Electronic Securities Under the Electronic Securities Act

What electronic securities are under German law

Electronic securities are securities issued without a paper certificate, by entering them in an electronic securities register. The legal basis is the Electronic Securities Act (Gesetz über elektronische Wertpapiere, eWpG), introduced in 2021.

Until then, German law required every security to be embodied in a document, usually a global certificate deposited with Clearstream Banking AG in Frankfurt. Under the eWpG, an issuer can instead make an entry in an electronic register, and the electronic security has the same legal effect as one issued by certificate (§ 2(1), (2) eWpG). It is treated as a thing (Sache) for the purposes of the Civil Code (§ 2(3) eWpG), so the familiar rules on ownership and good-faith acquisition can apply.

The Act covers bearer bonds, registered shares and bearer shares entered in a central register (§ 1 eWpG). Fund units can be issued electronically under a separate rule in the Capital Investment Code (§ 95(1) KAGB). The regime therefore now covers the main capital market instruments of German issuers, although uptake differs considerably between bonds, fund units and shares.

Central registers and crypto securities registers

The eWpG distinguishes two kinds of electronic securities register (§ 4(1) eWpG). A central register can be kept by a central securities depository or by a custodian bank that the issuer has expressly authorised in text form (§ 12(2) eWpG). Securities in a central register maintained by a CSD, with the CSD entered as holder, are settled through the existing book-entry system just like certificated securities (§ 12(3) eWpG). This is the route chosen by most institutional bond and fund issuers that wanted to digitise without changing settlement infrastructure.

A crypto securities register must be kept on a tamper-proof recording system in which data are logged in chronological order and protected against unauthorised deletion and later alteration (§ 16(1) eWpG), in practice a distributed ledger. The register keeper is the person the issuer names to holders; if nobody is named, the issuer is the register keeper (§ 16(2) eWpG). Keeping a crypto securities register is a regulated financial service requiring a BaFin licence (§ 1(1a) sentence 2 no. 8 KWG). Crypto securities allow issuance and transfer on a blockchain while remaining securities under German civil law.

Transfer and good-faith acquisition of electronic securities

Dispositions over an electronic security require an entry or re-registration in the register to be effective (§ 24 eWpG). Ownership passes when the security is re-registered to the acquirer on the instruction of the entitled person and both agree that ownership should pass; until re-registration, the transferor keeps ownership (§ 25(1) eWpG). The right under the security passes with the transfer of ownership. For electronic shares with transfer restrictions under the articles, the register keeper may only re-register after the company has consented, and registered shares in electronic form cannot be transferred by endorsement (§ 25(3) eWpG).

The register enjoys public faith. In favour of a person who is entered in the register on the basis of a legal transaction, the content of the register is deemed complete and correct and the holder is deemed to be the entitled person, unless the acquirer knows otherwise or is unaware due to gross negligence (§ 26 eWpG). Restrictions on disposal are effective against an acquirer only if they are entered in the register or known to the acquirer. This gives electronic securities a level of transferability comparable to certificated bearer securities.

Collective and individual entries

An issuer may enter a CSD or a custodian as holder for the whole issue (collective entry), or individual investors as holders (individual entry) (§ 8(1) eWpG). Collective entries fit the existing custody chain, while individual entries allow direct holding on a ledger. Holders may convert individual entries into a collective entry unless the terms or articles exclude it (§ 8(2) eWpG). Investors have no right to receive individual paper certificates unless the terms or articles expressly provide for it (§ 6(1) eWpG).

Issue terms, register duties and liability

Before an electronic security is entered, the issuer must deposit the issue terms with the register keeper as a durable electronic document that anyone can access directly and repeatedly (§ 5(1) eWpG). If the entry is not made within three months, the register keeper deletes the deposited terms. Later amendments to the terms must themselves be deposited to become effective, and the register keeper must ensure that the terms change only by law, legal transaction, court decision or enforceable administrative act (§ 5(2), (3) eWpG). For electronic shares, the articles of association are not deposited (§ 5(5) eWpG).

The register keeper must keep the register so that the confidentiality, integrity and authenticity of the data are guaranteed and the register always reflects the actual legal position. It is liable to the entitled person for damage caused by incorrect register keeping unless it is not responsible for the error, and for data loss or unauthorised changes if it has not taken the necessary technical and organisational measures (§ 7(2), (3) eWpG). Keeping a register is not in itself custody business under the Securities Custody Act (§ 7(4) eWpG).

For crypto securities, the issuer carries its own responsibility for the integrity and authenticity of the securities. It is liable for damage caused by the register keeper only if it did not exercise due care in selecting it (§ 21(1) eWpG). If the requirements for the register can no longer be met, the issuer must remedy the situation within a reasonable time, and BaFin can require it to move the crypto securities to another register (§ 21(2) eWpG).

A voluntary move to another register needs the consent of all holders or of BaFin (§ 22 eWpG). Payments on electronic bonds are owed only against an instruction to re-register the bond to the issuer on proof of payment (§ 29(1) eWpG), which replaces the presentation of a paper certificate.

The extension of electronic securities to shares

The eWpG originally covered only bearer bonds, with electronic fund units provided for in the KAGB. A later reform extended it to shares: registered shares can now be issued as central register shares or as crypto shares, while bearer shares are possible only in a central register (§ 1 eWpG). The issuer can mandate the register keeper to keep the share register under the Stock Corporation Act as well (§ 30a eWpG). For electronic shares, the articles of association take the place of the issue terms in many provisions, for example on the right to paper certificates and on replacing electronic with certificated shares (§ 6 eWpG).

For start-ups and smaller stock corporations, crypto shares can simplify the shareholder register, employee participation programmes and secondary transfers. For listed companies, central register shares held through the CSD are the practical route. Because shareholder rights, notifications and general meeting procedures continue to follow the Stock Corporation Act, issuers should map the full lifecycle, from issuance to dividends, capital measures and squeeze-outs, before choosing an electronic format. Our page on corporate governance for GmbH, AG and SE explains the general framework.

Regulatory classification: securities, not MiCAR crypto-assets

Electronic securities are financial instruments. Their public offer is subject to the Prospectus Regulation, their trading to MiFID II and the Market Abuse Regulation, and their custody to the rules on custody business. They are excluded from MiCAR, which covers crypto-assets that are not financial instruments; see our insight on MiCAR CASP authorisation. This distinction matters for tokenisation projects: a token representing a bond or share is generally a security, and issuers cannot rely on the lighter MiCAR white paper regime.

Crypto securities may also be admitted to DLT market infrastructures under the EU DLT Pilot Regime, which allows trading and settlement of tokenised financial instruments on distributed ledgers under certain exemptions. Conflict-of-laws rules in the eWpG determine which law governs rights in an electronic security: generally the law of the state supervising the register keeper, and where there is no supervision, the law of the register keeper's seat or the issuer's seat (§ 32 eWpG). Cross-border token issuances should take this into account. For bond issues, the Bond Act also applies to electronic bonds, including majority decisions by holders, discussed in our insight on bondholder votes under the SchVG.

Practical use cases for electronic securities

• Digital bonds: central register bonds and crypto bonds can shorten issuance processes, reduce documentation and settlement costs and allow smaller denominations.
• Fund units: electronic fund units under § 95 KAGB enable digital distribution and, for crypto fund units, direct holding on a ledger.
• Employee and start-up equity: crypto shares can make cap table management and transfers more efficient for unlisted stock corporations.
• Collateral and repo: electronic securities can be used as collateral, with pledges requiring entry in the register under § 24 eWpG.

Despite these advantages, market adoption depends on infrastructure, investor acceptance and tax and accounting treatment. Issuers should run a pilot with a limited investor base before committing a full programme, and should involve their paying agent, custodians and auditors early so that operational processes are tested end to end. Our page on capital markets covers wider issuance questions.

How TRW & Co helps

We advise issuers, banks, register keepers, fintechs and investors on electronic securities in Germany. We structure electronic bond, share and fund unit issues, draft issue terms and articles of association, assess licensing requirements for crypto securities register keeping and custody, and review platform documentation and DLT arrangements. We also advise on the interaction with prospectus law, MiFID II, MiCAR and the Bond Act, and on the corporate law steps for electronic shares. This page is general information, not legal advice. To discuss a project, please contact us.