🇪🇺The EU DLT Pilot Regime: DLT MTF, DLT SS and DLT TSS

Concept

The DLT Pilot Regime is the framework of Regulation (EU) 2022/858 under which an investment firm, a market operator or a central securities depository (CSD) obtains a specific permission to run trading or settlement infrastructure for financial instruments issued on a distributed ledger (DLT). The Regulation has applied across the EU since 23 March 2023 and has not been amended since.

The regime exists because EU capital markets law assumes a security held in book-entry form in a CSD account, settlement in central bank money and access to a trading venue through an intermediary. A tokenised security lives on a ledger where the investor holds it in their own wallet and delivery and payment can complete in a single transaction.

The Regulation lets the regulator disapply specific requirements of MiFID II, MiFIR and the Central Securities Depositories Regulation (CSDR) that are incompatible with DLT, provided the operator proposes compensatory measures, and the price of that flexibility is a set of caps on issuer size and on the volume of recorded instruments (recitals 4–6).

A tokenised instrument remains a financial instrument: since 23 March 2023 the definition in Article 4(1)(15) MiFID II expressly includes instruments issued by means of DLT (Article 18 of the Regulation).

Whether a security can exist as an entry on a distributed ledger at all is not decided by the Regulation: the recording of securities, account keeping and transfer are governed by national corporate and securities law, which the operator must comply with and enable its users to comply with (recital 45, Articles 8–10(10)(c)). In Germany that basis is the Electronic Securities Act (eWpG): bearer bonds and shares are issued by entry in an electronic register instead of a certificate and have the same legal effect as certificated securities (§§ 1–2).

The Act recognises two kinds of electronic register (§ 4).

The German DLT MTF 360X is built on securities issued under this Act on Clearstream's D7 DLT platform.

The regime's place among other permissions is shown in the Financial Licences hub; the legal models of tokens are covered in Real-World Asset Tokenization (RWA).

One path from start to finish

21X AG shows how the regime works in practice: a German investment firm that BaFin authorised to operate a DLT TSS on 3 December 2024, live since 21 May 2025 (ESMA report). A security moves through it in four steps.

1. A small or mid-cap issuer issues a bond as a token on the public Polygon PoS blockchain; since 6 May 2026, according to the company, the system also runs on the Stellar network.
2. The investor, retail investors included, passes KYC and appropriateness checks and the wallet is whitelisted; other addresses cannot interact with the platform's smart contracts.
3. The trade settles delivery versus payment in a single transaction; the cash leg uses e-money tokens EURC/USDC and EURQ/USDQ issued by Circle Internet Financial Europe SAS and Quantoz Payments B.V., e-money token issuers under Article 48 MiCA, that is e-money institutions or credit institutions.
4. The security stays in the buyer's wallet, with no omnibus account and no rehypothecation.

Standard CSDR does not allow this chain, so 21X obtained exemptions including from the book-entry requirement (Article 3), settlement finality (Article 39) and cash settlement in central bank money (Article 40), as listed in the ESMA list.

What defines the regime

Three features separate the DLT Pilot from an ordinary trading-venue or depository licence.

Key parameters

The limits and deadlines are set by the Regulation itself; the national regulator may only lower the limits and add compensatory measures.

Three types of infrastructure

The Regulation creates no stand-alone licences: each permission sits on top of an existing regime — an MTF under MiFID II or a CSD's securities settlement system under CSDR — and the requirements of that regime apply wherever no exemption has been granted (Articles 4–6(1)).

An investment firm operating a DLT TSS complies with CSDR requirements for a depository except the Articles listed in Article 6(1), which include the rules on CSD authorisation (Articles 16–17) and CSD capital (Article 47); a CSD operating a DLT TSS complies with MTF requirements without the MiFID II rules on investment firm authorisation (Articles 5–13). One company can therefore run trading, settlement and record-keeping, and four of the six infrastructures on the ESMA list chose this form.

Which instruments and how much

The Article 3 caps separate the experiment from a systemically important market. The instrument limits are tested at the moment of admission to trading or initial recording on the ledger.

An aggregate cap per infrastructure applies on top. A new instrument may not be admitted or recorded if the value of all DLT instruments on the infrastructure would reach €6 billion; at €9 billion the operator triggers its transition strategy. Value is a monthly average based on daily closing prices, and the operator reports to the regulator every month (Article 3(2)–(5)). The regulator may lower the limits (Article 3(6)), but according to the ESMA list none has done so.

The Market Abuse Regulation (MAR) applies to instruments on a DLT MTF or DLT TSS (Article 3(7)). ESMA and national regulators read the eligible list as excluding complex products by analogy with the MiFID II execution-only regime, and the regulator decides eligibility of a given instrument case by case (ESMA report, paras 117–119). Structured bonds and alternative investment funds (AIFs) fall outside the regime.

Exemptions: what can be disapplied

An exemption is granted at the operator's request where it shows that the exemption is proportionate to and justified by the use of DLT and is limited to the DLT infrastructure, without extending to its other systems (Articles 4(4) and 5(10)). In return the regulator may impose compensatory measures, on which ESMA prepares guidelines.

Trading: retail members and reporting

An ordinary MTF admits as members investment firms, credit institutions and other persons with the trading ability, organisational arrangements and resources the role requires (Articles 19(2) and 53(3) MiFID II). A DLT MTF may, with the regulator's consent, admit natural and legal persons dealing on own account who meet the seven conditions of Article 4(2):

• they are of sufficiently good repute;
• they have trading ability, competence and experience, including knowledge of DLT;
• they do not act as market makers on the venue;
• they do not use high-frequency algorithmic trading on it;
• they do not provide direct electronic access to others;
• they do not deal on own account when executing client orders;
• they have given informed consent and been told of the risks.

The regulator may require additional protections for natural persons.

The second exemption lifts the members' transaction reporting obligation under Article 26 MiFIR. In exchange, the venue keeps records with the same details and the regulator joins it as an observer participant with direct access (Article 4(3)).

Settlement: accounts, finality, cash

The DLT SS exemptions reach the foundations of CSDR, and each one carries a condition.

The regulator may also disapply the Article 19 CSDR rules on outsourcing a core service to a third party (para 4), allow natural persons to become participants (para 5) and depart from the Articles 33–35 rules on participation, transparency and communication with participants (para 6). A credit institution providing settlement in commercial bank money to an infrastructure whose instruments do not exceed €6 billion is not subject to Title IV CSDR on banking services of depositories (Article 5(8)).

Who can apply and how the procedure runs

A DLT MTF permission goes to an investment firm or market operator authorised under MiFID II, a DLT SS permission to a CSD authorised under CSDR, and a DLT TSS permission to any of them (Articles 8–10(1)). A company without the underlying licence applies for it at the same time as for the permission, and the regulator does not assess compliance with requirements from which exemptions are sought (Articles 8–10(2)).

The application covers the business plan, the infrastructure's rules and legal terms, a description of the DLT, IT and cyber arrangements, prudential safeguards, safekeeping of client instruments, investor protection and complaints handling, the transition strategy and the list of requested exemptions with justification (Articles 8–10(4)). The statutory timeline has three stages.

The permission is valid throughout the EU for up to six years from issuance and specifies the exemptions, compensatory measures and any lowered limits (Articles 8–10(11)). The regulator refuses it where risks to investor protection, market integrity or financial stability are not addressed, where the application aims to circumvent requirements or where the operator cannot comply with EU law (Articles 8–10(10)). The Regulation ties withdrawal to six grounds (Articles 8–10(12)):

• a flaw in the DLT or services whose risk outweighs the benefits of the experiment;
• breach of the conditions attached to exemptions;
• admission or recording of instruments that do not meet Article 3;
• exceeding the €6 billion aggregate cap;
• exceeding €9 billion without triggering the transition strategy;
• a permission obtained through misleading information or a material omission.

The Regulation sets no capital minimum of its own: the rules of the underlying licence apply — IFR and IFD for an investment firm, CSDR for a depository. The regulator may, case by case, require additional own funds or an insurance policy where potential liability to clients is not covered (Article 7(6)). Capital regimes are compared in Regulatory Capital, and the underlying licence is covered in MiFID II Investment Firm.

Client protection and exit

Safekeeping and liability

Where the operator holds clients' funds, collateral or DLT instruments and the means of access to them, including cryptographic keys, it may not use them on own account without the client's prior express written consent, keeps accurate records and segregates them from its own assets and those of other clients (Article 7(5)).

If funds, collateral or an instrument are lost, the operator is liable up to the market value of the lost asset, unless the loss results from an external event beyond its reasonable control (Article 7(6)). On its website the operator explains how its operation differs from a conventional MTF or settlement system and names the type of DLT used (Article 7(3)).

Transition strategy

Every operator maintains a public strategy for reducing activity or leaving the regime by moving operations to conventional infrastructure (Article 7(7)). It is triggered in three cases:

• the aggregate value of instruments has exceeded €9 billion;
• a permission or exemption is withdrawn or discontinued, including following the review of the Regulation;
• the operator ceases business voluntarily or involuntarily.

The strategy sets out how clients, in particular retail clients, are to be protected, and it is updated with the regulator's approval.

An operator without a full MTF or settlement system licence seeks a firm to take over its operations; a CSD answers such a request within three months and may not refuse on grounds of loss of market share. The arrangement must be in place no later than five years from the date of the permission (Article 7(8)–(10)). CSD Prague, for example, provides for migrating instruments from the DLT register to conventional book-entry form. How regulators handle licence wind-downs generally is covered in Licence Withdrawal and Wind-Down.

The DLT Pilot and MiCA

The two regimes divide the market by the nature of the instrument. MiCA does not apply to crypto-assets that qualify as financial instruments (Article 2(4)(a) MiCA), so a tokenised share or bond stays under MiFID II, and its trading and settlement on DLT fall under the DLT Pilot.

The regimes meet on the cash leg. The Regulation allows settlement in e-money tokens (Article 5(8)), which are MiCA instruments: 21X settles in tokens from issuers under Article 48 MiCA. Services relating to such tokens that are equivalent to a depository's banking-type ancillary services are provided by the CSD itself under Title IV CSDR or by a credit institution. Legal forms of digital money are compared in The Digital Dollar in Four Legal Forms, crypto-assets in MiCA and the service provider licence in The MiCA CASP Licence.

A crowdfunding platform may place bonds in DLT form under an ECSP licence, but organised secondary trading and settlement in them require a trading-venue licence or a DLT Pilot permission — see Crowdfunding Platform in the EU: the ECSP Licence. The choice of settlement asset for interbank DLT settlement is covered in Wholesale DLT Settlement, and the Swiss DLT trading facility in Swiss Fintech and Crypto Licences.

The ESMA register: six infrastructures

ESMA maintains a list of authorised DLT market infrastructures with permission dates and exemptions (Articles 8–10(11)); the version updated in January 2026 lists six infrastructures (ESMA page).

No regulator has lowered the limits for any operator, and the list gives no end dates for the permissions. The five infrastructures with a settlement function hold exemptions from Articles 39 and 40 CSDR; 360X requested no exemptions: it admits to trading only instruments issued on Clearstream Banking AG's D7 DLT platform under the German Electronic Securities Act, and it was not yet live as at 31 May 2025.

Activity remains small. According to ESMA, in the period to 31 May 2025 CSD Prague's DLT register recorded six share issues worth €11 917 753 and one debt issue worth €401, and 21X one debt issue of up to $500 million. CSD Prague runs on a permissioned R3 Corda platform alongside its conventional settlement system; 21X runs on a public blockchain with whitelisted access.

Review: the ESMA report and the Commission proposal

The ESMA report

The Regulation required ESMA to report to the Commission on the regime by 24 March 2026 (Article 14(1)); ESMA published the report on 25 June 2025. As at 31 May 2025 three infrastructures held permissions with minimal live trading, and around ten potential applicants were at various stages, some with applications already filed — Axiology, Securitize and LISE, which later obtained permissions. ESMA sees the main obstacles in the Article 3 limits that exclude larger issuers, in the lack of interoperability between DLT systems and legacy infrastructure, and in the lack of access to central bank money.

The Eurosystem has started to address the last of these: on 21 September 2026 the ECB announced the launch of Pontes, its solution for settling tokenised assets in central bank money.

ESMA recommended codifying the regime permanently in EU law and removing the six-year cap on permissions, raising the thresholds and letting regulators set tiered limits matched to the risk of each business model. In its view, complex instruments can be admitted only with full application of the MiFID II rules on retail investor protection.

The Commission proposal of 4 December 2025

The Commission included the amendments in its market integration and supervision package: Article 8 of proposal COM(2025) 943 amends Regulation 2022/858. The main changes affect five parameters.

The proposal also introduces separate permissions for notary and central maintenance services for DLT instruments, available to an investment firm, regulated market, credit institution, CSD or CASP, and settlement schemes between DLT account keepers with access to central bank money, authorised by ESMA. Regulators would be able to grant additional exemptions from MiFID II, MiFIR and CSDR after a non-binding ESMA opinion, and the Commission could adjust the aggregate caps by delegated act.

Status as at 5 October 2026

The proposal is in procedure 2025/0383(COD). In the European Parliament's Committee on Economic and Monetary Affairs (ECON) the rapporteur is Markus Ferber; the draft report was tabled on 11 June 2026 and amendments on 31 July 2026, and the committee has not yet voted. The Council has no negotiating mandate: the Presidency progress report of 24 June 2026 (doc. 10735/26) names the level of the aggregate cap as the main open issue — some Member States want a higher figure, others would keep €100 billion with case-by-case flexibility for individual operators.

Under the text of the proposal, the amendments to Regulation 2022/858 would apply 12 months after the act enters into force; until then the €6 billion cap and the permission term of up to six years remain.

Limits of the regime

The settlement asset

The Article 3 caps keep the regime to small issuers and small funds, and settlement outside central bank money adds the risk of the e-money token issuer or the commercial bank to the transaction.

The Regulation requires central bank money where practical and available (Article 5(8)), and since the launch of Pontes on 21 September 2026 that condition has to be reassessed. Where settlement runs in commercial bank money from a credit institution exempt from Title IV CSDR, or in e-money tokens, the DLT SS operator must identify, measure, monitor, manage and minimise that risk (Article 5(8)).

Russian owners and clients

The ownership ban in Article 5b(2a) of Regulation 833/2014 covers crypto-asset service providers only; it does not extend to investment firms or CSDs. Four provisions matter for DLT infrastructure (Regulation 833/2014).

None of the four prohibitions applies to nationals of the EU, the EEA and Switzerland or to natural persons holding a residence permit there (Articles 5b(3), 5e(2) and 5f(2)).

Whether Article 5e reaches an investment firm operating a DLT TSS, which applies CSDR requirements without being a CSD, is not expressly settled. Where settlement runs in e-money tokens, as at 21X, a Russian client needs crypto-asset services that Article 5b(2)(a) prohibits. The Article 5b(2a) prohibition becomes relevant to the regime if the Commission proposal admits CASPs. How regulators vet owners is covered in Qualifying Holdings and Fit & Proper.