EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 5 July 2006 
at the request of the Belgian Ministry of Finance 
on a draft royal decree  extending the list of the participants in securities settlement systems 
(CON/2006/34) 
 Introduction and legal basis
 
On 7 April 2006, the European Central Bank (ECB) received a request from the Belgian Ministry of 
Finance for an opinion on a draft royal decree extendi ng the list of the participants in securities settlement 
systems as referred to in Article 2§2 of the law of  28 April 1999 implementing Directive 98/26/EC of 
19 May 1998 on settlement finality in  payment and securities settlement systems (hereinafter the ‘draft 
royal decree’). 
The ECB’s competence to de liver an opinion is based on Article 105(4) of the Treaty establishing the 
European Community and on the fifth and sixth indent s of Article 2(1) of Council Decision 98/415/EC of 
29 June 1998 on the consultation of the European Ce ntral Bank by national authorities regarding draft 
legislative provisions1, as the draft royal decree concerns the cr iteria for direct participation in securities 
settlement systems (SSSs), which raise issues in term s of assessing their systemic risk and financial 
stability implications. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of 
the European Central Bank, the Governing Council has adopted this opinion. 
 1.  Purpose of the draft royal decree  
The purpose of the draft royal decree is to extend the lis t of participants to SSSs that are covered by the 
Belgian law of 28 April 1999 implementing Directiv e 98/26/EC of 19 May 1998 on settlement finality in 
payment and securities settlement systems (hereinafter the ‘Law of 28 April 1999’) and, thus, by the 
settlement finality protection 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
2 (hereinafter the 
‘Settlement Finality Directive’). To  this end, the draft royal decree introduces a third subparagraph in 
Article 2§2 of the Law of 28 April 1999. This new pr ovision is intended to allow any legal person to 
acquire the status of direct participant in an SSS within the meaning of the Law of 28 April 1999, thus 
benefiting from settlement finality protection even if this legal person does not qualify as a credit 
                                                           
1  OJ L 189, 3.7.1998, p. 42. 
2  OJ L 166, 11.6.1998, p. 45. 
2 institution or investment firm or does not perform similar functions (see current first subparagraph of 
abovementioned Article 2§2) or as a designated central counterparty, settlement agent, clearing house or 
similar institution (see current second subparagraph of abovementioned Article 2§2), provided at least 
three other participants in this SSS fall within one of these two categories. 
 2.  General Observations 2.1 The draft royal decree intends to use the possib ility under the second subparagraph of Article 2(b) 
of the Settlement Finality Directive for Member St ates to opt for such extension. The ECB trusts 
that, in accordance with the principle of supremacy  of Community law and with Article 2§52° of 
the Law of 28 April 1999, the extension of the list of participants by the draft royal decree will, 
besides the condition already expressly mentioned in this draft, also be subject to the other two 
conditions in Article 2(b) of the Settlement Finality  Directive, namely (i) that the legal entity in 
question has responsibility for discharging the financ ial obligations arising from transfer orders 
with the SSS; and (ii) that the extension decision is warranted on grounds of systemic risks. For 
reasons of legal certainty, the Belgian legislator could clarify this, for instance through an express 
statement to this effect in the statemen t of reasons accompanying the royal decree.  
2.2 In view of the Eurosystem and ECB tasks, amongst others the protecti on of financial stability 
through the removal of systemic risks, the ECB is  particularly attentive to the systemic risk 
requirement in the second subpara graph of Article 2(b) of the Settlement Finality Directive (see 
also paragraph 4 above). In this respect, the ECB understands that the draft royal decree is intended 
to respond to an issue regarding Recommendation 1 (‘Legal risk’) of the CPSS/IOSCO Recommendations for Securities Settlement Systems
3. The ECB notes that this issue was addressed 
as follows in the 2006 Financial System Stability Assessment on Belgium by the International 
Monetary Fund4: ‘There are adequate rules for addressi ng the event of a participant default, 
including the effective use of collateral, and these rules can legally be enforced. However, non-
financial participants in the [Euroclear System],  which account for less than 0,5 percent of total 
settlement activities, are not protected against the zero hour rule. A legislative project is already 
underway that would address this residual risk’ . The ECB therefore strongly welcomes the 
objective of the draft royal decree of swiftly removing this residual risk, especially as there is neither a limitation on the potential number of su ch non-financial participants, nor on the possible 
volume of instructions that such non -financial participants might give. 
2.3 Finally, the ECB points out that the Settlement Finality Directive grants far-reaching legal 
protection, which amongst others consists of th e exclusion of the zero-hour rule in case of 
insolvency. It should therefore only cover payment and security transfer orders by participants 
                                                           
3  Available at www.iosco.org. 
4  See IMF Country Report No 06/75, Belgium, Financial System Stability Assessment , including Reports on the 
Observance of Standards and Codes on the following topics: Banking Supervision, Securiti es Regulation, Insurance 
Supervision and Regulation, an d Securities Settlement Systems, p. 52, No  112 and p. 55, Table 11, Recommendation 1. 
3 who, because of their nature, activities and/or status , merit the benefit of this protection. In this 
context, the ECB notes that the ‘normal’ categories of direct participants that benefit from this 
protection are, in one way or the other, either public authorities or entities subject to a supervisory 
regime (see first subparagraph of  Article 2(b) of the Settlement Finality Directive and Article 2§2 
of the Law of 28 April 1999). By contrast, this is not the case for the entities covered by the second 
subparagraph of Article 2(b) of th e Settlement Finality Directive, a nd similarly also the draft royal 
decree, which only generally designate the direct pa rticipants that can benefit from the extension of 
the protection of the Settlement Finality Direc tive (compare ‘undertaking’ and ‘legal person’, 
respectively). This designation does, in particular, not require any specific legal supervisory status 
or other statutory qualifications for such part icipants. This is particularly relevant for 
‘undertakings’ within the meaning of the second s ubparagraph of Article 2(b) of the Settlement 
Finality Directive whose head office is outside th e Community (compare with ‘any undertaking’ in 
the first subparagraph of Article 2(b)). For fina ncial stability and systemic risk reasons, the ECB 
considers that all legal persons that benefit from th is extension should first be subject to the same 
conditions, including access conditions, as those im posed by an SSS for public authorities or 
supervised entities to be accepted as direct partic ipants and retain this capacity. Furthermore, the 
ECB trusts that both the authority responsible for oversight of the concerned SSS and the authority responsible for prudential supervision of the entity  operating this SSS will ensure as part of their 
supervisory and regulatory duties that the extensi on of the direct participation benefit is, in 
practice, only granted to legal entities that do not endanger the reputation and financial stability of 
the concerned SSS. 
 This opinion will be published on the ECB’s website.   Done at Frankfurt am Main, 5 July 2006. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET