which include (for decentralised crypto registers only!) the issuer, third party rights and transfer restrictions. As a result, market participants enjoy an enhanced protection compared to the current situation which may stimulate the finance and refinance markets.