OPINION OF THE EUROPEAN CENTRAL BANK
at the request of the Finnish Ministry of Finance under Articl es 109l (2) and 109f (6) of the
Treaty establishing the European Community and Article 5.3 of the St atute of the European
Monetary Institute on a draft legislative prop osal concerning the clearing and settlement of
securities transactions
CON/98/49
1. On 29 September 1998 the European Central Ba nk (ECB) received a request from the Finnish
Ministry of Finance for an E CB Opinion on a draft legislative proposal concerning the clearing
and settlement of securities transactions (hereina fter referred to as the legislative proposal).
In the legislative proposal, it is suggested that  Finnish law (the Act on the Book-Entry System
(826/1991) ( lagen av den 17 maj 1991 om värdeandelssystemet ) and certain related legislation)
should be amended in order:
/g45 to facilitate the establishment of international links with the Finnish central securities
depository (CSD) for the cross-border transfer  and administration of foreign securities
within the Finnish book-entry system;
/g45 to introduce rules regarding the redenomina tion into euro of bonds issued in Finnish
markka;
/g45 to improve the possibility for the Finnish Financial Supervisory Authority to obtain
information concerning book entries in respect of securities held through nomineeregistration (which are registered in a specifi c book-entry account (hereinafter referred to as
the custodial account), whereby the nominee is  administering the securities on behalf of
another party);
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/g45 to provide for the possibility for Suomen Pan kki and foreign central banks to hold custodial
accounts, which would accommodate needs in rela tion to the collateral requirements of the
European System of Central Banks (E SCB) for Stage Three of EMU; and
/g45 to add legislative provisions to, inter alia, the Securities Market Act (495/1989)
(värdepappersmarknadslagen av den 26 maj 1989 ) regarding the introduction of the euro in
relation to the public trading of  securities and clearing activities.
2. In accordance with Article 1091 (2) of the Tr eaty establishing the European Community
(hereinafter referred to as the Treaty), the ECB 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 and fifth indents, of the Council Decision (93/717/EC) of 22 November 1993 on the
consultation of the EMI by the authorities of the Member States on draft legislative provisions,
as the legislative proposal contains provisions concerning both clearing systems, in particular
for those cross-border transactions, and the st ability of financial markets and institutions. In
accordance with Article 17.5, first sentence, of th e Rules of Procedure of the ECB, this ECB
Opinion has been adopted by the Governing Council of the ECB. 
3. The ECB notes that the objective of the legislative proposal is to facilitate the introduction of
the euro and to promote the international links of the Finnish securities market. The legislative
proposal is also intended to improve the practi cal conditions for State borrowing within the
euro area and, from an investment perspective,  the proposed amendments would represent an
adaptation of the Finnish clearing and settleme nt arrangements to the European markets.
4. The ECB welcomes the legislative proposal and notes in particular the amendments suggested
in order to facilitate the esta blishment of links between the Finnish CSD and other European
and international CSDs for the cross-border tran sfer and administration of foreign securities.
This will enhance the integration of the Finnish  and European securities markets. The ECB also
notes and welcomes the proposal to strengthen the risk control measures which have to be
applied by the Finnish CSD, which is aimed at reducing the risks associated with cross-border
securities transfers. 
5. The ECB also welcomes the new provisions concer ning the holding of securities by, inter alia,
Suomen Pankki and other national central ba nks (NCBs) in custodial accounts in the Finnish
book-entry system.
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6. The proposed amendments to Section 26b of the Act on the Book-Entry System will allow the
Finnish CSD to establish the links and necessary  arrangements with other CSDs envisaged as
part of the future securities settlement infrast ructure in support of, inter alia, euro area-wide
financial markets and the single monetary policy of the euro area. The ECB understands thatthe scope of application of the amended Secti on 26b of the Act on the Book-Entry System will
also extend to links with international central securities depositories (ICSDs), the NCBs and the
ECB (cf. Section 16 of the Act on the Book-Entry  System, on international relations). Such a
wide scope of application and the flexibility afforded under the new legal provisions should
prove useful when the Finnish  CSD implements the new regime in relation to corresponding
entities in other countries. In this connection, it is  noted that the explanation in relation to the
legislative proposal recalls the standards set out in the report published by the EMI in January1998 entitled Standards for the use of Secur ities Settlement Systems in ESCB credit
operations. These standards, and the further reports on the topic produced by the ECB, are
indeed important for the future activities of CS Ds and ICSDs as such activities relate to the
credit operations of the ESCB.
7. As noted in the explanatory part of the legisl ative proposal, it is not expected, however, that it
will be possible for the work under the ausp ices of the European Central Securities
Depositories Association (ECSDA), which is aimed at establishing all the envisaged links, to be
fully concluded by the start of Stage Three. The correspondent central banking model (CCBM)developed by the ESCB, and referred to in connection with the legislative proposal, will
therefore provide an important arrangement in re spect of the collateral requirements in relation
to ESCB operations. The CCBM has been established on the basis of NCBs holding collateralon behalf of other members of the ESCB and, in  this context, the ECB welcomes the proposed
amendment to Section 5a of the Ac t on Book-Entry Accounts (827/1991) ( lagen av den 17 maj
1991 om värdeandelskonton ), which will prove useful, inter alia, in relation to Suomen
Pankkis participation in the CCBM and the u tilisation of Finnish securities as collateral for
ESCB operations.
8. Finally, the ECB notes the proposed provisions c oncerning the introduction of the euro and the
redenomination of bonds, whereby the Finnish le gislative proposal is intended to apply to
issues which are not already covered by the two eu ro regulations directly applicable in Finland.
The ECB has also taken note of the provisions  for the practical implementation measures in
relation to the redenomination of debt, particul arly redenominations within the Finnish book-
entry system, and the scope provided by the le gislative proposal for the application of the
bottom-up approach. The analysis provided in the explanatory part of the legislative proposal
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concludes that the suggested amendments will conform with Article 8.4 of the EU Council
Regulation (EC) No. 974/98 on the introduction of  the euro, and the ECB does not wish to
express any contrary opinion in this respect.
9. 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 2 November 1998.
The President of the ECB
[signed]
Willem F. Duisenberg