A Security Token is a security, as defined under applicable law, which is recorded, transferred, and stored using a distributed ledger technology.
‘Native’ Security Tokens are securities issued directly on a DLT, based on smart contracts, and used to natively manage on-chain the investor rights and obligations in respect of financial products. In contrast, ‘non-native’ Security Tokens are DLT representations of pre-existing financial instruments issued outside of the DLT. Dealing with ‘non-native’ Security Tokens could thus mean dealing with the existing complexity embedded by the underlying asset, in addition to the DLT integration. On the contrary, handling ‘native’ Security Tokens streamlines processes and aims at reducing the complexity of current mechanisms.
2- What is the CAST Framework?
The CAST (Compliant Architecture for Security Tokens) Framework constitutes a comprehensive operational model proposal designed for the issuance, custody and OTC trades of Security Tokens, published online in an open-source manner. It has been approved and experimented in substantial issuances of Security Tokens realized in 2019, 2020 and 2021 by systemic regulated institutions (banks, supranational, brokers…), notably within the Societe Generale Group.
3- What is the purpose of the CAST Framework?
Its purpose is to propose a framework at bank-grade level designed to facilitate the establishment of market practices and standards acceptable for capital market participants (issuers and investors), recognized trusted third parties (banks, investment firms, fund administrators, lawyers, consultants…), as well as start-ups and technology service providers, and to serve as a milestone for ongoing and future discussions with various policymakers and regulators across countries.
4- Under which principles has the CAST Framework be designed?
The CAST Framework has been designed to hybridize common financial market standards with new approaches related to decentralization and open-source projects based on blockchains. Its architecture is based on common practices and standards applied by regulated entities within capital markets. In addition to these business rules, the CAST Framework includes open-source computer programs (the "Oracles" as defined below) designed for inputting and outputting computer data via a blockchain.
5- What are the components of the CAST Framework?
The CAST Framework is constructed around three components that propose business rules, a legal, regulatory and contractual understanding, and operational schemes, based on the following pre-requisites:
• Taking a holistic approach covering the whole life cycle of Security Tokens (structured on the basis of this CAST Framework);
• Ensuring interoperability with the current systems in order to facilitate the transition to digitization;
• Securing internal and/or external review and assessment of operations with regard to current and on-going regulations (KYC-AML, embargoes-sanctions, securities law, etc.);
• Remaining agnostic of underlying DLT technologies in order to have enough flexibility to be able to handle technical developments and the future landscape.
6- For whom is CAST intended?
The CAST Framework community is a growing ecosystem working on its assessment, market adoption and potential updates to enhance the development of further Security Tokens’ issuances and trades and facilitate the gradual industrialization of this new market.
Created under an open-source and inclusive philosophy in order to maximize take-up, provide incentives for regulated institutions to develop their DLT-based projects, and facilitate the adoption of market standards for Security Tokens compatible with the ones of traditional securities, the CAST Framework is designed to be analyzed, implemented, and potentially improved by various kinds of stakeholders (market participants, public officers, technological service providers, start-ups, etc.).
7- What are the Oracles and how are they composed?
The Oracles are computers programs based on the CAST Framework and designed as connectors to blockchains. They are plug-in components that ensure a bridge between blockchains and legal entities post-trade current systems.
Oracles can be used both as distributed ledger event adapters (i.e. to capture, collect, register, process and/or transform data stored within a distributed ledger for on-chain specific events, and to enable the access to such data to third party applications via APIs or the exchange of data files using a communication protocol), and as distributed ledger-based transactions generators (i.e. to generate and broadcast on-chain specific transactions). The Oracles are agnostic to the underlying blockchain protocol. One Oracle can connect to one ore many types of blockchain protocols.
