The Brazilian securities regulator CVM has set up a working group to develop a pilot regulatory framework for monetized securities. The first programme is to be submitted within 60 days of the formal establishment of the working group and the overall review cycle is 120 days, with an extension of 30 days if necessary.

The rule was drafted not to focus on the old question of whether “the token is a security” but rather on how securities are registered, held, traded and settled when they are chained. The regulator will also deal with specific matters such as official holder records, private key custody, reversibility of transactions and liability for system failure.

First programme submitted within 60 days

CVM indicated that the Working Group would draft a framework for security activities using distributed booking techniques, covering the core post-issuance links, including registration, hosting, trading and settlement. The first proposal will be submitted to the CVM Board for consideration.

The working group involved 14 departments within CVM, and could also consult with government agencies, industry associations, self-regulatory organizations and external experts. The review also covered cybersecurity risks, international regulatory models, and previous tests to regulate the sandbox project.

Focusing on operational issues after the chain

Brazil had previously applied the securities law according to the economic characteristics of the asset. CVM guidelines issued in 2022 also make it clear that the use of block chains does not change the determination whether an asset constitutes a security.

Thus, the focus of the round shifted to post-chaining of securities. Distributional books may bring together the functions of an exchange, custodian, registry, central storage and clearing system in the same system, which also raises new responsibilities.

  • Who has official ownership records?
  • Who keeps the private key? How?
  • Under what circumstances transactions can be avoided

Brazil RWA market has reached R$12 billion

The Brazilian monetized real-world asset market has been expanding in recent years. Data from the local tracking platform RWA Monitor show that the country ' s RWA market has reached about R$12 billion, or $2.34 billion.

Of this amount, bonds and commercial paper together account for approximately $1.3 billion, which is a major component of the current market. CVM has also previously tested the issuance and secondary trading processes based on block chains through the regulation of sandboxes, the results of which will be included in the assessment of the current round of rules.

The task of the new working group is to assess, on the basis of established experiments, how to establish a more complete regulatory framework for the issuance, holding and trading of securities that occur on distributed books.