The European Securities and Markets Authority (ESMA) is seeking industry input on the legal, operational and liquidity risks associated with the use of tokenized collateral at European Union central counterparties (CCPs).

The call for evidence, published on Oct. 9, explores whether distributed ledger technology (DLT) changes how eligible assets are moved, safeguarded and realized in central clearing, and whether the EU's existing rules remain adequate for that purpose. As an information-gathering exercise rather than a consultation on drafted rules, it lets ESMA gauge how tokenized collateral is actually used before deciding on next steps.

CCPs interpose themselves between buyers and sellers in cleared markets, collecting margin and default fund contributions from clearing members to cover the risk of a default. Under the European Market Infrastructure Regulation, collateral must be legally certain, liquid, of good credit quality, prudently valued and quickly realizable. How quickly collateral can be mobilized is central to a CCP's ability to cover losses when a clearing member fails.

Tokenization represents assets, rights or cash as digital tokens on DLT, allowing transfers and lifecycle events to be recorded and potentially automated. ESMA's central question is whether existing safeguards remain adequate when collateral is tokenized, so that CCPs can still manage defaults and access collateral when needed.

Tokenization initiatives are advancing beyond the pilot stage across the public sector. These include the European Central Bank's Pontes project, which connects DLT platforms to TARGET services for settlement in central bank money, alongside BIS Project Agora, staff guidance on tokenized collateral from the Commodity Futures Trading Commission (CFTC), and a joint call for input issued by the Financial Conduct Authority (FCA) and the Bank of England in May 2026. Taken together, the parallel efforts show tokenized collateral has moved onto the agendas of regulators across the EU, UK and US.

Within central clearing specifically, HQLAˣ is the only project ESMA has observed through its supervisory colleges for EU CCPs.

The regulator is also examining tokenized cash, including central bank money, tokenized deposits and stablecoins. Tokenized securities could serve as initial margin or default fund collateral, while tokenized cash could be used to settle variation margin.

ESMA has outlined four risks associated with tokenized collateral: uncertainty over legal ownership, challenges in managing collateral during defaults, liquidity and concentration risks, and vulnerabilities involving cybersecurity and interoperability.

Stakeholders have until Jan. 15, 2027, to respond. ESMA will then assess the submissions in the first quarter of 2027 and determine whether further regulatory measures are warranted.