Opinion of the European Central Bank at the request of the Swedish Ministry of Finance under Article 109f (6) of the Treaty establishing the European Community (the "Treaty") and Article 5.3 of the Statute of the EMI on a draft legislative proposal regarding the registration of financial instruments, replacing the Share Account Act (1998:987) (CON/98/26)
Date: 1998-06-10
Institutions: European Central Bank
Subjects: Sweden, financial stability, national law, payment system, securities

OPINION OF THE EUROPEAN CENTRAL BANK

at  the  request  of  the  Swedish  Ministry  of  Finance  under  Article  109f  (6)  of  the  Treaty

establishing the European Community (the “Treaty”) and Article 5.3 of the Statute of the EMI

on a draft legislative proposal regarding the registration of financial instruments, replacing the

Share Account Act (1998:987)

CON/98/26

1.

The EMI has received a request from the Swedish Ministry of Finance dated 20 April 1998 for

an opinion on a Government proposal as regards a legislative reform concerning the Swedish

book  entry  system  for  dematerialised  financial  instruments  (“Lagrådsremiss  -  Lag  om

kontoföring av finansiella instrument”) (the “legislative proposal”). The scope of the legislative

proposal  generally  corresponds  to  the  provisions  of  the  present  Share  Account  Act

(“aktiekontolagen (1989:827); the “Share Account Act”).

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 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  the  settlement  of  securities  transactions

where  financial  institutions  participate  and  rules  applicable  thereto  which  may  influence  the

stability of financial institutions and markets.

3.

As part of the legislative proposal, the Swedish Government has submitted a proposed draft Act

on  Registration  of  Financial  Instruments  (the  “New  Act”),  which  is  suggested  to  replace  the

present  Share  Account  Act.  In  line  with  the  Share  Account  Act,  the  New  Act  is  based  on  a

dematerialised  system  for  registration  of  securities,  although  the  New  Act  also  provides  a

possibility for registration of foreign paper-based financial instruments. The objective is to keep

the New Act generally applicable to cover registration of all types of financial instruments.

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4.

The  ECB  will  not  comment  on  all  technical  and  organisational  aspects  of  the  legislative

proposal,  but  it  is  noted  that  the  monopoly  for  Värdepapperscentralen  VPC  AB  (“VPC”)  to

register securities with legal effect will be abolished. Instead, companies that comply with the

general conditions provided by the New Act can be authorised as central securities depositaries

(“CSDs”).  The  New  Act  will  also  provide  for  a  regime  for  cooperation  and  create  a  legal

framework  for  the  implementation  of  links  between  VPC  or  other  Swedish  CSDs  and  their

correpsondents in other countries. In addition, the ECB notes that other national central banks

than  Sveriges  Riksbank,  including  the  ECB,  would  be  able  to  participate  directly,  without  an

intermediary, in the activities of VPC and other Swedish CSDs. Accordingly, the New Act will

enable central banks of other countries to directly register ownership of financial  instruments

and collateral security arrangements in respect of such financial instruments, including plegdes

and liens. As a general principle and a precondition for such registrations, however, the CSD

concerned  will  need  to  appoint  the  national  central  bank  in  question  as  a  share  account

institution,  which  is  an  entity  entitled  by  a  CSD  to  effectuate  registration  measures  in  the

securities register (“Share Account Institution”) (whereby the arrangement with Share Account

Institutions  can  be  compared  to  membership  requirements  in  other  securities  settlement

systems).

5.

The ECB generally welcomes the legislative proposal and has no objections to the introduction

of  the  new  regime  whereby  the  legal  monopoly  of  VPC  ceases  in  favour  of  a  new  system

allowing authorised CSDs to keep registers of financial instruments, provided the requirements

for authorisation of CSDs are adequate and, in this connection, the ECB notes the functions of

the Swedish Financial Supervisory Authority (Chapter 2 of the New Act).

6.

In comparison with the regulation of the Share Account Act, the ECB notes the more flexible

regime of the New Act in relation to securities registration, which provides a greater scope for

decentralised  arrangements.  To  the  extent  that  such  an  approach  may  promote  developments

towards increased efficiency and safety,  and  is  subject  to  appropriate  authorisation  measures,

the  ECB  would  generally  welcome  the  reform,  including  the  option  provided  for  CSDs  in

respect of the use of Share Account Institutions as well as the possibility for Sveriges Riksbank,

and other national central banks, to act as Share Account Institutions where such are used.

7.

The ECB also notes and approves  of  the  widening  of  the  scope  of  the  New  Act  whereby  the

registration  of  foreign  paper-based  financial  instruments  will  be  allowed.  Such  a  possibility

may prove useful in relation to inter alia a future Swedish participation in EMU considering the

ESCB’s envisaged requirements for the use of collateral and the possible issue of ESCB debt

certificates for monetary policy purposes.

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8.

The  ECB  finds  the  rules  of  the  New  Act  concerning  the  legal  effect  of  registration  to  be

generally clear and notes the principle whereby registration is the relevant act for a transfer of

ownership of securities to becomes effective vis-a-vis third parties (Chapter 6 of the New Act;

compare also the recently adopted EC Directive of the European Parliament and of the Council

on Settlement Finality in Payment and Securities Settlement Systems and, in particular, Article

9.2  of  the  Directive).  In  this  connection,  the  ECB  also  notes  the  legal  provisions  related  to

securities  transactions  involving  insolvent  parties  contained  in  Section  4  of  Chapter  6  of  the

New  Act  and  understands  these  provisions  to  provide  protection  for  a  bona  fide  acquiror  of

securities from the point in time of registration.

9.

Finally,  the  ECB  appreciates  that  the  legislative  proposal  will  facilitate  the  creation  of  links

between  CSDs  in  different  countries,  which  is  an  important  aspect  of  the  desired  future

infrastructure in relation to the cross-border use of securities.

10.

The ECB has no objection to this opinion being made public.

10 June 1998