OPINION OF THE EUROPEAN CENTRAL BANK
at the request of the Director-General of the Treasury and Financial Policy of Spain, on a
voluntary basis, concerning a draft law on th e Payment and Securities Settlement Systems
which constitutes the Spanish Implementa tion of Directive 98/26/EC of 19 May 1998 on
Settlement Finality in Payment a nd Securities Settlement Systems 
[CON/99/01 ]
1. On 13 January 1999 the European Central Bank (ECB) received a request from the Director-
General of the Treasury and Financial Policy of  Spain for an ECB Opinion on a draft law on
the Payment and Securities Settlement Systems (the  “draft law”) which is intended to constitute
the Spanish implementation of Directive 98/26/EC  of the European Parliament and of the
Council of 19 May 1998 on Settlement Finality in Payment and Securities Settlement Systems(the “Finality Directive” or the “Directive”) . The draft law was submitted in the Spanish
language only. A further revised Span ish text of the draft law dated 22
nd March 1999 was
subsequently received by the ECB. The ECB has produced an unofficial tr anslation of the draft
law into English for the purposes of the present consultation. On May 6th the ECB has received
the final version adopted by the Spanish Government which has subsequently been sent toParliament.
2. The purpose of the draft law is the implementation of the Finality Directive in the Spanish legal
system and, consequently, the Spanish authorities were not legally obliged to consult the ECBunder Article 1.2 of the Council Decision 98/ 415/EC of 29 June 1998. The ECB seeks to
proactively promote a harmonised EU-wide implementation of the Finality Directive in thelegislation of the Member States, in order to foster maximum transparency and legal certainty
for the closely connected payment and securitie s settlement systems and to ensure a level
playing field throughout the Eur opean Union. In view thereof, the ECB very much welcomes
the opportunity to give advice on the draft law, which addresses matters pertaining directly to
the core fields of competence of the ESCB, cons idering that the draft law contains provisions
2purported to ensure the smooth operation of paymen t systems, and the rights of central banks in
relation to collateral provided to them. 
3. Article 8 of the draft law enumerates the Spanis h systems falling within the scope of the draft
law, pursuant to Articles 2 (a) and 10 of the Finality Directive, which enumeration includes theSpanish national RTGS system connected to TA RGET. Accordingly, this provision clarifies
that the Spanish RTGS system will be a “designated system”, as defined in Article 1 of theFinality Directive, and benefit from the provisions of the draft law. However, the Spanishcomponent of the TARGET system is linked with other components of the TARGET system
outside Spain (through the “Interlinking” com ponent), and payments effected through the
Interlinking ought to fall also within the scope of the provisions of the draft law. Hence, the
Spanish authorities are encouraged, in that respect, to ensure that Interlinking payments to and
from the Spanish component of TARGET do indeed  fall within the protection of the draft law.
For instance, the fact that the Spanish RTGS sy stem forms an integral part of TARGET may be
clarified when the system is notified to the Commission. 
In addition, the ECB would like to make the fo llowing further comments concerning the scope
of application of the draft law:
(i) the reference to the interbank wholesale net clearing system “Servicio Español de
Pagos Interbancarios” (SEPI) in Article 8 should mention as its currency unit the
“euro”, and not its temporary non-decimal s ub-division of the euro, i.e. the “peseta”;
(ii) the definition of “participants” in Article  2(c) of the draft law seems to exclude
“indirect participants” in a system; whilst this exclusion is possible under the Finality
Directive, inclusion of “indirect participants ” (as defined in the Directive) is also an
option under the Directive which, to the exte nt it is followed, would contribute to the
objective of avoiding systemic risk in th e integrated financial markets of Europe; 
4. Articles 2(b), 2(d), 14(2) , 15(1), 15(2) of the draft law refer to “monetary policy transactions”
and to “those [transactions] associated with the settlement of a system carried out by the Bank
of Spain, the ECB and other central banks of the European Union”. The Finality Directive,however, envisages more generally “operations of the central banks of the Member States
functioning as central banks, including monetary policy operations” (Recital 10 and Article 1(c)
of the Directive) and, therefore, the language of the draft law seems to be unduly restrictive.
3Moreover, in Article 15.1 of the draft law the ECB has been omitted from the constellation of
central banks without justification.
5. Article 11.1, first sentence, concerning the irrevocability of transfer orders, covers
irrevocability vis-à-vis the issuer of the transfer  order in question, but should also address any
third party along the lines of Article 5 of the Finality Directive.
The drafting of Article 11-2 (a) of the draft law would suggest the following comment: Article
3-2 as well as Recital (13) of the Directive sp ecifically mention that actions relating to the
underlying transactions may in no way lead “to the unwinding of netting [or] to the revocation
of the transfer order in the system”; this im portant element does not appear in the current
drafting of Article 11-2 (a) of the dr aft law and should be expressly added. 
6. The scope of finality is addressed in Articles 11, 13, 14 and 16 of the draft law. In this
connection, the following comments are warranted. 
(i) Article 13 of the draft law should ensure that finality is not only effective inter partes ,
but also erga omnes ; provided that transfer orders we re entered into the system before
the moment of opening of insolvency proceedings (or the provisions of Article 3.1,second paragraph, of the Finality Directive apply), insolvency proceedings shouldhave no effect whatsoever, neither on the legal position of the insolvent participant
(and this is foreseen in the first paragraph of Article 13 of the draft law), nor asregards any other participant or third party (e.g. the liquidator or administrator of the
insolvent entity). This latter aspect (which in Article 3.1 of the Directive is provided
through the stipulation that “transfer orde rs and netting shall be legally enforceable
and […] binding on third parties”) should be  clearly set out in the draft law. The
broad wording of Article 11.1, second senten ce of the draft law may be taken as a
useful parallel to expressly broaden and clar ify the scope of finality in the context of
Article 13. 
(ii) Article 14.1 of the draft law states the main effect of finality as a right to segregate
collateral from the insolvency proceedin gs. However, Article 9.1 of the Finality
Directive contains a more general formulati on: the right of not being affected by the
insolvency. The ECB notes that repurchas e operations are already insulated from
insolvency proceedings under Law 37/1998 amending the Securities Markets Law of1988, and therefore Article 14.1 of the draft law basically addresses other kinds of
4collateral. It is for the Spanish authoritie s to consider whether the regime resulting
from the two Spanish legal acts is equivalent  to the Directive’s rule of “not being
affected” by the insolvency. 
7. Article 15 of the draft law implements Articles 8 and 9.2 of the Finality Directive. Here, the
ECB would like to make the following comments:
(i) The first sentence of Article 15.1 of the dr aft law stipulates that “When insolvency
proceedings are initiated against a Spanish organisation which is a member of asystem recognised in another member Stat e of the European Union as provided for
under Directive 98/26/EC, the rights and obligations which accompany itsmembership of said system shall be defined by the national legislation governing saidsystem”. However, it is also necessary to s tipulate in the draft law that, conversely, in
case of insolvency proceedings against a foreign entity particip ating in a Spanish
system, the rights and obligations of such  a participant within the system will be
governed by Spanish law. This is of pa rticular importance regarding non-EU foreign
participants. 
(ii) Article 15.1 of the draft law seems to onl y apply “in the event of the opening of
insolvency proceedings”. It is not clear wh ether the second sentence of that paragraph
falls within the same proviso, and if this  was not the case such second sentence might
usefully be set as a different paragraph. It is clear that Article 9.2 of the FinalityDirective stipulates a general conflict-of-law rule which shall apply in all cases, andnot only in the event of commencement of insolvency proceedings. There are no legal
reasons to limit the scope of the Directive’s rules in the field of private international
law to situations of insolvency: the legal regime for collateral should be the same both
before any insolvency occurs and after th e opening of insolvency proceedings. The
opening of insolvency proceedings, which is basically a procedural event, does notand cannot change the content and substance of the iura in rem . From a policy
perspective, the achievement of the internal  market in the area of securities following
the introduction of the euro, would be bette r served by clear rules harmonising the
private international law rules in relation to the taking of collateral; if such rules were
only applicable in the case of insolvency  proceedings, this policy objective of the
Community would not be properly served.  
5(iii) Article 15.1 of the draft law would only apply to collateral “constituted in favour of a
system” in relation “with the settlement of said systems”; such language wouldprovide an overly narrow approach to Ar ticle 9 of the Directive, and, instead, the
protection provided by Article 15.1 of the dr aft law should cover in general terms any
form of security interest in favour of  participants irrespective of the purpose
underlying the creation of such security inte rest. The conflict-of-law rule in Article 9
of the Directive makes no distinctions whatsoever, neither with regard to the purposesof collateralisation nor with regard to the quality of the beneficiary of the collateral.
(iv) The rules, as stated in the draft law, are limited to the effects in rem (paragraphs 1 and
2 of Article 15 of the draft law read “en cu anto a sus efectos juridicos reales”). There
seems to be no legal reason to limit the scope of the rule, and Article 9.2 of theFinality Directive does not demand such lim itation. The contractual aspects of taking
collateral are also paramount: the regu lation of the formalities involved ( iura in
personam vis-à-vis counterparts, proper forum fo r disputes, etc.) requires a clear rule
determining which national laws govern such aspects of taking collateral. It is to be
borne in mind that the concept of collatera l is not limited to pledges but encompasses
also the technique of repurchase transacti ons. Article 9.2 of the Finality Directive is
not limited in this respect. It is worth menti oning that the conflict-of-law rules in the
Finality Directive are consistent with (i) the rule of Article 8 of the U.S.A.’s Uniform
Commercial Code, (ii) the national laws already in place in several Member States,and (iii) the current trend of academic aut hority on the complex matter of cross-border
trading of securities.
(v) The rule enshrined in Article 15.2 of the dr aft law should be reciprocal, in the sense
that it ought to apply, mutatis mutandis , to collateral registered in Spain in favour of
foreign systems. 
(vi) The additional formalities required by Article 15.3 may increase the bureaucratic
burden and hinder the rapidity of the collateral-taking process without any
justification.  Modern rules of evid ence and means of communication would not
appear to require the approach envisaged by this provision. Similar remarks in favourof a more stream-lined procedure, includi ng less formalities, can be made also in
respect of Article 14.5 of the draft law c oncerning the realisation of collateral.
68. The ECB confirms that it has no objection to this ECB Opinion being made public by the
competent national authorities at their discretion. In  the light of the general application of the
observations made, and the importance to the international financial markets of a uniformapplication of Community law in this field, the ECB is arranging for this Opinion to be copied
to the competent national authorities of Member States responsible for implementing Directive
98/26/EC of 19 May 1998 on Settlement Finality in Payment and Securities SettlementSystems.
Done at Frankfurt am Main on 26 May 1999.
The President of the ECB
[signed]
Willem F. Duisenberg