OPINION OF THE EUROPEAN CENTRAL BANK
at the request of the French Ministry of the Economy, Finance and Industry under
Articles 109l (2) and 109f (6) of the Treaty  establishing the European Community and
Article  1.1, fourth indent, of the EU Council D ecision 93/717/EC on a dr aft Title VIII of the
General Regulation of th e Financial Markets Council
CON/98/52
1. On 10 October 1998 the European Central Bank  (ECB) received a request from the French
Ministry of the Economy, Finance and Indus try for an ECB Opinion on a draft Title V III of the
General Regulation of the Financial Markets C ouncil (hereinafter referr ed to as the Draft
Regulation).
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 deliver an opinion is based on Article 1.1,
fourth indent, of the Counc il Decision (93/717/EC) of 22 November 1993 on the consultation
of the EMI by the authorities of the Member Stat es on draft legislative provisions, as the Draft
Regulation contains provisions  concerning central securities depositories and securities
settlement systems. In accordance with Article 17.5, first sentence, of the Rules of Procedure ofthe ECB, this ECB Opinion has been adopt ed by the Governing Council of the ECB. 
3. The ECB notes that the Draft Re gulation supplements the legislative provisions of Article 22 of
Law 98-546 of 2 July 1998. In its Opinion (CON/98/09) dated 19 February 1998, the EMI
stated that it welcomed the provisions of the said Law as they will improve the smooth and
efficient functioning of payment syst ems and securities settlement systems . The same Law
vested the Financial Markets Council with regulato ry powers in the fields of central
depositories and systems for settlement and for the delivery of financial instruments.
4. The ECBs opinion is only requested on Chapter 4 of Title V III, which contains provisions
relating to (i) the central depository ( dépositaire central ) and (ii) the systems for settlement
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and for the delivery of financial instruments ( systèmes de règlement et de livraison
dinstruments financiers ). 
5. With regard to the provisions of Section 1 c oncerning the central depository, Article 8-4-1 of
the Draft Regulation lists the functions which the central depository notably performs. The
ECB notes that these functions are explicitly stated as carried out within the scope of the
provisions of () decrees 49-1105 of 4 August 1949 and 83-359 of 2 May 1983 . Given the
fact that the two decrees only refer to the ro le of one specific French central depository,
Sicovam S.A., the ECB questions  whether other depositories could be bound by these decrees.
Moreover, having regard to the provisions of  the Law of 2 July 1998, the ECB notes that the
Law vested the Financial Markets Council with the power to define the conditions of
authorisation of central depositori es, whereas the Draft Regulation only refers to the central
depository (as opposed to Section 2 of the same Chapter 4, where reference is made to system s
for settlement and delivery). Having regard to the fact that there are at least, for the time being,
two central depositories in France (the Banque  de France being the central depository for
Treasury bills, according to Ordonnance  45-679 of 13 April 1945, although it has delegated the
account holding to Sicovam S.A.), the ECB understands that the function of a central
depository is not legally restricted to one sing le commercial firm. If the purpose of the Draft
Regulation is to make it possible for other central depositories to operate under Frenchjurisdiction, one could question the need to main tain provisions relating to only one specific
depository, such as the two above-mentioned decrees.
6. According to the list of functions provided by Article 8-4-1, the function of the central
depository entails, by definition, the management of a system for the delivery of financialinstruments between the accounts it holds in the name of its members (see indents 2 and 3 of
the list). As a consequence, the ECB suggests the following drafting for Article 8-4-1, last
paragraph: The central depository may organise and manage any system the aim of which is
the delivery of financial instruments amongst its members and, moreover, if appropriate, make
the settlement of the corresponding cash in compli ance with the provisions of Section 2 of this
Chapter.
7. The ECB would also suggest the Financial Mark ets Council to develop the articulation between
Article 8-4-1-1º (according to which the function of the central depository consistsin:recording in a specific account all the financ ial instruments making up each issue admitted
to its operations ) and Article 8-4-1 § 2 ( A central depository may admits to its operations
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financial instruments not falling within the re mit referred to in the previous paragraph, first
indent ).
8. The ECB notes that, according to Article 8-3-11, Chapter 3, a central depository can be subject
to more obligations than those stated in Ch apter 4, when sub-delegated in the tasks of a
registrar. Under the Draft Regulation, a registrar ( domiciliataire de titres de créance
négociables ) is a credit institution responsible for th e bookkeeping of an issue of negotiable
bills  or certificates of deposit  and for the ma tching of the amount of the issue and the total
amount registered in its books (Article 8-3-10). Registrars can also perform the function of
transferring the rights on the bills by transf ers between accounts opened in their books. Article
8-3-11 provides the possibility for the issuer of negotiable bills to transfer the responsibility of
account holding of its issue to a central deposito ry and to delegate the registrar the power to
give instructions to the central depository. In that case, the central depository becomes
responsible for the matching between the num ber of instruments issued and the number
registered in its books (Art 8-3-11). Although the provisions of Chapter 3 do not fall within the
scope of the present consultation, the ECB questi ons whether this transf er of account holding of
an issue preserves a direct link between the i ssuer and the central depository and if adequate
procedures for safeguarding against an y possible custody risk are considered.
The ECB also takes note that despite the fact that credit institutions acting as registrars
perform functions that could be considered as c ontained in the list of functions performed by a
central depository, they will not be submitted to  the procedure imposed to central depositories
by Chapter 4 of the Draft Regulation.
9. The ECB welcomes the other provisions of Chap ter 4, Section 1, of the Draft Regulation, which
specifically purport to strengthen technical secu rity in the performance of the functions of a
central depository (management of risks) and to improve the supervisory role of the Financial
Markets Council (right of communication of da ta). The ECB invites the Financial Markets
Council, when assessing applications for the status  of central depository in France, to take into
account Standard 9 (backup facilities) formulated by the ESCB in the document Assessment of
EU securities settlement systems against the standards for their use in ESCB credit operations,published in September 1998 . 
10. With regard to the provisions of Section 2 concerning systems for settlement and for the
delivery of financial instruments, the ECB welc omes the publication by the Financial Markets
Council of the procedure which it will apply in orde r to declare that the rules of a system are
covered by the definition given by the Law of 2 July 1998. Indeed, approval by the Financial
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Markets Council is a prerequisite for a system to  benefit from the provisions of the said Law
prohibiting the bankruptcy administrator or liqui dator from challenging payments and deliveries
made (Article 8-4-6 §3) and ordered (Article 8-4-11) by a participant on the day on which thereorganisation or winding up procedures commence. 
11. With regard to Article 8-4-5, the ECB welcomes the fact that the competences of the Financial
Markets Council are recognised as being conduc ted without prejudice to the powers of the
Banque de France concerning payment systems. Th is flows from the fact that systems for the
delivery of securities may also provide payment (settlement) facilities. As previously expressed
in the EMI Opinion on the draft law, the E CB considers it appropriate for a reference to
Article 22 of the Statute of the European System  of Central Banks and of the European Central
Bank to be included in Article  8-4-5 of the Draft Regulation. 
The ECB notes that, according to the French Banking Law of 1984, any firm that operates a
system for the delivery of financial instrume nts and that wishes to provide cash settlement
facilities must rely on a credit institution or on the central bank for the settlement of cash, if it is
not itself authorised to operate as a credit ins titution. The ECB welcomes this rule as improving
the security of the relevant systems.
12. The ECB understands that Chapter 4, Section 2, is es pecially dedicated to deal with systems for
settlement and for the delivery of financial in struments that are not managed by a central
depository. A definition of system for settlement and for the delivery of financial instruments or
a list of functions performed by such system, lik e what is done in Article 8-4-1 for the central
depository, seems necessary to clarify for future a pplicants to chose if they want to apply for
the status of central depository or of system for settlement and for the delivery of financial
instruments.
13. With regard to Article 8-4-6, as compared with Article 8-4-2, the ECB notes that the application
dossier of a central depository appears to be mu ch more detailed than the application dossier of
a system for settlement and for the delivery of fi nancial instruments. Given the fact that the
central depository is submitted to ongoing supervision and regulatory oversight whereas only aregulatory oversight by the Financial Markets Council is stated for systems for settlement and
for the delivery of financial instruments and, gi ven the fact that any kind of commercial firm
can manage a system, the ECB wonders if this di fference intends to reflect a different approach
in the level of risks between the functions of central depository and of system for settlementand for the delivery of financial instruments. Fo r example, the system for settlement and for the
delivery of financial instruments should be aske d to justify to the Financial Markets Council
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how the function of the central depository is  performed for the securities admitted to its
operations.
14. As mentioned with regard to central depos itories, the ECB welcomes the provisions of
Article 8-4-6, which specifically purport to streng then technical security in the performance of
the functions of a system for settlement a nd for the delivery of financial instruments
(management of risks) and to improve the supe rvisory role of the Financial Markets Council
(right of communication of data). Once again, the ECB invites the Financial Markets Council,
when assessing applications for the status of  a system for settlement and for the delivery of
financial instruments, to take into account St andard 9 (backup facilities) elaborated in the
publication referred to in paragraph 9.
15. In Article 8-4-7 (agreement between participants and securities settlement systems), the ECB
suggests using the words participation agreement  (convention de participation ) instead of
membership agreement  (convention dadhésion ), to clarify the distinction with the agreement
signed between the central depository and its members.
16. The ECB particularly welcomes Article 8-4-8, whic h provides that the manager of a system for
settlement and for the delivery of financial inst ruments shall not engage in any other activity
that could create conflicts of interest with the management of the said system. The ECB
considers this provision ensures a level of security that goes beyond the one to be met bysecurities settlement systems used in ESCB credit operations.
17. Article 8-4-10 requires any system to set up risk control measures in order to protect the rights
of the participants in the system in case of default in delivery or settlement by one or more
other participants. The ECB understands that th e only system currently operating in France that
do not fulfil this requirement will not be used for ESCB credit operations. Since the said systemdoes not currently benefit from such risk contro l measures in the event of the default of a
participant, the ECB understands that the adop tion of the General Regulation will require the
manager of the system to set up such measures as soon as possible in order to decrease thesystemic risk.
18. 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 18 November 1998.
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The President of the ECB
[signed]
Willem F. Duisenberg