The Luxembourg Stock Exchanges admits distributed ledger financial instruments on its SOL

The Luxembourg Stock Exchange (the "LuxSE") announced on 31 January 2022 that it will admit security tokens on its Securities Official List (SOL), which is a dedicated section of the LuxSE's official list. Security tokens are to be understood as financial instruments that are issued and exist on a distributed ledger, allowing for a fully digital issuance process (the "DLT Financial Instruments").

It is important to note that the LuxSE will however only allow DLT Financial Instruments to be registered on the SOL. This means that such financial instruments will not be admitted to trading on either the regulated market of the LuxSE or on the Euro MTF market. However, the registration of the DLT Financial Instruments on the SOL will already provide increased visibility of such issuers of distributed ledger technology instruments to market participants and should also facilitate the calculation and dissemination of indicative prices and other securities-related information data for this type of financial instruments.

The possibility of obtaining such listings should therefore be an interesting option in order to attract enhanced market interest for issuers of DLT Financial Instruments and reflects Luxembourg's general DLT-friendly position and legislation.

What does a listing on the SOL entail?

In this context it should be worthwhile summarising the main characteristics and features of a SOL listing in a high-level manner.

Listings on the LuxSE SOL do not trigger the application of the disclosure and publication regime under Directive 2004/109/EC on the harmonisation of transparency requirements, Regulation (EU) No 596/2014 on market abuse or the Rules and Regulations of the LuxSE (the "ROI"). The reason for this is the fact that inscriptions on the LuxSE SOL are exclusively governed by a specific rulebook of the Luxembourg Stock Exchange and the Grand-Ducal Regulation of 30 May 2018 which implements Directive 2001/34/CE establishing the existence of the official list (the "Rulebook"). Consequently, only the provisions in the Rulebook as regards the requirements for listing and any on-going disclosure or notification obligations are applicable. This leads to the application of a much lighter and simplified registration/listing and on-going disclosure regime.

Listing procedure

Instead of submitting a prospectus which complies with the provisions set out in both Regulation (EU) No 2017/1129 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (the "Prospectus Regulation") and Commission Delegated Regulation (EU) 2019/980 for any admission to trading on the regulated market of the LuxSE or a prospectus conforming to the rules set out in the ROI for the Euro MTF market, the issuer only needs to provide an information notice in English, French or German which must include minimum details about the securities and the issuer (the "SOL Information Notice"). The Information Notice must be submitted to the LuxSE for approval and must have been established in accordance with the applicable information elements set out in Schedule 1 to the Rulebook.

Ongoing disclosure obligations with respect to listings on the LuxSE SOL

The ongoing disclosure regime applicable to SOL listings is less onerous than the regime applicable to fully-fledged admission to tradings on the regulated market or the Euro MTF market. Nonetheless, it resembles in part the communication obligations applicable to Euro MTF issuers as contained in chapter 9 of the ROI. However, no specific publication obligations as, for instance, the type of obligations set out in chapter 10 of the ROI, apply. Consequently, the issuer is not required to provide any periodic reporting such as the publication of annual or half-yearly financial reports. Therefore, the issuer mainly only needs to communicate to the LuxSE in advance any information relating to events affecting the securities inscribed on the LuxSE SOL. This provision does not constitute a publication obligation and thus does usually not require the publication of any notices.

Furthermore, the issuer must disclose to the LuxSE all information concerning events affecting the issuer, including but not limited to, important changes in activities or any modifications to the articles of association and notices of meetings for security holders.

What additional framework must be applied in the context of DLT Financial Instruments?

With respect to an SOL listing of DLT Financial Instruments the LuxSE has published specific guidelines setting out the eligibility criteria and listing requirements (the "DLT Guidelines"). You can find this document under https://www.bourse.lu/SecurityTokens.

This means that issuers intending to list their crypto-assets on the SOL will need to comply with both the DLT Guidelines and the SOL Rulebook.

What listing applications will be considered for such SOL listings?

The LuxSE in a first phase will however only consider applications for the registration of DLT Financial Instruments that fulfil the following cumulative criteria:

1. debt instruments offered exclusively to Qualified Investors within the meaning of the Prospectus Regulation or which have been issued in a denomination per unit that amounts to at least Euro 100 000;
2. issuers having previously issued securities in capital markets or applicants having a proven track record in capital markets transactions; and
3. pricing in fiat currency.

Is there any specific additional information the SOL Information Notice must contain for DLT Financial Instrument listings?

The DLT Guidelines set out seven specific information items that will need to be covered in the SOL Information Notice when DLT Financial Instruments are to be listed on the SOL. In this respect, we encourage you to take a closer look at the DLT Guidelines.

There are however two specific points that are in particular worth focusing on:

Contingency procedure in case of failure

The issuer must provide a confirmation that a contingency procedure in case of a failure in the distributed ledger technology system that is being used has been put in place which allows for the identification of the holders of the DLT Financial Instruments. In this respect a responsibility and liability statement should be included in the SOL Information Notice.

DLT Financial Instruments must qualify as securities

Finally, it is important to note that SOL listings of DLT Financial Instruments will only be accepted if the DLT Financial Instruments qualify as securities under the law under which the instruments in question have been issued. In this respect, the DLT Guidelines refer to section 2 (ii) and (iii) of the Rulebook. This means that under the relevant law the DLT Financial Instruments would need to qualify as bonds or other debt securities which have either been issued by a company or a state, its regional or local authorities or by an international public body. In cases of doubt, the LuxSE might require the submission of an independent legal opinion to be provided by the issuer.

For more information please contact a member of our team.

Authors: Fabien Debroise and Katia Fettes