Opinion of the European Central Bank at the request of Danmarks Nationalbank 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 concerning margin collateral in connection with clearing and settlement of securities transactions (CON/98/20)
Date: 1998-06-22
Institutions: European Central Bank
Subjects: Denmark, European System of Central Banks, bankruptcy, central bank, credit institution, euro area, financial stability, payment system, securities

OPINION OF THE EUROPEAN CENTRAL BANK

at the request of Danmarks Nationalbank 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 concerning margin collateral in connection with clearing and settlement of

securities transactions

CON/98/20

1.

The  EMI  has  received  a  request  from  Danmarks  Nationalbank  dated  2  April  1998  for  an

opinion  on  a  draft  legislation  concerning  margin  collateral  in  connection  with  clearing  and

settlement of securities transactions (the “legislative proposal”). In addition to a brief summary

of  the  legislative  proposal  in  the  English  language  (the  “summary”),  the  EMI  has  received

extracts  of  the  bill  (the  “Bill”)  amending  the  Danish  Securities  Trading  Act  (the  “Act”)  and

extracts of the explanatory notes to the Bill amending the 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  multilateral  netting  in  connection  to

clearing  and  settlement  of  securities  transactions  involving  financial  institutions  which  may

influence the stability of financial institutions and markets.

3.

The  summary  refers  to  the  present  Danish  legislation  on  mulilateral  netting  in  connection  to

clearing  and  settlement  of  securities  transactions  which  ensures  that  multilateral  netting  can

take place irrespective of any compulsory winding-up procedure of a participant of a securities

settlement  system  under  the  Danish  Act  on  Bankruptcy  (the  “Bankruptcy  Act”),  whereby

registered  transactions  can  be  completed  even  when  a  participant  becomes  insolvent.  In  this

connection,  the  ECB  recalls  an  earlier  consultation  in  1995  on  a  Danish  draft  legal  proposal

concerning  the  securities  market  legislation  (Bill  No.  L  250,  Folketinget  1994-1995;

CON/95/9).

- 2 -

4.

The  present  legislative  proposal  addresses  the  possibility  under  the  current  legislation  that

margin collateral in connection with clearing and settlement and securities transactions might

be challenged during the suspect period according to the Bankruptcy Act. The objective of the

legislative  proposal  according  to  the  summary  is  to  exclude  the  possibility  to  successfully

challenge such margin collateral under the Bankruptcy Act during the suspect period. The ECB

welcomes  this  objective  and  agrees  that  such  a  legisative  amendment  should  facilitate  the

participation  of  Danish  credit  institutions  in  internationally  operating  clearing  and  settlement

systems located in other countries, and thereby the cross-border use of securities.

5. 

The  risk  control  measures  proposed  for  the  ESCB  monetary  policy  framework  have  been

prepared taking into consideration differences in euro area legal systems. It might be necessary

to consider again the consequences of the legislative proposal as it relates to the provision of

margin  collateral  to  ascertain  its  consistency  with  these  ESCB  risk  control  measures,  should

Denmark decide to participate in EMU.

6.

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

22 June 1998