The DLT Pilot Regime is part of the Digital Finance Package that was introduced by the European Commission in 2020. The framework supports the potential of digital finance by fostering innovation and competition while mitigating risks. The Regime adopts a sandbox approach which allows for eligible firms to operate a DLT-based market infrastructure for trading and settling limited financial instruments. 

Under this regime only liquid bonds, shares, and fund units will be allowed on the DLT. The aggregate market capitalisation also may not exceed EUR 6 billion at the time of admission to trading or initial recording of a new DLT financial instrument. This regime separates itself from MiCA as it only provides a framework for the trading or settlement of transactions which qualify as financial instruments under MIFID II and therefore are true digital securities. 

Noteworthy is the application of a “sandbox” approach as the regime represents a testing environment which grants derogations from existing rules. The aim is to exempt DLT market infrastructures from requirements of the EU financial service legislation that could stifle innovation and the development of solutions for the trading and settlement of transactions in crypto-assets by means of DLT. The permission to operate DLT market infrastructure in accordance with the regime is temporary and limited to 6 years if strict requirements are met. The DLT permission will come with an “EU passport”, meaning that it shall be valid throughout the European Union.