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Jan. 11th, 2022
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5 min read
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Financial markets are going digital, and traditional securities are getting tokenized through various secured means like blockchain. Thats why businesses across Europe are scrambling to find regulatory frame works that provide legal clarity, trust, and cost efficiency. Germany’s Electronic Securities Act (eWpG) is proving to be a regulatory game changer enabling the paperless issuance of securities with a lot of advantages, increasing digital assets in financial markets across entire Europe.
We at NYALA have been tokenizing securities under the eWpG, and it has helped us not just achieve success in Germany but also other countries. We have gone boderless to unite EU and among our many adopters, is MEGIN, a Finnish company that successfully raised €3.5M through Invesdor by issuing a digital bond under eWpG. But what makes this framework so attractive? And is Germany truly leading the charge in digital securities, or will other EU nations catch up with eWpG tokenized securities?
The eWpG (Gesetz über elektronische Wertpapiere), or Electronic Securities Act, is a legal framework that allows businesses to issue securities in a digital format entirely. Basically it’s the law that is finally getting rid of paper based traditional securities and brings the financial market into the 21st century digitization era.
Features of eWpG:
1. Paperless/electronic securities issuance: No more requirement of physical certificates, just pure and simple tokenized digital assets.
2. Decentralized registry options: Businesses can now pick between traditional central depositories or blockchain-based registries without overthinking because eWpG complies with all traditional regulations.
3. Legal certainty in regulations: As per point 2, through eWpG investors and issuers can achieve legal certainty because electronic securities hold the same legal status as their paper-based counterparts.
This regulatory clarity and uncomplicated fast process of issuance is the reason why businesses are flocking to Germany for digital asset issuance!
1. Investor Protection: Uncertainty kills innovation, and financial regulators don’t like it due to huge involvement of money. The eWpG provides a clear legal recognition of digital securities, ensuring that investors can operate with confidence and save their time in double checking every little detail. This makes German eWpG far more attractive to the investors than unclear or untested regulations in Europe.
2. Cost Efficiency: Traditional securities issuance involve slayers of bureaucracy and endless paperwork, The eWpG eliminates these inefficiencies, reducing costs and making capital raising faster and cheaper. Why pay for a paper trail when you can go digital?
3. Ease of Cross-Border Adoption: Germany’s economy is one of the largest in Europe, and its financial regulations often set the tone for the EU. This makes eWpG an ideal framework for companies operating across European markets, as it provides a regulatory model that can be easily understood and adopted by investors throughout the region.
As mentioned above, NYALA helped in issuance for the Finnish Company Megin that jumped on the eWpG bandwagon. Here’s what made their eWpG issuance a success:
1. Investors were more willing to participate in the issuance due to Germany’s framework that ensured compliance and transparency.
2. MEGIN successfully avoided unnecessary administrative expenses associated with paper-based securities.
3. The structured and regulated approach of eWpG made the bond more attractive to abroad reach of investors.
Their success proves that even non-German companies can leverage the German eWpG to access European investors and raise capital efficiently, with no extra complexities.
eWpG is the most widely used framework for tokenized securities in Europe now. But as regulatory landscapes evolve, other countries might refine their own digital securities laws to compete.
What other EU Countries need to do to catch up
1. Create trust worthy and investor-friendly regulations that reduce complexity and uncertainty.
2. Enable blockchain-based registries to improve transparency and provide security.
3. Provide cross-border issuances to attract a broader range of investors.
Germany’s eWpG framework is proving to be a regulatory gold standard amongst the European space of digital asset issuance. While other countries are working on their own regulatory frameworks, Germany is currently setting the pace for the future of digital finance in Europe and is widely being chosen by European companies for tokenization of securities. As tokenization reshapes global capital markets, one thing is clear: The future of securities is digital, and Germany is leading the charge.
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