ESMA seeks feedback on tokenized collateral at EU clearing houses
The EU markets watchdog has opened a call for evidence on whether digital twins of eligible collateral can be moved and liquidated when markets break down
The European Securities and Markets Authority is seeking industry input on the legal, operational and liquidity risks of tokenized collateral at EU central counterparties (CCPs).
The call for evidence, published on Oct. 9, explores whether using distributed ledger technology changes how eligible assets are moved, protected and realized, and whether existing EU rules remain adequate.
CCPs stand between buyers and sellers in cleared markets, collecting margin and default fund contributions from clearing members to cover the risk of a default. Under the European Market Infrastructure Regulation, collateral must be legally certain, liquid, of good credit quality, prudently valued and quickly realizable.
Tokenization represents assets, rights or cash as digital tokens on DLT, allowing transfers and lifecycle events to be recorded and potentially automated. ESMA’s central question is whether existing safeguards remain adequate for tokenized collateral, so that CCPs can still manage defaults and access collateral when needed.
Tokenization projects are advancing beyond the pilot stage, with a string of public-sector efforts including the ECB’s Pontes, which connects DLT platforms to TARGET services for central bank money settlement, BIS Project Agora, CFTC staff guidance on tokenized collateral, and a joint FCA and Bank of England call for input in May 2026.
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Within central clearing, however, HQLAˣ is the only project ESMA has seen through its supervisory colleges for EU CCPs.
The regulator is also examining tokenized cash, including central bank money, tokenized deposits and stablecoins. Tokenized securities could serve as initial margin or default-fund collateral, while tokenized cash could be used to settle variation margin.
ESMA has outlined four risks associated with tokenized collateral, including uncertainty over legal ownership, challenges managing collateral during defaults, liquidity and concentration risks, and vulnerabilities involving cybersecurity and interoperability.
Stakeholders have until Jan. 15, 2027, to respond, after which ESMA will assess the submissions in the first quarter of 2027 and determine whether further regulatory measures are warranted.