The Digital Securities Sandbox (DSS) needs various alterations, say the International Capital Markets Association (ICMA).
The DSS is a regime that will allow firms to use developing technology, like distributed ledger technology (DLT), in the issuance, trading and settlement of securities, such as shares and bonds.
ICMA’s response comes as part of the eight-week consultation period conducted by the Bank of England (BoE) and Financial Conduct Authority (FCA) into the application of the DSS.
The two entities are working together to operate the Sandbox, to protect financial stability and facilitate innovation.
As part of the proposals, the BoE will impose limits on the value of securities that can be issued in the DSS. They say that this reflects the fact that the new technologies are untested in important financial markets at significant scale.
ICMA have expressed their principle support of the draft guidance on the operation of the DSS, but have suggested various modifications.
The association recommends adopting a more flexible approach to applying limits for live transactions on a firm-by-firm basis, enabling Sandbox participants to scale on a continuous basis, as well as expanding the scope of securities to non-sterling currencies within the Sandbox.
This is key to ensure commercial viability for Sandbox entrants, ICMA says.
It also suggests that a more tailored approach for Sandbox entrants that are regulated would be beneficial, allowing firms to bypass requirements provided they are already met outside the Sandbox.
Meanwhile, final or “end-state” rules should be reviewed and adjusted depending on learnings from the Sandbox, adds ICMA.
The association’s response reflects the views of a subset of its DLT Bonds Working Group, notably issuers, banks, investors, market infrastructures and law firms across the international debt capital markets.
A joint response to feedback from the BoE and the FCA can be expected in Summer 2024.
