1 November 2000
OPINION OF THE EUROPEAN CENTRAL BANK
of 1 November 2000
at the request of the Danish Ministry of Economic Affairs 
on a draft Act amending the Securities Trading Act
(CON/00/24)
1. On 27 September 2000 the European Central Bank (ECB) received a request from Danmarks
Nationalbank, on behalf of the Ministry of Economic Affairs, for an ECB Opinion on a draftAct amending the Securities Trading Act (hereinafter referred to as the “Draft Law”). 
2. The ECB’s competence to deliver an Opinion is based on Article 105 (4), second indent, of the
Treaty establishing the European Community (hereinafter referred to as the “Treaty”) andArticle 2 (1), fifth and sixth indent, of Co uncil Decision No. 98/415/EC of 29 June 1998 on the
consultation of the European Central Bank by national authorities regarding draft legislative
provisions, as the Draft Law contains rules (i) concerning payment and settlement systems and
(ii) applicable to financial institutions which could have a material influence on the stability offinancial institutions and markets. In accordance with Article 17 (5), first sentence, of the Rulesof Procedure of the ECB, this Opinion has been adopted by the Governing Council of the ECB.This Opinion is based on an unofficial English translation of the relevant provisions of the DraftLaw. 
3. The ECB understands that the Draft Law has three main purposes: (i) to regulate the access to
membership of a Danish securities settlement system or stock exchange for members from
countries outside the EEA, which will be subject to the approval of the Danish Financial
Supervisory Authority (hereinafter referred to as the “FSA”); (ii) to extend the provisions oninsider trading and price manipulation to include crimes committed by Danish citizens, orpersons resident in Denmark concerning securities, which are listed on stock exchanges andauthorised marketplaces in third countries outside the EEA; and (iii) to extend the existingaccess for securities settlement systems and clearing participants to establish collateral rights in
2connection with settlement of securities trades to apply also to all payment systems, as well as
participants thereof, with regard to loans gran ted in connection with the settlement of payments
within the system. Finally, the Draft Law contains suggestions for some minor editorialamendments to the Securities Trading Act.
4. It is noted that according to Article 1(2) and (13) of the Draft Law the existing scope of
application for entities, which are eligible to become members of a stock exchange, is widenedto cover a range of different financial entities. 
5. More importantly, the existing access for companies and branches both within and outside the
EEA to become members of a securities settlement system is proposed to be specified byrequiring an authorisation from the FSA before allowing remote membership from applicantsfrom countries outside the EEA. A similar specifi cation is suggested for remote membership of
a stock exchange. The background for this legislative initiative is to be seen as a consequence ofalliances between securities settlement systems and between stock exchanges across nationalborders as well as of technological advances, which have created a growing interest in remotemembership of the Copenhagen Stock Exchange respectively the Danish Securities Centre. 
6. Based on the mutual recognition under the “European passport”, derived from the Council
Directive 93/22/EEC of 10 May 19993 on investment services in the securities field, there is norequirement to obtain an authorisation from the FSA for members from the EEA. However, it is
proposed that remote members from countries outside the EEA obtain such an authorisationfrom the FSA. The ECB has been informed that su ch a requirement is necessary to ensure that
companies from these countries are subject to sound supervision in their respective home
countries and/or in order to avoid financial instability in connection with acceptance of an
applicants’ listing on the stock exchange. Furthermore, the FSA will only grant such anauthorisation if a cooperation agreement has been concluded between the FSA and thesupervisory authority in the applicant's home country. The acceptance of members from a thirdcountry shall not prevent the FSA from performi ng its supervisory tasks. Should the FSA find
that an applicant is not subject to sound supervision, it may oppose the acceptance of thatapplicant as a member. 
 
7. The ECB notes that Article 1(6) of the Draft La w proposes that the existing prohibitions against
insider trading and price manipulation are extended to also include securities that are accepted
for listing or for trading on stock exchanges or which are traded in authorised marketplaces orequivalent regulated marketplaces outside the EEA. This will create a global prohibition againstinsider trading and price manipulation, which is reaching further than strictly required by theCouncil Directive 89/592/EEC of 13 November 1989 on insider trading.
38. Article 1(7) of the Draft Law proposes to extend the existing access for clearing centres and
clearing participants to establish collateral rights in connection with settlement of securitiestrades to apply also to registered payments systems as well as participation therein with regardto loans granted in connection with the settle ment of payments within such systems. The
borrowers can be both direct and indirect participants in these payment systems. The proposalputs clearing centres and registered payment systems on the same footing, as is already the casefor a number of other items such as netting and immediate realisation of collateral in case of adefault. The ECB appreciates that under article 1(7) of the Draft Law, the area of application ofthe above-mentioned collateral rights is expanded to apply also in connection with settlement in
the payment systems operated by the Danish central bank. As a whole, the new Article 1(7) will
improve risk and liquidity management and, as laid down in the Directive 98/26/EC of theEuropean Parliament and of the Council of 19 May 1998 on settlement finality in payment andsecurities settlement systems, reduce systemic risk at the same time.
9. Traditionally, pledging of collateral includes the deposit of collateral security in specific
securities in a safekeeping account. This has led to a binding of the securities portfolios, whichare normally part of the participants' liquid reserve of securities used to manage the participants'risks. The suggested collateral right is seen to make the pledging of collateral within payment
systems more flexible since the safekeeping account as such, and not the individual paper,
constitutes the collateral. The ECB welcomes this initiative since it improves the participants'opportunities for effective risk and liquidity management and, at the same time, reducessystemic risk to the benefit of financial stability.
 
10. The ECB confirms that it has no objection to th is Opinion being made public by the competent
national authorities at their discretion.
Done at Frankfurt am Main on 1 November 2000.
The President of the ECB
[signed]
Willem F. Duisenberg