ESMA Tests Whether Tokenized Collateral Can Become Cash

The European Securities and Markets Authority published a call for evidence Friday on the use of tokenized collateral in clearing operations. The review will assess whether European Union rules allow clearinghouses to access, transfer and liquidate these assets when they need cash to meet financial obligations.

The consultation covers digital representations of assets held in traditional financial infrastructure and assets issued directly on distributed ledgers. It also examines how tokenized collateral interacts with stablecoins, central bank money and tokenized deposits.

ESMA is asking whether existing rules allow clearinghouses to sell tokenized collateral quickly if a clearing member defaults. The authority is also examining whether transferring a token gives its holder ownership of the underlying asset or an enforceable claim against it.

Assets that are liquid in traditional markets may face additional restrictions after tokenization, including delays linked to redemption procedures and limits on transfers, ESMA said in its consultation documents.

“ We must create the conditions for tokenized markets to operate safely and at scale across borders, with legal certainty, interoperable infrastructures and appropriate supervision,” ESMA Chair Verena Ross wrote in the announcement.

Banks and investors are beginning to use tokenized collateral in European clearing operations to access securities more quickly for margin requirements. In July 2025, Eurex Clearing introduced a collateral service based on distributed-ledger technology. JPMorgan completed the first live transaction through the service for Dutch pension investor PGGM, transferring securities from another custody location.

The consultation follows the Eurosystem’s September launch of Pontes, a settlement system that allows financial institutions to use central bank money for transactions involving tokenized assets. ESMA described Pontes as a link between blockchain-based infrastructure and existing settlement systems that could support tokenized collateral arrangements.