ECB supports tokenization with strict rules, focusing on central bank money, regulation, and interoperability for safe financial market growth.

The European Central Bank has outlined a cautious plan for tokenizing Europe’s capital markets. The policy emphasizes efficiency benefits but also stringent protection. In addition, the authorities stressed that financial stability should be the priority. In turn, the strategy is to strike a balance between innovation and high regulatory standards in the region.

ECB Sets Conditions for Safe Tokenization Growth in Europe

The ECB believes that distributed ledger technology has great potential, according to its most recent Macroprudential Bulletin. It claimed that tokenization has the potential to enhance efficiency and transparency in markets. However, the bank cautioned that the benefits will be dependent on the appropriate infrastructure and policy alignment. As such, governments need to respond promptly to control arising risks.

Moreover, the ECB emphasized that tokenized systems should be based on central bank money. This method minimizes risks associated with private tokens and stablecoins. Authorities cautioned that the use of personal resources might undermine monetary authority. Consequently, it is critical to anchor transactions on central bank money.

Besides this, the ECB affirmed the Pontes initiative. This project will be launched in Q3 2026. It will facilitate settlements on-chain with central bank money. Thus, it seeks to connect conventional finance and blockchain systems safely.

Moreover, the ECB has started accepting tokenized collateral. As of 30 March 2026, some tokenized securities are eligible for Eurosystem credit operations. These assets have to comply with the stringent rules of eligibility. They have to be deposited in authorized systems such as Central Securities Depositories and settled using TARGET2-Securities.

ECB Warns of Risks While Expanding Tokenization Framework

In the meantime, the ECB also unveiled its Appia roadmap in March 2026. This strategy describes a vision of a single digital financial system by 2028. It is concerned with the development of common technical standards. Moreover, it will strive to provide interoperability between various DLT platforms.

However, the ECB pointed out a number of risks associated with the growth of tokenization. Among the key issues is monetary sovereignty. Authorities cautioned that privately issued stablecoins might diminish the position of the euro in markets. Hence, there is a need to exercise strict control measures to ensure stability.

Moreover, the absence of robust secondary markets is also an issue. The liquidity of tokenized bonds is currently low in blockchain platforms. This state of affairs limits wider adoption and scalability. This means that more development is required to enhance market depth.

Moreover, the ECB promotes centralized oversight of crypto operations. It has suggested that increased supervision via the European Securities and Markets Authority. This action is meant to bring about uniformity in the regulation of the European Union. Thus, it may lessen the fragmentation of digital finance regulations.

Lastly, the ECB highlighted that tokenization is transitioning to the early adoption phase. But it will require concerted policy intervention. With the increase in innovation, regulators need to keep up with risks. As a result, the ECB approach is an indication of a balanced approach between development and safeguarding of the European financial system.

The Depository Trust & Clearing Corporation (DTCC) has outlined developments in its Cloud First strategy, which includes partnerships with Amazon Web Services (AWS) and Microsoft, in a bid to “strengthen the resiliency, scalability, security, and speed” of the firm’s core and digital assets platforms.

By working with AWS, DTCC aims to modernise its core clearance and settlement capabilities, along with risk applications, by making them more modular, cloud-enabled, and resilient.

The migration intends to enhance operational resilience through the addition of redundancy, improving fault isolation, and enabling more robust contingency and recovery capabilities.

AWS is supporting this phase of the Cloud First strategy through its provision of the public cloud infrastructure for specified core applications serving the firm’s clearing agency subsidiaries: The National Securities Clearing Corporation, Fixed Income Clearing Corporation, and The Depository Trust Company.

DTCC is expanding its partnership with Microsoft to innovate and accelerate the deployment of the DTCC Digital Assets service on Microsoft’s cloud computing platform, Azure.

Through Azure, DTCC says it will be able to design and operate digital asset platforms that can “scale dynamically, support new market use cases, and evolve alongside rapidly changing technologies”.

Microsoft will extend its current work with DTCC Digital Assets to include all initiatives across the business, including plans to advance digital market infrastructure and support the development of digital asset platforms.

DTCC will leverage Microsoft’s AI and engineering capabilities, in addition to insights from Microsoft Research.

Speaking on the initiative, Lynn Bishop, DTCC managing director and chief information officer, says: “Our Cloud First strategy enables us to transform our core services, introduce new capabilities more quickly, and advance adoption and use of digital assets while meeting the rigorous expectations of the market and regulatory bodies.”

Scott Mullins, managing director, Worldwide Financial Services at AWS, comments: “We look forward to continuing our work with DTCC to power some of its most mission-critical workloads as they accelerate innovation at the scale that global markets require, while strengthening the operations that underpin the financial industry.”

Corporate vice president, Worldwide Financial Services at Microsoft, Bill Borden, adds: “We’re at a pivotal moment in financial services, where the convergence of cloud and digital assets is fundamentally redefining market infrastructure.”

Mizuho Financial Group, Inc. (President & Group CEO: Masahiro Kihara), Nomura Holdings, Inc. (Representative Executive Officer and President and Group CEO: Kentaro Okuda), Japan Securities Clearing Corporation (President & CEO: Isao Hasegawa), and Digital Asset Holdings, LLC (CEO: Yuval Rooz; “DA”) today announced the joint launch of a proof-of-concept trial (“PoC”) to enhance collateral management by leveraging the Canton Network (“Canton”), the only blockchain purpose-built for institutional finance.

Overview of the PoC

This PoC focuses on Japanese government bonds (“JGBs”) for which rights are transferred under the Act on Book-Entry Transfer of Corporate Bonds and Shares (“BookEntry Transfer Act”). The project will verify, from both legal and practical perspectives, whether the transfer of rights and updates to book-entry transfer records within a hierarchical structure involving multiple account management institutions can be executed seamlessly using blockchain technology.

Furthermore, by integrating existing systems with the blockchain infrastructure on Canton (supported by DA), the PoC will evaluate the feasibility of achieving sophisticated, realtime collateral transactions 24/7, while maintaining the legal status of JGBs under the Book-Entry Transfer Act and the Financial Instruments and Exchange Act.

The PoC will also cover cross-border transactions involving stakeholders in and outside Japan. It will verify use cases involving the transfer of collateral among various entities, including clearing houses, institutional investors, clients, and agents. Additionally, the project will incorporate the relationship with various laws and regulations, including the Book-Entry Transfer Act, into its scope of consideration; examine the necessity of amending relevant internal rules and regulations; and consider functional improvements required for commercialization.

This PoC will be conducted as part of the initiative selected in February 2026 for support under the Payment Innovation Project (PIP) of the Financial Services Agency of Japan (JFSA).

Background and objectives

As the use of digital assets advances rapidly in the US and other markets outside Japan, and momentum also builds in Japan, achieving digital collateral management for JGBs—which are highly regarded as “eligible collateral” by institutional investors both in and outside Japan—has become an urgent priority. We believe that maintaining and strengthening the availability and liquidity of JGBs in the digital space is essential to the development of financial markets and the improvement of investor convenience.

In this PoC, by combining existing infrastructure with blockchain technology for JGB management, we aim to enable 24/7 real-time collateral transactions and significantly improve the efficiency of collateral management for trade not only within Japan but on a cross-border basis. The substantial reduction in administrative tasks related to the posting and substitution of collateral is expected to improve operational efficiency and reduce costs for both financial institutions and investors. Furthermore, by enabling JGBs (tangible assets) to be managed on a blockchain, we aim to deepen coordination with other digital assets, including digital-native ones, thereby creating value through new types of financial transactions.

Through these initiatives, we intend to solidify JGBs’ position in the digital world. By reducing administrative costs and enhancing the sophistication of collateral management, we will contribute to the expanded utilization of JGBs by institutional investors in and outside Japan and strengthen the international competitiveness of the Japanese financial market.

Hong Kong Exchanges and Clearing (HKEX) has published a consultation paper on accelerated settlement for the Hong Kong cash market.

The paper outlines the proposed operational model to shorten the settlement cycle for Hong Kong’s cash market to T+1 from the current T+2, and seeks public comment.

Subject to market readiness and regulatory approval, the transition to a T+1 settlement cycle in the cash market is intended to take place in the fourth quarter of 2027.

The stock exchange has proposed certain amendments to the existing operating model covering the cash market trade lifecycle, which include adjustments to the timing of clearing procedures, as well as settlement-related processing to facilitate timely and orderly settlement under a shortened cycle.

The existing delivery-versus-payment framework and batch settlement structure will remain unchanged.

HKEX also proposes to extend service windows for settlement-related activities such as settlement instruction input and matching, providing participants with greater flexibility to complete their post-trade processing ahead of settlement.

The existing clearing risk management framework would continue to apply, with certain timelines adjusted to reflect the shorter settlement cycle.

Based on feedback from the discussion paper, HKEX will consider developing a tool that enhances operational efficiency for institutional market stakeholders, including investment managers, custodians, and brokers, under the T+1 settlement model.

The proposed T+1 settlement cycle would apply to secondary market exchange trades, including equities, exchange traded products, structured products and debt securities, as well as the physical settlement of equities arising from stock options exercise and assignment.

Initial public offerings and Stock Connect Northbound trading would continue to operate based on their existing settlement timetables.

HKEX encourages market participants to review their securities and money-side activities, such as securities borrowing and lending, funding, and foreign exchange arrangements, in order to support the proposed changes.

The newly released paper follows a previous discussion paper in which feedback indicated an overall support for Hong Kong’s cash market to move to a shorter settlement cycle.

HKEX CEO Bonnie Y Chan says the stock exchange is committed to “future-proofing Hong Kong’s market infrastructure” and are consulting the market on its proposed operational model for a T+1 settlement framework.

“Moving to T+1 is a key step forward as we further elevate the competitiveness of Hong Kong’s markets — making transactions safer, faster, and more robust, while laying the foundation for more infrastructure enhancements and innovations,” she adds.

The consultation period will close on 18 May 2026. Interested parties are invited to respond to the consultation paper by filling out and submitting a questionnaire on the HKEX website.

Following years of controversy as to whether some digital assets breach federal securities laws, the US Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) jointly issued an interpretation on the regulatory treatment of crypto last month. Some analysts say the document clears the way for greater institutional investment in the sector while others claim it only provides a framework absent a definitive rulebook.

The 68-page document addresses staking, mining, airdrops, and token wrapping: areas that for years have fueled uncertainty in the crypto industry. Most cryptocurrencies are not securities, it concludes. And it provides clarity on how to classify various digital assets including digital commodities, stablecoins, collectibles, utility-like tokens, and digital securities.

Actively traded tokens including Bitcoin, XRP, Ethereum, Solana, Cardano, and Chainlink are among roughly two dozen now classified as digital commodities under the SEC-CFTC interpretation: an important distinction, argues Vijay Valecha, CIO at brokerage Century Financial.

‘Major’ Grey Area Removed

“Securities are subject to strict rules around disclosure, registration, and investor protection,” he notes. “Commodities, on the other hand, are regulated more through trading practices and market oversight. By clarifying where these assets fall, the regulators have removed a major grey area” for exchanges, investors, and developers.

In a statement last month, the SEC and CFTC said they “are committed to fostering a regulatory environment that allows the crypto industry to flourish in the United States with clear and rational rules of the road.” The new guidance provides a coherent token taxonomy for digital commodities, digital collectibles, digital tools, stablecoins, and digital securities, the SEC said.

Regulatory clarity will likely boost derivatives markets for crypto. With most assets now under the CFTC’s jurisdiction, they can be more easily used in regulated financial products.

Madhur Kakkar, founder and CEO of Elevate Financial Services, and the rules “in practice, accelerates rollout of futures, options, and structured products.”