Recently, there has been a significant increase in interest in the digitalization of financial markets, which brings not only speed, but also security and transparency of business transactions. One of the pioneering projects in this direction is the use of technology distributed ledgers, known as DLT (“Distributed Ledger Technology”), in the registration and settlement of shares on the Prague Stock Exchange (BCPP).
What is DLT and why is it important to use it?
DLT is a modern technology that allows data to be stored in a decentralized, digital, and cryptographically secure ledger. In the context of securities trading, this means that ownership records of shares are not kept in a single central registry, eliminating the possibility of fraud.
The Prague Stock Exchange has been offering this since the end of 2024. The legal framework is based on Regulation (EU) No 858/2022 of the European Parliament and of the Council on a pilot scheme for market infrastructures based on shared registry technology, which was reflected in the Czech legal system Act 324/2023 Coll.which changes Act 256/2004 Coll., on business on the capital marketDLT records are now alternative to traditional central registration.
How did the specific sale of shares take place via DLT registration?
For our client, we arranged the sale of shares that were held in the owners' asset accounts. in the decentralized DLT records of the Central Securities DepositoryThanks to this technology, the entire settlement process could be carried out digitally and in real time.
The buyer could immediately see the newly acquired shares registered in his asset account after the transaction was completed, which significantly accelerated the entire closing. Thanks to the capabilities of modern mobile and Internet applications, the entire transfer could be conveniently monitored online, including displaying the progress on a large screen, such as a television.
Technical details of DLT technology in share registration and settlement
DLT platform and system
The Central Securities Depository (CDCP) is the first entity in the EU to be authorized to operate a DLT registry and DLT settlement system, which is in accordance with European regulations for the pilot regime of distributed ledger technology solutions. This system is fully compatible with the Czech legal order and ensures proper registration of book-entry securities.
DLT record functionality
DLT records function as a decentralized, cryptographically secured digital registry of the asset accounts of security owners. Instead of a traditional central database, the data is distributed across a network, ensuring high security and transparency. Share transfers and other operations are carried out digitally, in real time, without being tied to stock exchange opening hours.
Account types in the DLT system
Only so-called can be opened on DLT. owner account, where the account owner is also the actual owner of the registered securities and has full control and rights to them. Authentication is used for access, for example, using BankID, and the user interface is available online via internet and mobile applications.
Participants of the DLT system
The participants of the system are licensed institutions such as banks, securities dealers, crowdfunding service providers and others. These participants establish asset accounts for their clients and ensure the settlement of trades in the system. Direct entry of orders by the account holder is possible if he has a contract with CDCP.
Settlement and transaction model
Trades are settled using DVP (Delivery Versus Payment) or DFP (Delivery Free of Payment) methods, in real-time online mode. The system supports multi-cycle settlement, pre-matching and technical netting, which increases efficiency and reduces risks of the entire transaction.
Issuance and transfers of securities
Issuers can create issues directly on the DLT registry instead of the traditional central registry. The system supports primary subscription, issue increases and share transfers between DLT accounts. Transfers between DLT and the central registry are not mutually compatible, so all parties to the transfer must be in the DLT system.
Safety and regulation
All records are secured with cryptography, which minimizes the risk of fraud and unauthorized changes. The system meets the requirements of the above-mentioned legislation.
Advantages of using DLT in this context
- Speeding up the process: Traditional stock settlement often involves several business days and complex administration. Thanks to DLT, the entire process has become almost instantaneous.
- Security and transparency: All transfers are recorded in a cryptographically secure manner, which minimizes the risk of fraud.
- Accessibility and traceability: Clients have access to their accounts anytime, anywhere, and can monitor the status of transfers and settlements in real time.
- Minimizing administration: There is no need to manually synchronize data between different systems and institutions, which reduces the risk of errors and administrative costs.
Importance for the Czech financial market
The implementation of DLT technology in the registration and settlement of shares represents a major step forward in the digitalization of finance in the Czech Republic. It opens the door to further innovation and strengthens the competitiveness of the local capital market on an international level.
záver
The successful use of DLT in the sale of shares on the PSE clearly demonstrates that decentralized technology has the potential to significantly improve the efficiency, security and transparency of financial services. For our client, we have thus been able to implement fast, secure and easily traceable share sales, which is a model for other digitalization projects in the capital markets area.
Do you also want to use DLT technology when selling shares and need advice on how to do it? Contact us and we will advise you!
JUDr. Ing. Jan Vych, attorney and partner
