Germany’s Finance Ministry has published a draft bill that aims to place stocks issued on public or private blockchain on the same footing as stocks issued through traditional means.
“In line with the overarching principles of capital market laws, such as technological neutrality and proportionality, the bill sets up no preferential specifications for individual register techniques so that the market can develop and offer innovative solutions,” the Ministry said.
The requirement for stocks or government bonds to have a paper certificate will soon no longer apply in Germany with stock issuers able to maintain their own register based on blockchain technology.
“The approach proposed in the draft pragmatically combines future-oriented technology with the long-standing legal and regulatory framework for securities,” said Frank Dornseifer, the managing director of Bundesverband Alternative Investments eV (BAI) which represents the interests of the alternative investment industry in Germany.
The bill provides that for crypto securities, also called e-Securities, the requirement of a paper‑based note is replaced by the entry of the e-Securities into a register operated by a supervised entity.
The register may be a central register that must be operated by a central securities depositary (“CSD”) under a CSD license.
Alternatively, the register may also be a decentralized register, a so-called crypto security register (Kryptowertpapierregister), in order to permit the issuance of blockchain-based e-Securities as security tokens, which the Bill refers to as crypto securities and treats as a sub-category of e-Securities.
The bill also allows the conversion of old stocks into a tokenized form and vice versa, with a license required by their regulator, BaFin, to issue the stocks, as well as a capital requirement of 730,000 euros.
“However, there is still a need to clarify details, but this is exactly what the consultation process that has just started aims to do,” Dornseifer said.
It’s not clear for example what exactly is a blockchain register. As we all know the blockchain obviously is a register itself, but of pseudo-anonymous addresses.
They’ll most likely require initial identification of the purchasers of the e-stocks, but the big question is whether then this can be freely transferred globally in seconds with the answer presumably being yes as otherwise you can’t quite have such e-stocks on ethereum’s public blockchain.
In which case this would be the first law that would open the way for the digitization of the stock market in a fully regulated and supervised manner, something that would make Germany a very appealing tech jurisdiction, and something that would mean tokens can have actual ownership of an actual company with the current governance DAOs so gaining the power of shareholders’ decisions that then opens up a whole array of company law concerning fiduciary responsibilities of e-stock issuers.