The pledge of financial securities is an essential guarantee for many financing transactions. Traditionally recorded in a securities account, it is undergoing a major evolution with the emergence of blockchain technology. This innovation, recognised in French law under the name Dispositif d'Enregistrement Électronique Partagée (DEEP), opens up new prospects for companies and investors. Understanding this mechanism has become essential for anyone wishing to use modern financial assets as collateral. This article explains how DEEP securities pledging works and the issues involved, and complements our complete guide to securities account pledging.
Understanding the shared electronic recording device (deep)
DEEP is the official acronym for a register based on blockchain technology and applied to the representation and transmission of financial securities. It represents a paradigm shift away from the traditional securities account managed by a centralised intermediary. The DEEP is based on a distributed register, shared and synchronised between several participants in a network, which gives it special technical and legal characteristics.
What is a distributed ledger or blockchain?
In simple terms, a distributed ledger, or blockchain, is a digital ledger. Unlike a traditional ledger kept in a single place by a single entity (such as a bank), the blockchain is duplicated and distributed across a network of computers. Each new transaction, or "block", is added to the chain after being validated by the network participants. This structure has two fundamental advantages. Firstly, it is immutable: once a piece of information has been added to the chain, it cannot be modified or deleted. This guarantees the integrity and history of transactions. Secondly, decentralisation: the absence of a single central authority to validate transactions strengthens the resilience and transparency of the system.
The 2017 ordinance: legal recognition
Aware of the potential of this technology, French lawmakers have acted to give it a legal framework. Order 2017-1674 of 8 December 2017 officially incorporated the DEEP into French financial securities law. This text established that a registration of securities in a DEEP "takes the place of a book entry". This recognition is fundamental. It gives the blockchain representation the same legal value as the traditional accounting entry. This reform has made it possible to extend the tried-and-tested securities account pledge regime to these new dematerialised assets, thereby providing legal certainty for creditors and collateral providers.
Basis of pledge: securities registered in an account or deep
The pledge base, i.e. all the assets used to secure the debt, can now be made up of financial securities registered either conventionally in an account or in a DEEP. French law has ensured that this new technology is incorporated in harmony with the existing system, by establishing a principle of equivalence while specifying the scope of application.
Legal assimilation of deep identification to the pledge account
The keystone of the system is assimilation. Article L. 211-20 of the French Monetary and Financial Code specifies that the identification of the securities pledged by a "computerised process" (the DEEP) is "deemed to constitute the pledged account". In practical terms, this means that all the rules that apply to a pledge on a special securities account apply in a similar way to a pledge on securities identified in a blockchain. The computerised marking of securities in the DEEP replaces registration in a dedicated sub-account. This legal equivalence makes it possible to apply a known and proven body of rules to an innovative technology, thereby limiting uncertainty for economic players.
Financial securities eligible for deep
The use of the DEEP is not open to all types of financial security. At present, it is mainly reserved for securities that are not admitted to trading by a central depository. This mainly concerns unlisted corporate securities (shares, bonds) and certain units in collective investment schemes. It is up to the issuer to decide whether to list securities in a DEEP. This option is particularly attractive for SMEs, start-ups and investment funds looking for a more fluid and secure way of managing their capital and facilitating its use in financing transactions.
Specific features of pledging deep securities
While the system is modelled on that for securities account pledges, the technological nature of the DEEP requires a number of adjustments to be made to the formalities involved in setting it up. These adjustments are designed to guarantee the same security and enforceability against third parties as for a conventional pledge. Visit formalities for pledging collateral must therefore be scrupulously respected.
The right pledge declaration
The creation of a pledge is always based on a formal document: the pledge declaration. Signed by the pledgor (the owner of the securities), it must include mandatory information. For a pledge on a DEEP, article D. 211-10 of the French Monetary and Financial Code requires the declaration to be entitled "Déclaration de nantissement de titres financiers inscrits dans un dispositif d'enregistrement électronique partagé". It must also include details enabling the pledged securities to be unequivocally identified within the system. This is essential if the pledge is to be validly constituted and enforceable against all parties.
The role of the computerised identification process manager
In a traditional pledge, the "account keeper" is the intermediary who manages the securities account and ensures the registration and isolation of the pledged securities. In the DEEP world, this function is performed by the "manager of the computerised identification process". This may be the issuer itself or a designated agent. His role is crucial. It is the manager who technically carries out the identification of the pledged securities in the distributed register, ensuring that they are indeed "marked" as being assigned to the collateral. He becomes the creditor's contact for the execution of instructions, in the same way as a traditional account keeper.
How deep pledges work and how they are enforced
Once the pledge has been created, its life and realisation follow principles broadly similar to those of the general regime. The law has transposed the mechanisms that make securities account pledges so effective to the DEEP environment, while leaving room for contractual adaptations. It is therefore crucial to understand the terms and conditions of pledges to anticipate the steps to be taken if the debtor defaults.
Application of non-fixed universality rules
The pledge of a securities account is conceived as a guarantee covering a "non-fixed universality". What does this mean? The collateral is not limited to the securities initially pledged. It evolves. By virtue of subrogation in rem, if securities are sold, the proceeds of the sale are automatically added to the guarantee. Similarly, the proceeds (dividends, interest) and any new securities that supplement or replace the old securities are included in the pledge. This principle applies equally to securities registered in the DEEP. All the assets identified by computer constitute a dynamic perimeter that changes according to management operations, while remaining allocated to the creditor's guarantee.
Procedures modelled on the general scheme
In the event of non-payment of the secured debt, the creditor may enforce the pledge. The procedures are directly transposed from the general system. After formal notice, the creditor may sell the securities or, in certain cases, take full ownership of them. DEEP technology does not alter this fundamental right. The mechanisms for assigning ownership, in particular via a pledge agreement agreed between the parties, remain entirely relevant. The pledge agreement may also provide for specific arrangements for the valuation and ownership of the securities, taking into account the specific technical features of the register used.
Advantages and challenges of deep pledging
The adoption of blockchain technology for security interests in financial securities represents a significant step forward, but it is not without questions and challenges. It is important for companies and creditors to assess both the benefits and the risks.
Greater efficiency and transparency
The potential benefits of DEEP are significant. Blockchain technology can enable faster and cheaper management of securities and associated collateral. Decentralisation and automation via "smart contracts" can reduce transaction times and intermediation costs. Transparency is another major advantage: the shared and immutable nature of the register means that all authorised parties (creditor, settlor, manager) have a clear view, in real time, of the status of the pledged securities. This strengthens the confidence and security of transactions.
Outstanding issues
Despite a clear legal framework in France, the use of DEEP still raises challenges. On a technical level, interoperability between different blockchains remains an issue. How can we ensure that securities registered on a DEEP can be easily exchanged or pledged in another ecosystem? On the legal front, questions may arise in an international context where the legal recognition of these systems is not uniform. The liability of the "IT process manager" in the event of technical failure or cyber-attack is also a point that requires precise and robust contractualisation. Finally, the perceived complexity of the technology may act as a brake on its adoption by less sophisticated players.
Pledging securities to a shared electronic recording device is a legal reality and an opportunity to modernise financial guarantees. Although the legal framework is solid, its practical implementation requires expertise at the crossroads of securities law and new technologies. To secure your financing transactions and take advantage of a legal advice on innovative securities and financial guaranteesIn such cases, the assistance of a lawyer is essential.
Sources
- Monetary and Financial Code (in particular articles L. 211-3, L. 211-20, D. 211-10)
- Civil Code (in particular articles on pledges and commissory agreements)
- Order 2017-1674 of 8 December 2017 on the use of a shared electronic recording device for the representation and transmission of financial securities
- Decree 2018-1226 of 24 December 2018 on the use of a shared electronic recording device for the representation and transmission of financial securities
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