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On December 16, 2020, the German Federal Government submitted its draft of the ‘Law on the introduction of Electronic Securities’. The draft law serves to modernize German securities law and the associated supervisory law by – as a ‘first step’ initially only for debt securities.

On 16 December 2020, the German federal government submitted a draft of the Law on the Introduction of Electronic Securities (elektronisches Wertpapiergesetz, hereinafter referred to as RegE-eWpG), further advancing the legislative process leading to enactment.

The draft bill serves to modernise German securities law and associated supervisory legislation by – as a first step, initially only for debt securities and, to a lesser extent, share certificates:

  • Enabling electronic securities
  • Introducing securities trading on the basis of blockchain technology
  • Making this legally secure

Current legal situation in Germany

German law currently requires financial instruments that qualify as securities (Wertpapiere) to be securitised in a physical document in accordance with the German Civil Code.

The legal basis for electronic trading is currently a single, physical global certificate, which is held in possession for all investors by Clearstream Banking AG, a subsidiary of Deutsche Börse AG. The investors are co-owners of this global certificate on a fractional basis and – through their custodian banks affiliated with Clearstream Banking AG – co-possessors. This legal structure – a transfer in rem (dingliche Übereignung) as opposed to a pure acquisition of rights – enables a bona fide acquisition (gutgläubigen Erwerb), which in turn serves to protect potential acquirers in the market.