EU DLT Pilot Regime

The EU DLT Pilot Regime is a regulatory sandbox that allows operators of distributed ledger technology-based trading and settlement systems for financial instruments to obtain temporary exemptions from specific requirements of the Central Securities Depositories Regulation (CSDR) and the Markets in Financial Instruments Directive (MiFID II). Established by Regulation (EU) 2022/858, the regime became operational in March 2023 and created the first structured legal framework in the EU for tokenized securities market infrastructure.

Purpose and Design

The traditional regulatory framework for European securities markets — built around CSDR’s requirements for central securities depositories and MiFID II’s requirements for trading venues — was designed for book-entry securities held in centralized registries. These rules assume that settlement occurs through a central securities depository that is legally and operationally separate from any trading venue.

Distributed ledger technology enables alternative architectures in which the registry of ownership, the trading platform, and the settlement function can be integrated in a single system. A tokenized bond recorded on a blockchain may be transferred directly between buyer and seller on the blockchain itself, without routing through a separate central securities depository. This architecture is potentially more efficient but does not map onto the existing regulatory framework.

The DLT Pilot Regime addresses this by granting time-limited exemptions from the specific CSDR and MiFID II requirements that prevent DLT-based systems from operating. Operators can test their infrastructure in a live market environment while complying with the regime’s specific requirements and cooperating with ESMA and national competent authorities in monitoring outcomes.

Three Infrastructure Categories

The Pilot Regime authorizes three types of DLT market infrastructure.

DLT Multilateral Trading Facility (DLT MTF) is a DLT-based trading system for financial instruments that may also record initial issuance of DLT financial instruments. It operates as a trading venue but is permitted to perform certain settlement functions that CSDR would ordinarily reserve for a central securities depository.

DLT Settlement System (DLT SS) is a DLT-based system that enables the recording of initial issuance of DLT financial instruments and settlement of transactions in those instruments against payment, including delivery versus payment settlement. It performs functions analogous to a central securities depository but using DLT architecture.

DLT Trading and Settlement System (DLT TSS) combines the functions of a DLT MTF and a DLT SS in a single integrated platform. This is the most ambitious category, enabling a fully integrated issuance, trading, and settlement infrastructure on a single DLT system.

Volume Caps and Their Effect

The Pilot Regime imposes volume caps designed to limit systemic risk during the experimental period. Each authorized infrastructure may not exceed a total market value of DLT financial instruments recorded on it of €6 billion for a DLT MTF, €6 billion for a DLT SS, and €9 billion for a DLT TSS.

Additionally, the regime applies different caps based on the type of instrument. Government bonds from EU member states have a cap of €7.5 billion per instrument; corporate bonds, covered bonds, and other DLT transferable securities have a cap of €5 billion in outstanding issuance per instrument.

These caps have significantly constrained the practical utility of the regime for large institutional participants, who require the ability to issue and trade instruments at scale. A sovereign bond program, for instance, may require issuance well above the per-instrument cap. Critics of the caps argue that they make it impossible to test whether DLT infrastructure can handle institutional-scale activity, which is precisely what a meaningful pilot should test.

Authorized Infrastructures

As of early 2026, three infrastructures had received authorization under the Pilot Regime. Euronext Securities Milan received authorization to operate a DLT SS for Italian government bonds and other Italian securities. Deutsche Börse’s D7 infrastructure and additional applicants progressed through the application process. The pace of authorization has been slower than initially projected, reflecting both the complexity of the application requirements and the limited commercial case for operating under the volume caps.

CSDR Rules That Are Waived

The Pilot Regime waives or modifies several key CSDR requirements. The requirement that securities admitted to trading on a regulated market or trading facility be recorded in book-entry form in a CSDR-authorized central securities depository is waived for DLT financial instruments. The requirement for settlement finality through a CSD settlement system is modified to permit settlement finality through the DLT mechanism itself. Requirements relating to the legal separation of the CSD function from trading are modified to permit the combined DLT TSS structure.

ESMA’s June 2025 Recommendation

In June 2025, ESMA published its report on the Pilot Regime following two years of operation, recommending that the regime be made permanent with modifications. ESMA found that the regime had successfully attracted applications and had begun to generate market data on DLT-based settlement performance. However, ESMA recommended substantially increasing the volume caps, simplifying the application process, and extending the categories of eligible financial instruments to include fund units and other instruments not currently covered.

The ESMA recommendation reflected a broader conclusion that the DLT Pilot Regime had validated the concept of DLT-based securities market infrastructure and that the EU should move from a sandboxed experiment to a permanent regulatory pathway. Legislative action to implement these recommendations was anticipated in the Commission’s 2026 work program.