EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 7 August 2009 
on amending the legal framework for clearing operations 
(CON/2009/66) 
 
Introduction and legal basis  
On 3 July 2009 the European Central Bank (ECB) received a request from the Finnish Ministry of 
Finance for an opinion on a draft government proposal for a law amending the Law on securities markets and certain other related laws (hereinafter the ‘draft law’). 
The ECB’s competence to deliver an  opinion is based on Article 105(4) of the Treaty establishing the 
European Community and the fifth indent of Article  2(1) of Council Decisi on 98/415/EC of 29 June 1998 
on the consultation of the European Central Bank by  national authorities regarding draft legislative 
provisions
1, as the draft law relates to payment and settle ment systems. 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.  Existing legislation and purpose of the draft law 
1.1 The draft law relates to securities clearing, in pa rticular to the operation, licensing and supervision 
of foreign clearing organisati ons; it proposes amendments to the Law on securities markets, the 
Law on the Financial Supervisory Authority and th e Law on the supervision fees of the Financial 
Supervisory Authority. It is part of a more comprehensive refo rm of securities markets legislation, 
and it is planned that the remaining part of th e reform will be carried out in the near future
2. 
1.2 Under the existing Law on securities markets, ‘c learing organisation’ is defined as a limited 
liability company that professionally and on a regular basis carries out  clearing operations on behalf 
of organisations authorised to lodge securities transactions and other transfers for clearing. ‘Clearing operations’ are defined as the determina tion and realisation of obligations resulting from 
public trading in securities on behalf of the parti es to the transaction. The operation of a clearing 
organisation is subject to a licence, which may be  granted to a Finnish limited liability company by 
the Ministry of Finance. The law further provides that the stock exchange must arrange the clearing 
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
2  Under the Ministry of Finance’s decision of 2 Februa ry 2009 on the appointment of the working group, the working 
group’s term of office is from 3 February 2009 to 31 Decembe r 2010. The purpose of the comprehensive reform is to 
ensure, inter alia , that legislation on securities markets is effective,  clear and comprehensible and that it promotes the 
competitiveness of the Finnish market, thereby permitting intern ational structures and operating models that increase the 
efficiency of cross-border operations. The working group has th e task of drafting necessary legislative proposals in the 
form of a government draft law. 
2 of securities trades concluded in public trading in an appropriate manner. If the stock exchange uses 
a securities clearing and deposit institution other than a licensed clearing organisation in the 
clearing of securities trades, the stock exchange, the clearing organisation and the clearing and custody institution must arrange their cooperation so  that the reliability of public trading is not 
endangered. 
1.3 According to the current Finnish legislation,  a clearing organisation undertakes both clearing and 
settlement. At present, the Finnish central securities depository, Euroclear Finland Ltd, is the sole 
licensed clearing organisation in the Finnish securities market. Foreign organisations whose 
business consists of both clearing and settlement are allowed to operate in Finnish markets through 
a licensed Finnish subsidiary. Currently, fore ign organisations undertaking clearing but not 
settlement, such as central counterparties, have not  been considered as clearing organisations and 
no licence has been required from them to operate in Finland. 
1.4 The draft law proposes new provisions that would apply to foreign clearing organisations that are 
being used for clearing purposes by the stock exch ange or an organiser of multilateral trading, 
allowing such entities to conduct clearing operations  in Finland upon authorisation granted by the 
Ministry of Finance. Foreign clearing organisa tions domiciled within the European Economic Area 
(EEA) will be able to operate on a cross-border basis or through a branch, while entities domiciled 
outside the EEA will, in principle, only be able to operate through a branch. The draft law further 
provides that foreign clearing organisations and ot her foreign entities will be under an obligation to 
apply for clearing party status in a Finnish clear ing organisation when they undertake the clearing 
of obligations arising from trading in securities that are regularly settled by a Finnish clearing 
organisation. 
1.5 Under the draft law, foreign clearing organisations  will be supervised by the Financial Supervisory 
Authority. According to the explanatory memorand um, the draft law aims to ensure that foreign 
clearing organisations chosen by the stock excha nge or an organiser of multilateral trading are 
reliable and solvent, that adequate risk manageme nt measures are put in place, that the supervisory 
authorities receive necessary and adequate information from the foreign clearing organisation and 
from the competent supervisory authority of its home country, and that the authorities are, if 
necessary, able to restrict or prevent clearing ope rations conducted cross-borde r or through a branch 
in Finland. 
1.6 The draft law proposes to amend the definition of th e term ‘clearing operations’ so that it refers to 
the clearing ‘or’ settlement (formerly the reference was to ‘clearing and settlement’) of obligations 
resulting from public or multilateral trading in secu rities or from a trade or transfer concluded 
elsewhere than in public or multilateral trading of  a security incorporated in the book-entry system 
or in a security subject to public or multilateral tr ading, on behalf of the parties to the transaction. 
 
3 2. General observations 
The ECB understands  that the purposes of the draft law are to establish a consistent legal framework for 
entities providing clearing or settlement services in the Fi nnish securities market, in particular for foreign 
clearing-service providers, to ensure the reliability a nd stability of the market and to establish a level 
playing field between market participants. With a vi ew to implementing the core tasks of the European 
System of Central Banks (ESCB) under the Treaty a nd the Statute of the European System of Central 
Banks and of the European Central Bank (hereinafter  the ‘Statute of the ES CB’), the ECB has serious 
concerns relating to the proposed requirements for location/establishment of foreign central 
counterparties. In the ECB’s view, the provision of clearing services by foreign clearing organisations offering services in Finland is in line with the intern al market freedoms, as laid down in the Treaty and 
addressed in further detail below. However, such pr ovision of services may adversely affect the location 
policy of the Governing Council for infrastructures offering services in euro. 
 3. Location of infrastructures 3.1 The Governing Council’s location policy 
3.1.1 The location policy has been publicly ex pressed on a number of occasions since the ECB’s 
establishment. Already in November 1998, the first policy statement
3 was made in which it was 
stressed, inter alia , that ‘As is the case with every central bank, the ECB has a direct interest in the 
prudent design and management of any payment and settlement system processing its own currency, the euro. Indeed, the smooth functioning of payment and settlement systems is a crucial 
aspect of a sound currency and essential to the conduct of monetary policy. These systems also have a significant bearing on the functioning of financial markets. Changes in payment systems may cause unpredictable shifts in the demand for, or supply of, base money. Moreover, safe and 
efficient payment systems are critical to the maintenance of banking and financial stability. Against this background, … the Governing Council of the ECB wishes to underline that, as in any other monetary system, central bank money in euro can on ly be provided by the central banks that belong 
to the euro area.’ 
3.1.2 The November 1998 statement was followed up by another policy statement in September 2001 
relating to central counterparty clearing
4. Section 2(b) of this statement stated, inter alia , that the 
‘logical geographical scope of a market infrastructure is in practice the currency area’, and that domestic infrastructures for the euro
5 ‘should logically be located in the euro area, as is the case 
with core infrastructures in other monetary areas.  This would be preferable from a regulatory 
perspective and would help the Eurosystem, as the “c entral bank” of the euro, to ensure the smooth 
                                                 
3  See ‘Policy statement on euro payment and settlement systems located outside the euro area’, available on the ECB’s 
website at www.ecb.europa.eu. 
4  See ‘The Eurosystem’s polic y line with regard to consolid ation in central counterparty cl earing’, available on the ECB’s 
website. 
5  A domestic system is defined in the policy statement as a system ‘which handles mainly or exclusively assets 
denominated in one currency’. 
4 functioning of payment systems, efficient moneta ry policy implementation and financial stability.’ 
It also stated that the ‘location of central c ounterparties in the euro area would facilitate the 
provision, when deemed necessary and appropriate, of  central bank money in euro.’ In this regard, 
point b) of the conclusions stresses that ‘The na tural geographical scope for any “domestic” market 
infrastructure (including central counterparty clear ing) for securities and derivatives denominated in 
euro is the euro area. Given the potential system ic importance of securities clearing and settlement 
systems, this infrastructure should be located within the euro area.’ 
3.1.3 The Governing Council’s location policy is e xpressly based on the premise that ‘the ECB and the 
national central banks of the Eurosystem (the central  banks of issue) need to retain, in any event, 
ultimate control over their currency, the euro. Th erefore, from both a general policy and systemic 
risk perspective, the Eurosystem cannot, as a matter of principle, accept that payment 
infrastructures for euro transactions which are lo cated outside the euro area (the home currency 
area) have the potential to develop into major euro payment infrastructures, particularly if this were 
to put at stake the Eurosystem’s control over the euro. … Payment infrastructures settling euro-
denominated payment-versus-payment (PvP) and/ or non-PvP payment transactions (gross, hybrid, 
net, net with high underlying gross amounts) that ha ve the potential to reach systemic relevance for 
the euro area should, as a matter of principle, settle these payment transactions in central bank 
money and be incorporated in the euro area with full operational responsibility for euro transactions’
6.  
3.1.4 Finally, the Governing Council confirmed its lo cation policy more recently in relation to central 
counterparties for over-the-counter deri vatives in December 2008 and July 20097.  
3.2 Location policy and Treaty freedoms 
3.2.1 As to whether the Governing Council’s loca tion policy could be seen to pose any regulatory or 
legal issues related to the concept of the internal  market, it is recalled that Article 14(2) of the 
Treaty states that the internal mark et comprises ‘an area without inte rnal frontiers in which the free 
movement of goods, persons, services and capital is ensured in accordance with the provisions of 
this Treaty’. These freedoms are further regulated in particular in Title III of the Treaty (Articles 39-60) and also apply to the Eurosystem (because Article 1.1 of the Statute of the ESCB provides that the ESCB and the ECB must perform their tasks and carry out their activities ‘in accordance with the provisions of [the] Treaty and [the] Statut e’). Furthermore, Article 3(1)(c) of the Treaty 
provides that the establishment of an internal ma rket characterised by the abolition, as between 
Member States, of obstacles to the free movement of, inter alia , services and capital is one of the 
activities of the Community. Moreover, under Article  4(1) of the Treaty, the activities of the 
Member States and the Community include the ad option of an economic policy which is based, 
                                                 
6  See paragraphs 2 and 3 of ‘The Euro system policy principles on the location and operation of infrastructures settling 
euro-denominated payment transact ions’, published on 19 July 2007 and available on the ECB’s website. 
7  See ‘Decisions taken by the Governing Council of the ECB (i n addition to decisions setting in terest rates)’ for December 
2008 and July 2009, available on the ECB’s website. 
5 inter alia , on the internal market. From the forego ing it is evident that the establishment and 
functioning of the internal market is one of  the core activities of the Community itself. 
3.2.2 The Treaty freedoms underlying the internal market  must be seen in the context of the Treaty as a 
whole. In this respect, the ECB emphasises that  the tasks of the Community are identified under 
Article 2 of the Treaty as being achieved ‘by est ablishing a common market and an economic and 
monetary union’. Moreover, Article 4(2) of the Tr eaty states that ‘concurrently with the foregoing’ 
(i.e. with the adoption of an economic policy based, inter alia , on the internal market), the activities 
of the Member States and the Community include, inter alia , the introduction of a single currency 
and the definition and conduct of a single moneta ry policy the primary objective of which is ‘to 
maintain price stability and, without prejudice to  this objective, to support the general economic 
policies in the Community, in acco rdance with the principle of an open market economy with free 
competition’.  
3.2.3 The Eurosystem’s tasks relating to monetary policy, payment systems and financial stability are 
inextricably linked to the Governing Council’s a bovementioned express statement in July 2007 that 
the Eurosystem central banks ‘need to retain, in an y event, ultimate control over their currency, the 
euro’. While the Eurosystem generally has to comp ly with the Treaty freedom s, and in particular 
has to consider their implications if it wishes to ma ke use of its regulatory power to ensure efficient 
and sound clearing and payment systems, this does not mean that the ECB may not impose measures that would have an impact on the Treaty fre edoms, if such measures are strictly warranted 
in order to perform the Eurosystem’s basic tasks. In this respect, the ECB considers that it is highly 
significant that, under the Treaty, the Eurosystem ’s monetary policy, financial stability and 
oversight tasks only apply to those Member States th at have adopted the euro. In view of the above, 
the ECB is of the clear view that, in order for the Eurosystem to be able to perform its core central 
banking tasks, in particular the provision of central bank liquidity to infrastructures offering services in euro, such infrastructures need to be established and located w ithin the euro area.  
3.3 Location policy and oversight of settlement systems 
3.3.1 In order to perform its core tasks, the Eurosy stem needs to ensure the safety and efficiency of 
systems processing the euro. In th e case of an infrastructure located  outside the euro area, the 
Eurosystem’s ability to oversee these systems an d to detect risks that could jeopardise the 
performance of its abovementioned core tasks at an early stage is undermined due to a mismatch 
between public responsibilities and public powers.  Thus for instance, as highlighted by the 
‘Eurosystem Oversight Policy Framework’ of February 2009
8, cooperative oversight arrangements 
at international level can mitigate the loss of direct  influence to some extent but cannot ensure the 
same level of influence of the issuing central bank as direct oversight, especially in a crisis 
situation, where access to timely information by  the issuing central bank may not be possible.  
3.3.2 Consequently, if such risks are not identified at  an early stage, the malfunctioning of infrastructures 
located outside the euro area pro cessing the euro could lead to sp illover effects to infrastructures 
                                                 
8  Available on the ECB’s website. 
6 within the euro area. Direct Eurosystem oversight , which is possible provided that infrastructures 
are located in the euro area, is  key to ensuring the safety and efficiency of infrastructures 
processing the euro and thus to maintain ing ultimate control over the euro.  
3.3.3 It is in this broader context that the draft Finnish government proposal opening up the possibility 
for foreign clearing organisations to provide services in Finland is being considered by the ECB.  
3.3.4 It is appreciated that the examination of an application by a foreign clearing organisation includes 
measures to ensure that that clearing organisati on does not constitute a risk to the interests of 
investors and of financial stability in general. In this regard, it is noted that Suomen Pankki and the 
Financial Supervisory Au thority’s opinion will, inter alia , be sought in relation to applications by 
foreign clearing organisations from another EEA/ non-EEA Member State for authorisation by the 
Ministry of Finance. It is understood that there are plans to establish cooperative oversight 
arrangements between Suomen Pankki  and the relevant competent authorities. Such prior process 
and cooperative oversight arrange ments cannot, however, take the place of the Eurosystem’s 
ongoing need for the same regular performance of direct oversight on the foreign clearing system that would be conducted in the case of a Finnish organisation in order to ensure the safety and 
efficiency of the systems in question.  
3.3.5 Furthermore, it is noted that while an EEA cl earing organisation will be able to offer services on a 
cross-border basis, non-EEA clearing organisations seeking to provide services in Finland will, in principle, be obliged to establish a branch in Fi nland. However, in the ECB’s view infrastructures 
processing the euro should be incorporated in th e euro area by way of establishment of a legal 
entity that has full responsibility for all critical func tions of the infrastructure. This would ensure 
that the Eurosystem has regulatory power over a nd direct access to the decision-making body of the 
relevant infrastructure in order to bring a bout any necessary changes in relation to the 
infrastructure’s compliance with the applicable Eurosystem oversight policies and standards. A 
branch, unlike a subsidiary, does not constitute a sep arate legal entity in the relevant jurisdiction. 
3.3.6 Moreover, given that central counterparty cl earing has a specific role in managing counterparty 
risk, but also given the aim that central counter party clearing should expand in view of the recent 
market turmoil, it is of the utmost importance that the Eurosystem has direct oversight over infrastructures processing the euro. Th e need for this is even more pronounced due to the fact that 
crisis management is only vaguely  addressed in the draft law.  
3.3.7 Consequently, the ECB is of the view that enab ling the use of foreign clearing organisations located 
outside the euro area in Finland without requiring that the Eurosystem should have sufficient means to ensure the safety of such non-Eurosystem clear ing organisations has th e potential ultimately to 
undermine the Eurosystem’s control over the euro and the proper performance of its core tasks. 
 
7 4. Other specific observations 
4.1 Account-holding structures 
The ECB notes that the Finnish securities holding system (which is also a book-entry based 
system)  is based on the principle of direct holding9, where the rights pertaining to the book entries 
are registered directly in each account holder’s book-entry account. Book-entry securities owned by a foreign individual, corporation or foundation may be entered in a custodial nominee account 
administered by a custodial account holder on beha lf of a beneficial owner on the basis of an 
authorisation. The ECB understands that the dr aft law does not intend to amend these securities-
holding structures and that it is planned that th e more comprehensive reform of Finnish securities 
markets legislation will follow in 2010. In this cont ext, the ECB nevertheless would like to refer to 
the explanatory memorandum to the draft law, which provides that ‘in the foreign central 
counterparty model, the objective of the legisla tion to ensure cost efficiency cannot be fully 
achieved unless the direct holding system will be developed towards a multi-tier holding structure, 
making indirect holding possible also to Finnish investors’.   
4.2 Supervision 
The ECB notes that, under the draft law, the Financial Supervisory Authority will, in addition to 
Finnish clearing organisations, also supervise fo reign clearing organisations and the provision of 
services by foreign clearing organisations without  the establishment of a Finnish branch. Such 
foreign entities would be subject to Chapter 6 of the Law on the Financial Supervisory Authority, 
which contains general provisi ons on the supervision of foreign EEA/non-EEA entities as well as 
on cooperation and the exchange of information between Finnish and foreign authorities. 
 This opinion will be published on the ECB’s website.   Done at Frankfurt am Main, 7 August 2009. 
 
[signed] 
 
The Vice-President of the ECB 
Lucas D. PAPADEMOS 
                                                 
9  As provided for in the Law on the book-entry system (826/1991) and the Law on book-entry accounts (827/1991), the 
book-entry system consists of book-entry accounts and lists of the owners of book entries registered in the accounts. 
‘Book entry’ means a dematerialised and transferable security that is issued or intended to be issued to the public, 
together with several other securities with similar rights.