Urgent Proposal for Central Bank Settlement and Collateral Eligibility via DLT by AFME Unveiled
Tokenized Securities and Central Bank Collateral: A Developing Landscape
In the ever-evolving world of finance, tokenized securities are making significant strides within the European Union (EU). However, when it comes to eligibility as collateral for central bank loans, the picture is still taking shape.
As of mid-2025, tokenized securities are increasingly recognized within the EU's regulatory framework, but explicit formal rules regarding their eligibility as collateral for central bank loans remain under development and are limited. The market is evolving under existing regulations such as MiFID (Markets in Financial Instruments Directive) and MiCA (Markets in Crypto-Assets Regulation), with regulatory compliance solutions facilitating tokenized securities' use on exchanges.
Major fintech and crypto firms like eToro are actively launching regulated tokenized US stocks in Ethereum-based form for European investors. These efforts highlight the increasing institutional acceptance and regulatory underpinnings of tokenized securities.
However, eligibility as collateral for central bank loans involves further prudential assessments and central bank policies beyond securities trading laws. Central banks generally require collateral to be highly liquid, low-risk, and compliant with stringent eligibility criteria. Given the novelty of tokenized securities, their acceptance as collateral would require that they meet these criteria, including legal certainty, market liquidity, and operational readiness for central bank systems.
The first step towards this goal is the urgent need for a settlement solution for tokenized assets using central bank money. Deutsche Boerse's Eurex is readying to launch intraday repo using such settlement solutions. The European Central Bank (ECB) already announced plans for central bank money DLT settlement in February, and the digital security must be part of the DLT Pilot Regime to be eligible for central bank credit.
The Association for Financial Markets in Europe (AFME) suggests that regulatory requirements such as MiFID II or CRD/CRR for the entity operating the DLT could suffice. They also requested a gradual extension of Target 2 operating hours and the dropping of the pre-funding requirement for the TIPS settlement solution and the wCBDC to prevent liquidity fragmentation.
In sum, while tokenized securities are advancing in regulatory acceptance and market infrastructure within the EU, they are not currently established or widely eligible as collateral for central bank loans. Proposals or regulatory adjustments towards this goal may be under discussion or may evolve as market infrastructure matures and regulatory certainty improves. To date, no explicit proposed EU regulations on their collateral eligibility by central banks have been detailed in available sources.
- As tokenized securities continue to gain recognition within the EU's regulatory framework, there is an urgent need for a settlement solution using central bank money to enable their acceptance as collateral for central bank loans.
- Central banks, with their requirements for collateral to be highly liquid, low-risk, and compliant with stringent eligibility criteria, will likely require tokenized securities to meet these conditions before they can be accepted as collateral.
- Deutsche Boerse's Eurex is readying to launch intraday repo using a settlement solution for tokenized assets, while the European Central Bank has already announced plans for central bank money DLT settlement.
- Regulatory bodies like the Association for Financial Markets in Europe are suggesting that regulatory requirements such as MiFID II or CRD/CRR for the entity operating the DLT could be sufficient for the eligibility of tokenized securities as collateral.
- Progress towards making tokenized securities widely eligible as collateral for central bank loans will require regulatory adjustments, as well as the maturation of market infrastructure and the improvement of regulatory certainty.
