Amended proposal for a European Parliament and Council Directive on settlement finality in payment and securities settlement systems
Date: 1998-03-13
Institutions: European Commission
Subjects: credit guarantee, credit institution, financial solvency, financial transaction, payment

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 13.03.1998 

COM(1998) 151 final 

96/0126 (COD) 

OPINION OF THE COMMISSION 
pursuant to Article 189 b (2) (d) of the EC Treaty, 
on the European Parliament's amendments 
to the Council's common position regarding the 

proposal for a 
EUROPEAN PARLIAMENT AND COUNCIL DIRECTIVE 

ON SETTLEMENT FINALITY IN PAYMENT AND SECURITIES SETTLEMENT SYSTEMS 

AMENDING THE PROPOSAL OF THE COMMISSION 
pursuant to Article 189 a (2) of the EC Treaty 

1.  BACKGROUND 

1.  On  30 May  1996, the  Commission  adopted  a proposal  for  a Directive  on  Settlement  Finality  and 
Collateral  Security1.  This  text  was  forwarded  to  the  Parliament,  the  Council,  the  Economic  and 
Social Committee and the European Monetary  Institute. 

2.  The Council began to examine the proposal on 20 September  1996. 

3.  The  Economic  and  Social  Committee  unanimously  adopted  an  opinion  on  the  Commission 
proposal  on  31  October  1996,  in  which  it  recommended  that  securities  settlement  systems  be 
included  in the scope of the proposal2. 

4.  The  European  Monetary  Institute  delivered  its  opinion  on  21  November  1996.  It  welcomed  the 
proposal  and  stressed  its  crucial  importance  to  the  efficient  and  smooth  functioning  of  payment 
systems; it also recommended that securities settlement systems should be included in the scope. 

5.  The  European  Parliament  welcomed  this  proposal  and  adopted  its  opinion  on  the  Commission 

proposal during its plenary meeting of 9 April  19973. 

6.  On 4 July  1997, the Commission adopted  its amended proposal4  in the  light of the consultation  of 
the  European  Parliament,  the  Economic  and  Social  Committee  and  the  European  Monetary 
Institute. 

7.  On 13 October  1997, the Council adopted its common position5. 

8.  On 29 January  1998, the European Parliament adopted 3 amendments in second reading. 

In accordance  with  Article  189b (2) (d) of the EC Treaty, the  Commission  has to  deliver  an  opinion 
on these amendments. 

COM (96)  193 final, OJ N° C 207, 18.07.1996., p. 13. 

OJ N°C  56, 24.02.97., p. 1. 

OJN°C  132,28.04.97. 

Amended  proposal  for  a European  Parliament  and  Council  Directive  on  settlement  finality  and  collateral  security  (to 
be renamed  'On  the  limitation  of systemic  risk  in payment  and  securities  settlement  systems'),  COM/97/0345  final  -
COD 96/0126, Official  journal  NO. C 259 , 26/08/1997 p. 6. 

OJ C 375,  10 December  1997, p. 34. 

POSITION  TAKEN  BY THE COMMISSION  REPRESENTATIVE  AT THE  PLENARY  SITTING 

2. 
The  European  Parliament  proposed  3  amendments  to  the  text  of  the  common  position  of  the 
Council. The Commission  representative  accepted all amendments. 

(The relevant amendments are numbered 4 to 6; earlier amendments  1 to 3 were  withdrawn) 

COMMISSION  OPINION ON THE AMENDMENTS VOTED BY THE EUROPEAN  PARLIAMENT 

3. 
Amendment  4 

Amendment  4  proposes  to  delete  Article  11 of the  common  position.  Since  the  first  paragraph  of 
amendment  6  states  in  clearer  terms  what  Article  11  aims  at  achieving,  this  amendment 
is 
acceptable to the  Commission. 

Amendment  5 

Amendment  5 changes  the  second  part  of  article  3 (1)  of  the  common  position.  It  underlines  the 
exceptional  nature  of the  cases  in  which transfer  orders  entered  into  the  system  after  the  opening 
of  insolvency  proceedings  are  valid.  It  also  turns  around  the  burden  of  proof:  transfer  orders 
entered after  the opening of insolvency proceedings  are only valid if the "system" can prove that it 
was  unaware  and  should  not  have  been  aware  of  this  opening.  Finally,  it  specifies  whose 
unawareness  is  relevant  in  order  for  a  transfer  order  entered  after  the  moment  of  opening  of 
insolvency  proceedings to be valid: transfer  orders  entered  after  that  moment  are  only  valid  if the 
central  counterparty,  the clearinghouse  or the settlement  agent  were unaware and  should not  have 
been aware of the opening of insolvency  proceedings. 

Although  the  Commission  is  of  the  opinion  that  having  to  provide  a  negative  proof  (proof  of 
unawareness) can raise difficulties,  it nevertheless considers that this good  faith  clause is workable 
in  practice,  especially  in  view  of  the  procedure  for  notifying  insolvencies  as  defined  in  the 
Directive. 

Amendment  6 

• 

first  paragraph 

The  first  paragraph  of  amendment  6  clarifies  what  Article  11  of  the  common  position  aimed  at 
achieving.  The  Commission  can  therefore  accept  both  amendment  4  (deletion  of  article  11)  and 
amendment  6 (1).  It  should  be  noted  that  the  fact  that  Member  States  can  impose  supervision  of 
systems can of course in no way prejudice  the powers of the European  System of Central  Banks  as 
laid down in Article 22 of its statute. 

• 

second  paragraph 

The  second  paragraph  of  amendment  6 aims  essentially  at  allowing  the  final  users  of  payment  or 
securities  settlement  systems,  namely  the  customer,  to  be  informed  of  which  system  his  bank  or 
investment  firms  uses to transfer  money  or  securities  for  his  account,  as  well  as  of  the  main  rules 
governing the functioning  of these systems. This should allow the customer,  and  other parties  with 
a  legitimate  interest,  to  be  able  to  compare  the  services  provided  by  different  systems  in  terms  of 
transfer  time  e.g.  and  to  asses  the  degree  of  risk  associated  with  one  or  other  system.  The  higher 
level  of  transparency  vis-à-vis  this  final  user  of  a  payment  or  securities  transaction  which  is 
the  Commission. 
introduced 

can  only  be  welcomed 

amendment 

(2) 

by 

by 

6 

Amended proposal for a 

EUROPEAN PARLIAMENT AND COUNCIL  DIRECTIVE 

ON SETTLEMENT  FINALITY  IN PAYMENT AND SECURITIES SETTLEMENT  SYSTEMS 

V 

Common position of the  Council 

Amendments by  Parliament 

(Amendment  4) 
Article  11 

Article  11 

Deleted 

In  order  to  protect  systems,  each  Member  State 
may 
impose  more  stringent  conditions  on 
systems than those laid down by this Directive. 

(Amendment  5) 
Article  3(1) 

1.  Transfer  orders  and  netting  shall  be  legally 
enforceable  and,  even  in  the  event  of  insolvency 
proceedings  against  a  participant,  shall  be 
binding  on  third  parties,  provided  that  transfers 
orders  were  entered  into  a  system  before  the 
moment 
insolvency 
proceedings  as  defined  in  Article  6(1)  or  if  they 
were  carried  out  on  the  day  of  opening  of  the 
insolvency  proceedings  unless  the  system  was 
aware  or  should  have  been  aware  of the  opening 
of such proceedings. 

of  opening  of 

such 

1.  Transfer  orders  and  netting  shall  be  legally 
enforceable  and  shall be binding  on third  parties, 
even  in  the  event  of  insolvency  proceedings 
against  a  participant,  provided  that  the  transfer 
orders  were  entered  into  a  system  before  the 
moment  of  opening  of 
insolvency 
proceedings as defined  in Article 6(1). 

such 

Where, in exceptional  cases, transfer  orders  enter 
into  a  system  after  the  moment  of  opening 
of  insolvency  proceedings  and  were  settled  on 
the  day  of  such  opening,  they  shall  only  be 
legally  enforceable  and  binding  on  third  parties 
if  the  settlement  agent,  the  central  counterparty 
the 
or  the  clearing  house  can  prove,  after 
moment  of  settlement,  that  they  were  unaware 
and  should  not  have  been  aware  of  the  opening 
of the insolvency  proceedings. 

(Amendment  6) 
Article  10, second paragraph a and b  (new) 

In addition  to the  notification  provided  for  in  the 
second  paragraph  above,  Member  States  may 
impose  supervision  or  approval  on  systems 
which fall  under their  jurisdiction. 

Whoever  has  a  legitimate  interest  may  require 
from  an  institution  to  be  informed  about  the 
system  in  which  it  participates  and  about  the 
main  rules  governing  the  functioning  of  such 
systems. 

^ 

ISSN 0254-1475 

COM(98)  151 final 

DOCUMENTS 

EN 

09  10 

Catalogue  number  :  CB-CO-98-155-EN-C 

ISBN  92-78-31987-2 

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