Starting signal for electronic securities

The Act on the Introduction of Electronic Securities (eWpG) passed by the Bundestag on 06.05.2021 now marks the start of digital securities in Germany: in future, bearer bonds, debentures and share certificates can also be issued purely electronically. Electronic shares are also to be introduced at a later date. This also allows issuance via blockchain and similar technologies - a breakthrough especially for the crypto world.

Introduction of electronic securities

For some time now, there have been calls for the digitalisation of the financial markets, particularly as a result of the progress of technological developments, especially in the area of Distributed ledger technology (DLT), which includes blockchain. The law now modernises securities law and strengthens Germany as a financial centre in this respect.

The harmonisation of traditional and electronic securities is achieved by eliminating the requirement to deposit a mandatory physical document with the central securities depository. The deed is now to be replaced by an entry in a securities register.

The eWpG distinguishes between two types of electronic securities: firstly, central register securities and secondly, crypto securities. Furthermore, a distinction is made between, on the one hand, the maintenance of a central electronic securities register by a central securities depository and, on the other hand, the maintenance of registers for the issuance of electronic debt securities made possible, among other things, by distributed ledger technology.

Way clear for crypto securities

Both the issuance of securities and the maintenance of a corresponding securities register are then crypto-based. This is done via distributed ledger technology, e.g. in the blockchain. It would also be conceivable for the issuer to keep the register itself. A licensing procedure will be introduced for keeping such a register, the supervision of which will be carried out by BaFin.

Practical outlook

The law clears the way for various electronic securities. Legally secure transfers are made possible by a bona fide acquisition in accordance with the provisions of the German Civil Code based on the entries in the register. This ultimately corresponds to the classic transfer in trading securities.

Now the hope is high that the law will lead to a push for modernisation by securities trading is diversified and greater efficiency is made possible by new technologies. It remains to be seen when a functioning market for crypto securities will establish itself on the stock exchanges. The lack of a connection to a central securities depository and questions of European law appear to be continuing problems in this regard.