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The rationale of the Financial Instrument Test can be seen below:


The rationale is based on a process whereby based on the various definitions of a DLT asset, there is an elimination process of whether a DLT asset is a Virtual Token, an Instrument of Payment or a Financial Instrument.

Examples of such process can be seen below in determining whether the DLT is a Virtual Token or a Transferable Security.

dlt table

As can be seen above the test to determine if DLT asset is a Virtual token is based on the exchangeability and purpose, with the Virtual Token being exchangeable either solely within the DLT platform on or in relation to which it was issued or within only a limited network of DLT platforms and having a form of digital medium recordation whose utility, value or application is restricted solely to the acquisition of goods or services.

dlt table2

As can be seen above, the test to determine if the DLT asset is a transferable security is based on exchangeability and rights.  The first criterion to be assessed is the negotiability of a DLT asset on the capital markets. Therefore, it has been established that such a feature is a sine qua non for a DLT asset’s classification as a Transferable Security. In this respect, the Test also considers whether the transferability of the DLT asset is restricted solely to the issuer, given that only under such a scenario would the DLT asset be considered as non-transferable. For the purposes of this determination, the negotiability feature shall also apply to DLT assets which have not yet been issued, should such assets be designed to be negotiable on the capital market upon issuance.

A DLT asset’s qualification as a Transferable Security is further subject to the assessment of the rights attached to it in order to determine whether these effectively render such DLT asset akin to a share in a company, partnership or other entity, and depository receipt in respect of share/s, or bond or other form of securitised debt or gives the right to acquire or sell any such Transferable Securities or gives rise to a cash settlement.