EN ECB-PUBLIC 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 24 January 2012 
on dematerialised securities 
(CON/2012/3) 
 Introduction and legal basis
 
On 21 November 2011, the European Central Ba nk (ECB) received a request from the Luxembourg 
Ministry of Finance for an opinio n on a draft law on dematerialised  securities and amending (a) the 
Law of 5 April 1993 on the financial sector, (b) the Law of 23 December 199 8 creating a financial 
sector supervisory commission, (c) the Law of 10 August 1915 on co mmercial companies, (d) the Law 
of 3 September 1996 on the involuntary dispo ssession of bearer securities, (e) the Law of 
1 August 2001 on the circulation of securities a nd other fungible instruments, (f) the Law of 
20 December 2002 on collective placement bodies,  (g) the Law of 17 December 2010 on collective 
placement bodies, (h) the Law of 13 February 2007 on specialised investment fu nds and (i) the Law of 
22 March 2004 on securitisation, (hereinafter ‘the draft law’). 
The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on 
the Functioning of the European Union and the fifth and sixth indents of Article 2(1) of Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national authorities regarding draf t legislative provisions
1, as the draft law contains provisions on settlement 
systems as well as rules applicable to financial inst itutions insofar as they ma terially influence the 
stability of financial institutions an d markets. 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 law 
1.1 The draft law governs the dematerialisation of securities, to which Luxembourg law applies, 
whether capital or debt securities issued by companies incorporated under Luxembourg law
2 or 
debt securities issued under Luxembourg law by companies incorporated under foreign law. The 
dematerialisation of securities is designed as an  additional option, in addition to the possible 
issuance of such stock and debt securities in bearer or registered form under the Law of 
10 August 1915 on commercial comp anies. From the date of entry into force of the draft law, the 
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
2  Capital securities are defined to in clude capital securities issued by joint-stock companies under Luxembourg law, 
including shares and stock, beneficiary shares, subscription rights and common placement fund shares. Debt securities are 
defined to include financial instruments in the form of bear er instruments and public debt instruments. However, for the 
application of the draft law, bills of exchange, securities rede emable by number-based lottery dr aws, as well as shares and 
stock issued by variable capital pension saving  companies, are not considered as securities.   
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2 dematerialisation process is available to convert ex isting bearer or registered securities and to 
issue new securities in demateriali sed form, provided the entire issu e is registered with a single 
liquidation body or central account keeper.  
1.2 Issues listed on regulated markets may only be dematerialised by liquidation bodies3. Securities 
settlement systems operated in Luxembourg and su bject to the Banque centrale du Luxembourg’s 
oversight, governed by the Law of 10 November 2009 on payment services (hereinafter the ‘Law 
on payment services’), are  considered as such liquidation bodies4. Non-listed issues may also be 
dematerialised within central account keepers specifically approved by the Financial Sector 
Supervisory Commission (hereinafter the ‘CSSF’)5, unless they are already recognised as 
liquidation bodies6. Securities that have been dematerialised within a liquidation body or a 
central account keeper may circulate freely, incl uding within the accounts  maintained by account 
keepers; account keepers are defined as any pe rson authorised under Luxembourg law to 
maintain securities accounts, including national or international bodies of a public nature 
established in Luxembourg and oper ating in the financial sector. To ensure the integrity of all 
issues, the CSSF may establish the accounting rules for demateri alised securities maintained by 
liquidation bodies, central accoun t keepers and account keepers7. 
1.3 The draft law also modernises the framework in  the Law of 1 August 2001 on the circulation of 
securities and other fungible instru ments (hereinafter the ‘Law on circulation of securities’) that 
governs the holding and circulati on of securities, regardless of their form and place of issuance in 
accounts located in Luxembourg. The draft law aligns the Law on circulation of securities with the Unidroit Convention on substantive rules for intermediated securities of 9 October 2009, and 
with the expected Union ha rmonisation of securities law
8. Moreover, the draft law introduces 
three additional provisions to st rengthen the protection of the security holders’ rights. First, it 
provides that, on bringing liquidation proceedings against an account keeper, the affected holders 
of the securities accounts immediatel y acquire the rights to the secu rities that have been credited 
to the securities account of  the account keeper, without having to  wait for the crediting of such 
securities to their own securities accounts9. Second, without prejudice to  the separately regulated 
irrevocability and finality rules10, failure by one party to deliver or settle vis-à-vis its 
counterparty, confirmed on the date and under the terms and conditions applicable in the relevant market or fixed by an agreement between the parties or the rules of a securities settlement 
system, discharges the affected  counterparty of its corresponding delivery or payment 
                                                
 
3  See Article 4 of the draft law.  
4  See Article 20 of the draft law.  
5  See Article 21 of the draft law.   
6  See Article 25 of the draft law, inserting a new Article 28(11) (2) in the Law of 5 April 1993 on the financial sector.  
7  See Article 22 of the draft law.   
8  See in particular the European Commission’s consultation document ‘Legislation on Lega l Certainty of Securities 
Holding and Dispositions’ of 5 November 2010, availa ble on the Commission’s webs ite at www.ec.europa.eu. 
9  See Article 4(2) of the Law on the circulation of s ecurities, as amended by Ar ticle 28 of the draft law.   
10  See Title V of the Law of 10 November 2009 on payment services. 
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3 obligations, without prejudice to the liability of the defaulting party11. Third, if the  relevant 
account keeper proceeds to delive r the securities or to pay the pri ce in place of the defaulting 
account holder, such an account keeper acquires ownership by  way of guarantee of the securities 
or funds received from the counterparty as consideration12.  
 
2. Dematerialisation of securities The ECB welcomes the possibility for dematerialising securities in Luxembourg, as this will contribute 
to the elimination of the operational complexities a nd risks related to handling physical securities, and 
to the reduction of settlement and custody costs, as recommended in the ESCB-CESR Recommendations for securities settlement systems
13 and the prospective CPSS-IOSCO principles14. At 
the same time, the ECB recommends that the Luxe mbourg authorities monitor Union legislative 
developments as regards the on-g oing harmonisation of Union securiti es law, including the possible 
introduction of mandatory book entry fo rm for transferable securities.  
 3. Modernisation of the Law on  circulation of securities   
3.1 The ECB welcomes the amendments to the Law on circulation of securities,  which strengthen the 
protection and enforcement of rights of the securities holders who maintain securities in a securities settlement system, a liquidation body, a ce ntral account keeper or an account keeper in 
Luxembourg.  
3.2 The ECB welcomes in particular the amendmen t to Article 16 of the Law on circulation of 
securities, under which the relevant account keep er acquires ownership by way of guarantee of 
the securities or funds received from the counterparty as a consideration for the securities or the funds that it has itself delivered. This is one of the available solutions to mitigate the credit risk taken by the financial intermediary financing the acquisition of securities by its customers. It has particular relevance to the TARGET2-Securities (T2S), the Eurosystem’s future settlement 
platform, as the legal protection introduced by the draft law will cover, inter alia , the credit 
institutions providing liquidity to their cust omers in their capacity as settlement banks and 
refinancing the costs of this activity with the intraday credit received from their Eurosystem 
central bank. If the customer of the settlement bank is not able to reimburse the liquidity provision at the end of the day, the ownership of this customer’s collateral will pass to the 
                                                
 
11  See Article 15 of the Law on the circulation of securities, as amended by Article 28 of the draft law.   
12  See Article 16 of the Law on the circulation of securities, as amended by Article 28 of the draft law.   
13  ESCB-Committee of European  Securities Regulators (CESR) Recommendations for Securities Settlement Systems 
and Recommendations for Central Counterparties in the European Union, May 2009; particularly Recommendation 
No 6: ‘Securities should be immobilised or dematerialised  and transferred by book-entry in CSDs to the greatest 
extent possible. To safeguard the integrity of securities i ssues and the interests of inve stors, the CSD should ensure 
that the issue, holding and transfer of securities ar e conducted in an adequate and proper manner’.  
14  Committee on Payment and Settle ment Systems (CPSS) and the Techni cal Committee of th e International 
Organization of Securities Commi ssions (IOSCO), Principles for financial market infrastructures, consultative report, 
March 2011, paragraphs 3.1.2 and 3.27. 
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4 settlement bank, hence facilitating the unwinding of the settlement bank’s refinancing transaction 
with the central bank, without increasing th e settlement banks’ credit exposures.  
3.3 The amendment to Article 15 of Law on circulat ion of securities provides that if securities are 
delivered against cash payment, failure to deliver  or settle confirmed on the date and under the 
terms and conditions applicable in the relevant  market, or fixed by an agreement between the 
parties or the rules of a securities settlement system, discharges the parties from their delivery or payment obligations without prejudice to the liability of the defaulting party. The ECB understands that this provision is proposed to  address specific situations encountered in the 
present financial crisis where transfer orders duly entered into a system, in respect of a 
counterparty against which insolvency proceedings were subsequently brought, remained unsettled and suspended in the said system, as the insolvent counterparty could not discharge its obligations and the parties could not immediately agree on the bilateral cancellation of such 
transfer order. The proposed amendment reflects  a policy proposal according to which the failure 
to deliver or settle the underlyi ng securities transaction will auto matically discharge the parties 
from carrying out the correspondi ng transfer order within the system. The abovementioned 
provision is ‘without prejudice to the separate ly regulated irrevocability and finality rules’
15, as 
derived from Article 3(1) and Article 5 of Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement fi nality in payment a nd securities settlement 
systems
16. In this respect, the ECB understands that the proposed provisions aim to mitigate the 
effects of the strictly applied principle of irrevocability in a manner which decreases the risks 
related to unsettled transfer orders. The E CB recommends clarifying the scope and the 
relationship of the newly introduced provision with regard to the settlement irrevocability 
safeguarded by Directive 98/26/EC. In addition, to avoid uncertainties that may be associated 
with the implementation of this proposed amendment, proper coordination should be ensured between the parties to the securities transaction th at may agree on the date and conditions of 
settlement in their bilateral agreements and th e securities settlement system that may provide 
similar provisions in its rules, and also th e T2S operator that ma y provide the technical 
settlement platform on which the transfer order will be processed. If such coordination is not in 
place, the parties may agree that they are dischar ged from their obligati ons on date S, but the 
securities settlement system and, as a conseque nce, also the T2S operator may have no 
knowledge of this agreement. In such situations, the securities settlement system, and consequently T2S, may continue to attempt to settle the transaction after date S which may produce legal uncertainty as to the status of su ch transaction. The ECB recommends that the draft 
law elaborates how the proposed statutory discharge of obligations can be aligned with the rules of the operator of a securities settlement system. 
 
                                                
 
15  See Title V of the Law of 10 November 2009 on payment services. 
16  OJ L 166, 11.6.1998, p. 45. 
ECB-PUBLIC  
5 This opinion will be published on the ECB’s website.  
  Done at Frankfurt am Main, 24 January 2012. 
 
[signed] 
 
The President of the ECB 
Mario DRAGHI