OPINION OF THE EUROPEAN CENTRAL BANK
at the request of the Dutch Mi nistry of Finance under Articles  109l (2) and 109f (6) of the
Treaty establishing the European Community and Article 5.3 of the St atute of the European
Monetary Institute on a draft Act on the repla cement of contractual reference rates of interest
1. On 21 August 1998 the European Central Bank  (ECB) received a request from the Dutch
Ministry of Finance for an EC B Opinion on a draft Act (hereinafter referred to as the draft
Act) providing for:
/g45 regulations regarding the replacement of c ontractual references to the Amsterdam
Interbank Offered Rate (AIBOR) and to other reference rates of interest; and
/g45 an amendment to the Act on the Supervision of Securities Trade 1995 
in connection with the participation of the Netherlands in Economic and Monetary Union.
2. In accordance with Article 1091 (2) of the Treaty establishing the European Community
(hereinafter referred to as the Treaty), the E CB has taken over the advisory functions of the
European Monetary Institute (EMI), which went  into liquidation upon the establishment of the
ECB on 1 June 1998. The ECBs competence to deliv er an opinion is based on Article 1.1, fifth
indent, of the Council Decisi on (93/717/EC) of 22 November 1993 on the consultation of the
EMI by the authorities of the Member States on draft legislative provisions, as the draft Act
contains provisions concerning the stability of  financial markets and institutions. In accordance
with Article 17.5, first sentence, of the Rules of  Procedure of the ECB, this ECB Opinion has
been adopted by the Governing Council of the ECB.
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3. The aims of the draft Act are twofold:
/g45 First, with a view to en suring the continuity of contracts under Dutch law, it
accommodates the need for replacement rates fo r those contracts which refer to rates
which will disappear as a result of the start of Stage Three of Economic and MonetaryUnion (the Amsterdam Interbank Offered Rate  (AIBOR), the fixed advance rate of De
Nederlandsche Bank and the discount on promi ssory notes). The ECB takes note that the
Dutch Government intends to replace AIBOR by EURIBOR, the future euro area-wideindicator of interbank rates (provided that th e levels of the two rates are very similar).
The ECB also takes note that the Dutch Government intends to replace references to thefixed advance rate of De Nederlandsche Bank  and the discount on promissory notes by a
reference to the most relevant ECB rate, with corrections for differences. Thedetermination of reference rates is not binding; parties may agree between themselves touse other reference rates. Whatever the case,  reference rates replacing the fixed advance
rate and the discount on promissory notes will cease to exist on 1 January 2002 whenparties to contracts are expected to have the conditions of those contracts adjusted to the
new circumstances. Finally, the determination of reference rates by the DutchGovernment does not constitute a ground for the termination or amendment  of contracts(with the exception of the previous reference rates).
/g45 Second, by amending the Act on the Supervision of Securities Trade 1995, the draft Act
removes any uncertainty about the lega l validity/enforceability under Dutch law of
repurchase agreements relating to securities.  Such uncertainty stems from fears among
financial market operators that repurchase agreements may not constitute a valid legal
basis for the transfer of ownership in the lig ht of the prohibition on the fiduciary transfer
of property as laid down in Article 84(3) of Book 3 of the Dutch Civil Code. This is an
obstacle to the development of a market of repurchase agreements which may be affected
by Dutch law and, as far as the European Sy stem of Central Banks is concerned, to the
application of repurchase agreements in th e execution of monetary policy operations and
within the framework of the TARGET system  if they may be affected by Dutch law.
4. The ECB welcomes the draft Act since it enha nces the stability of financial markets and
institutions and will serve to smooth the transiti on of the Netherlands from Stage Two to Stage
Three of Economic and Monetary Union. The manner in which it is envisaged that the aboveaims will be achieved is consistent with existing Community legislation and practices adoptedin Member States. The principle of the continu ity of contracts was laid down in Article 3 of
Council Regulation (EC) No. 1103/97 of 17 June 1997 on certain provisions relating to the
introduction of the euro, and measures similar to  those which are currently contained in the
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draft Act have already been taken in other Memb er States. The ECB suppor ts in particular that
AIBOR will be replaced by EURIBOR which conforms with the ECBs previousrecommendations in this respect.
As far as the removal of uncertainties about the legal validity/enforceability under Dutch law of
repurchase agreements relating to securities is concerned, this in general reflects the
widespread use of this instrument in the financ ial markets. In particular, the draft Act removes
an obstacle faced by Dutch counterparties in, a nd for the mobilisation of Dutch collateral for,
ESCB operations to the extent that they will be  executed through repurchase agreements. In this
connection, it is noted that Article 18.1 of the Stat ute of the European System of Central Banks
and of the European Central Bank requires th e ECB and the national central banks to obtain
adequate collateral from counterparties, a requi rement which cannot be fulfilled if the legal
instrument through which collateral is to be  provided would be invalid/unenforceable. In
addition, Article 9.1 of Directive 98/26/EC of the European Parlia ment and of the Council of 10
May 1998 on settlement finality in payment and securities settlement systems makes provisionfor the insulation of rights of holders of collate ral security and, in particular, protects the ECB
and the national central banks from the effects of  the insolvency of the provider, irrespective of
the legal method used to establish such collatera l. If the provision of collateral security as
referred to in that Directive through re purchase agreements were to be legally
invalid/unenforceable under Dutch law, this would undermine the spirit of Article 9.1 of theSettlement Finality Directive.
5. The ECB confirms that it has no objection to this ECB Opinion being made public by the
competent national authorities at their discretion.
Done at Frankfurt am Main on 16 October 1998.
The President of the ECB
[signed]
Willem F. Duisenberg