Security tokens secured by mortgage – possible in Austria?
So far, security tokens have mainly been used for tokenized profit participation rights. Yet, are the tokens also applicable to real values such as real estate in an Austrian land register, which has rather strict regulations?
Curators Act (KurG) of 1874 as a solution:
The short answer is: Yes, it is actually possible to mortgage security tokens!
Interestingly enough, this is due to an almost forgotten law from 1874, the so-called Curators Act (in German Kuratorengesetz or KurG), which contains a provision by which the holder of a right in rem to a property is not required to make a personal entry in the land register.
Instead, a common representative of the creditors is entered in the land register. In this way, token holders could hold the lien without having to be entered in the land register themselves.
Even if no security token was known in 1874, it is not unreasonable to apply this law to digital value units as well. The KurG is also applicable to securities traded in the securities giro, which are also not physical, but in principle, only booking lines on online securities accounts – i.e., de-materialized securities.
Prerequisites for Security Tokens under the Curators Act:
In order to be subject to the Curators Act, security tokens must be in the form of a partial debenture. From an economic point of view, the token should, therefore, be a loan and be both interest-bearing and repayable.
Following the appointment of a joint representative in accordance with § 15a KurG, every new owner of the tokens now has the direct lien, without it having to be corrected in the land register. Each token would thus be what the KurG calls a partial bond. The total issue volume is thus divided among a certain number of tokens.
If all these requirements according to the KurG are fulfilled, it is actually possible to mortgage security tokens and each token holder would have an independent claim in rem from the mortgage.
Statement BMCP: for us, this represents a very interesting approach to this topic, which we will certainly observe carefully in the future.
Question: How interesting is this form of mortgage security tokens for investors?