OPINION OF THE EUROPEAN CENTRAL BANK
at the request of Banque de France under Articl e 109f (6) of the Treaty establishing the
European Community (the Trea ty) and Article 5.3 of the St atute of the EMI on a draft
instruction No. 2-98 relating to the operations of Banque de France on the money market
CON/98/29
1. On 27 May 1998, the EMI received a request for an opinion from Banque de France on a draft
instruction No. 2-98 and its annexes (the Dra ft Instruction) relating to the operations of
Banque de France on the money market and im plementing Decision No. 97-2 of 27 March 1997
of the Monetary Policy Council of Banque de France. An Explanatory Memorandum was also
submitted to the EMI.
2. In accordance with Article 109l (2) of the Treaty, the ECB has taken over the advisory
functions of the EMI which has gone into li quidation upon the establishment of the ECB on 1
June 1998. The ECBs competence to deliver an opinion is based on Artic le 1.1, second indent,
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.
3. The Draft Instruction is purported to replace Ba nque de Frances Instructions No. 1-95 and 2-95
dated 11 December 1995 and Instruction No. 3-97 dated 27 March 1997. According to theExplanatory Memorandum, the main objectives of the Draft Instruction are (i) to extend the
collateral eligible for repurchase transactions to Treasury bonds; (ii) to allow for variable rates
tender procedure and (iii) to improve the proce dure rules for mobilisation of French private
claims.
4. The ECB welcomes that the above mentioned chan ges introduced by the Draft Instruction in the
present regulation of money market operations  prepare for a smooth transition with the
beginning of Stage Three of EM U. The ECB acknowledges, however, that the Draft Instruction,
in its present drafting, purports to cover only th e period starting from the date it is implemented
in June 1998, until the end of Stage Two. In this context, the ECB stresses that furtheramendments to the Draft Instruction will be n eeded, as from the start of Stage Three of EMU,
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to put it fully in line with the ESCB rules and pr inciples and that the new text will have to be
submitted by Banque de France to the ECB.
5. The Draft Instruction implements the possibility  stated in the Decision No. 97-2 of 27 March
1997 of the Monetary Policy Council, for Banque de France to accept Treasury bonds asunderlying assets for repurchase agreements. This will apply to Banque de Frances monetarypolicy operations as well as within the framew ork of the TBF system. This modification has
been technically facilitated by the implementati on of the system RGV (Relit Grande Vitesse) in
which Treasury bonds as well as Treasury bills will now be treated. The ECB welcomes thismeasure as broadening the range of assets eligib le as collateral, being therefore in line with its
current preparatory work on this area.
6. The Draft Instruction creates the possibility fo r Banque de France to use variable rate tender
procedure which, according to the Explanatory Memorandum, will be open as from September1998. In the same line, the Draft Instruction s uppresses the Opérateurs Principaux de Marché
as being credit institutions acting as exclusiv e Banque de Frances intermediaries for tender
procedures and repurchase transactions entered into for 5 to 10 days. The ECB welcomes these
amendments to Banque de Frances money ma rket operations framework as preparatory
measures in view of the begi nning of Stage Three of EMU.
7. Further to the Explanatory Memorandum, the ECB acknowledges that the changes brought by
the Draft Instruction to the procedure for the m obilisation of French private claims, as allowing
for a better identification of the claims transfe rred by the counterparties, will comfort the legal
framework of such procedure under French  law No. 81-1 of 2 January 1981. The ECB
consequently welcomes such improvements. 
8. The ECB has several remarks on individual provis ions of the Draft Instruction itself. In the
framework of repurchase agreements, Article 2.1.2.4, last paragraph, states that in case a
substitution is accepted by Banque de France, securities may only be substituted by securitiesof the same category as defined in Article 2.1.2.2. The ECB notes that this restriction is not
mentioned in the repurchase agreement itself figuri ng in Annex I.A. For the sake of clarity, it
could prove useful that the repurchase agreement itself mentions or refers to these provisions.
9. In the context of the mobilisation of French  private claims, Article 2.2.2.3 specifies the risk
control measures to be applied to such claims. The ECB reminds that as from the start of Stage
Three the appreciation of risk control measures  for tier two assets by National Central Banks
will be subject to ECB approval. From this  standpoint, the amount stated in Article 2.2.2.3
might not be consistent with the measures to be defined and which will apply as from thebeginning of Stage Three.
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10. As for tender procedure rules, the two last parts of Article 3.1.2(b) provide rules relating to
counterparties submission of tende r bids and as well as the need for counterparties to cover the
liquidity which will be granted to them by su fficient underlying assets. The ECB is of the
opinion that those general provisi ons which are stated for variable rate tender procedures only
should also apply to fixed rate tender procedures.
11. The ECB has the following remarks concerning  the agreement relating to the mobilisation of
private claims (convention de mobilis ation globale de créances privées).
- Article 4 states that the transfer of privat e claims is made to secure credit obtained from
Banque de France, or when it is possible, from  another National Central Bank of the ESCB.
As not sufficiently precise, this sentence coul d create confusion as im plying that Banque de
Frances domestic counterparties could get refina ncing from another NCB within the euro area,
whilst remote access is not currently being contemplated by the ESCB as from the beginning ofStage Three. The same ambiguity exists in th e last sentence of Article 8 of the convention.
- Article 12 first sentence refers to Fran ce Métropolitaine only in connection with the
application of the Monetary Policy Councils D ecision to be enacted as for the beginning of
Stage Three. From this stand poi nt the ECB reminds that any re striction to the scope of Banque
de France eligible counterparties to those es tablished on the territory of metropolitan France
only, as from the beginning of Stage Three, is not  consistent with the Treaty. This would imply
indirectly that the access to the counterparties lo cated in the overseas departments to Banque de
France operations is to be made through the IEDOM, which raises the issue of the compatibilitywith the Treaty of the current institutional framework for monetary matters in the overseas
departments.
10 June 1998