ClearToken CSD passes Gate 2 of the Bank of England's Digital Securities Sandbox, with a £600m gilt limit

What the Bank approved

The Bank of England issued ClearToken CSD Limited a Gate 2 sandbox approval notice on 18 September. It lets the firm operate as a digital securities depository (DSD) in the Digital Securities Sandbox (DSS) and carry out the core functions of notary, central maintenance and settlement in a live environment. The Bank issued the notice for those core functions; the Bank and the FCA jointly issued it for the ancillary activities. The notice replaces ClearToken CSD’s Gate 1 approval. ClearToken announced the approval on 22 September.

The approval covers certificates, each represented by a tokenised depository interest, over four types of asset. Each has a cap on the amount the DSD can hold:

• UK government debt: £600m.
• GBP corporate bonds: £900m.
• Non-GBP corporate bonds: £1.8bn.
• Shares in FTSE 350 companies: “TBC”.

The notice also lets ClearToken CSD engage credit institutions to settle the cash leg, as a “type (b) banking services provider”. Ancillary services covered include securities lending as agent, collateral management, settlement matching and corporate action processing.

Conditions and restrictions

The approval is subject to three conditions. The Bank must receive a Gate 2 self-attestation it is satisfied with, confirm the limit for FTSE 350 shares, and receive confirmation that ClearToken CSD has had a capital injection large enough to meet the sandbox’s minimum capital requirement. The firm may not serve retail customers directly. Tokenised depository interests must be issued one-for-one against the underlying asset, and the underlying assets must be safeguarded by an FCA-authorised entity.

How the two accounts differ

ClearToken’s announcement and the Bank’s notice differ in two places.

ClearToken said that “at launch” its live settlement services “will support FTSE 350 equities” alongside gilts and corporate bonds. The Bank’s notice leaves the FTSE 350 limit unset and makes Bank confirmation of that limit a condition of the approval. ClearToken’s own notes to editors also say “public equity limits are to be confirmed”.

ClearToken also describes “continuous 24/7 settlement” and intraday repo “on a 24/7 basis”. Its notes to editors say that until a Bank of England omnibus account is in place, participants in any commercial bank money arrangement bear settlement bank credit risk. The Bank’s notice approves cash settlement through credit institutions, not in central bank money.

ClearToken describes itself as the second firm to pass Gate 2 and the first that is not a bank. It said that, subject to further approval from the Bank, it intends to extend eligibility in phases to global public equities, private funds, physical commodities such as gold, and digital assets.

Where the sandbox stands

The Bank and the FCA said in May 2026 that they were working with 16 firms on live issuance and settlement in the DSS. The Bank also committed then to launch a live synchronisation service, targeted for 2028, and to allow tokenised versions of already-eligible assets to be used as collateral at central counterparties and in its own operations.

Why it matters

For repo traders and collateral managers, the appeal is timing. ClearToken says its model uses the same ISINs for digital and traditional securities, so that liquidity is not fragmented. It also says settlement throughout the day removes reliance on batch processes and end-of-day cut-offs, so participants could borrow against collateral “for hours rather than days”. If that works at scale, it would reduce trapped liquidity around funding cut-offs.

The limits keep this small. ClearToken’s notes to editors describe the caps as limits “on overall assets under custody at one time”, so the £600m gilt limit applies to the whole service rather than to each participant. The approval to carry on the approved activities is subject to the three conditions above. Credit teams will also need to assess the settlement bank exposure that ClearToken itself discloses. For now, the approval is mainly a test of whether a non-bank depository can run a supervised, round-the-clock settlement service.

What we are watching

• Bank confirmation that the three conditions are met, and the FTSE 350 limit it sets.
• First live issuance and repo volumes against the caps.
• Progress on ClearToken’s separate application for authorisation as a central counterparty.

Added to The Midpoint on 1 November 2026, with the Market Structure section. This article is dated to the event it describes; it was not published at the time.

Sources

• ClearToken Approved to Operate a Digital Securities Depository in the Bank of England’s Digital Securities Sandbox, ClearToken, 22 Sep 2026
• Sandbox Approval Notice for Gate 2 of the Digital Securities Sandbox: ClearToken CSD Limited, Bank of England and Financial Conduct Authority, 18 Sep 2026
• FCA and Bank of England set out shared vision for tokenisation in UK wholesale markets, Bank of England, 18 May 2026