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Digital global notes for Austrian debt issuers

Draft legislation published


Up to present, securities (Wertpapiere) created under Austrian law had to be in paper-based form where those securities are intended to be settled in a securities settlement system and to benefit from transfer via book-entry. Under the new Austrian draft legislation published on 23 September 2020, it is now proposed to allow for the creation of digital global notes (digitale Sammelurkunde).

Which type of securities: According to the draft, it is proposed to allow for the digital creation of debt securities (Schuldverschreibungen) (thereby, so we would expect, encompassing the whole range of typical bank bonds including structured notes and regulatory capital products) and investment certificates (Investmentzertifikate) (mainly relating to UCITS).

Requirements for valid creation: The digital global note is being created when a set of data (i) is established within a CSD, (ii) on the basis of information electronically provided by the issuer (x) in the form and structure required by the CSD and (y) relating to the rights following book-entry with the relevant securities account.

Functionality: By operation of law, the new digital type of global notes shall have the full legal functionalities as any traditional paper-based global note currently existing under Austrian law (e.g. mainly book-entry transfer, (proportional) legal title via holding the relevant securities through the "chain" of all securities accounts involved).

Transformation of existing paper-based securities: Under the draft law, the issuer is entitled to substitute existing paper-based global notes with new digital global notes without noteholder consent.

Other types of securities: The range of securities available under Austrian civil law (this may, for example, include simpler types of securities not susceptible to book-entry) or the definition of securities under the EU capital markets regulation (as is relevant for the obligation to draw up a prospectus) is intended to remain unaffected by the new digital type of global notes.

Issuers / business models: The legal basis chosen (the Austrian Securities Deposit Act (Depotgesetz)) and the requirements for creation (a set of data within a CSD) mean that the involvement of a CSD is required. The new digital type of global note would therefore be most suitable for financial institutions and corporates as issuers of debt securities on the capital markets. The transfer of those securities via book-entry would typically include securities accounts held with banks and trading via bank-based / investment firm-based systems.

More innovative and "private" means of creation and transfer recently proposed in the context of alternative funding, e.g. for start-up enterprises, in a crowdfunding environment and/or on the basis of blockchain technology, would rather not benefit from the new type of digital global note as it stands.

The draft proposed by the Austrian Ministry of Finance is still subject to review and change under the usual legislative procedure.

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Walter Gapp