Issuance – how new securities are created

Before a security can be traded either over the counter (OTC) or on-exchange, it can be issued via a central securities depository (CSD). Securities can be created in a physical, paper-based form as either individual or global notes. They can also be created in a dematerialised form, where an electronic entry represents the security. The physical as well as the electronic record contains all the relevant information related to the security, such as issuer name, ISIN, volume, number of shares, and maturity date. The security is then stored safely in a physical or electronic vault. Market participants, such as banks, exchange operators and other intermediaries, mirror the information related to the security in their systems for trading.

From paper to digital issuance

Several countries require global notes to be printed, using a lot of paper, adding cost, time and potential for error to the process. In recent years though, many authorities have passed laws to allow for dematerialised issuances. In 2021, Germany passed such a law, the Electronic Securities Act. Since then, more than 2,000 digital, i.e. paperless, issuances have been processed by Clearstream (as of November 2023).

Digital issuance for tomorrow’s financial markets

Electronic, i.e. dematerialised, issuance is the first step towards digital markets. Electronic global notes may be paperless, but they are using the same traditional processes as before. Instrument data and instrument event data are still separately mirrored in each participant’s systems. In case of a trade or corporate event, the information needs to be updated everywhere separately. This process is known as the reconciliation process which adds costly, time-consuming, and error-prone measures.

Globalised markets, the rise of innovative technologies and changing investor needs have been calling for faster, leaner, and automated issuance processes. With its digital post-trade platform, D7, Deutsche Börse Group has created a fully digital alternative to conventional physical issuance and processing of securities. To issue a security, D7 creates a digital instrument, meaning a digital representation of the electronic global note. This digital instrument serves as a “golden source” of information for all participants because D7 connects directly to the existing and new systems of issuers, intermediaries, and investors, reducing reconciliation needs to a minimum. Going forward, D7 will ensure that issuers can digitise their financial products with continuing access to both existing central and distributed infrastructures and markets. After launch in the German market, D7 will be enhanced to the Luxembourg and international markets.

Physical issuance can take up to two days for all participants to have the same information in their books. With digital issuance, financial instruments can be ready for trading within less than ten minutes, saving time and cost, and creating more efficient, safe, and liquid financial markets.