Opinion of the European Central Bank at the request of the Finnish Ministry of Finance under Articles 109l (2) and 109f (6) of the Treaty establishing the European Community and Article 5.3 of the Statute of the European Monetary Institute on a draft legislative proposal concerning the clearing and settlement of securities transactions (CON/98/49)
Date: 1998-11-02
Institutions: European Central Bank
Subjects: Finland, financial supervision, monetary policy, national law, payment system, securities

OPINION OF THE EUROPEAN CENTRAL BANK

at the request of the Finnish Ministry of Finance under Articles 109l (2) and 109f (6) of the

Treaty establishing the European Community and Article 5.3 of the Statute of the European

Monetary Institute on a draft legislative proposal concerning the clearing and settlement of

securities transactions

CON/98/49

1. 

On 29 September 1998 the European Central Bank (ECB) received a request from the Finnish

Ministry of Finance for an ECB Opinion on a draft legislative proposal concerning the clearing

and settlement of securities transactions (hereinafter referred to as the “legislative proposal”).

In the legislative proposal, it is suggested that Finnish law (the Act on the Book-Entry System

(826/1991) (lagen av den 17 maj 1991 om värdeandelssystemet) and certain related legislation)

should be amended in order:

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to  facilitate  the  establishment  of  international  links  with  the  Finnish  central  securities

depository  (CSD)  for  the  cross-border  transfer  and  administration  of  foreign  securities

within the Finnish book-entry system;

to  introduce  rules  regarding  the  redenomination  into  euro  of  bonds  issued  in  Finnish

markka;

to  improve  the  possibility  for  the  Finnish  Financial  Supervisory  Authority  to  obtain

information  concerning  book  entries  in  respect  of  securities  held  through  nominee

registration (which are registered in a specific book-entry account (hereinafter referred to as

the “custodial account”), whereby the nominee is administering the securities on behalf of

another party);

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to provide for the possibility for Suomen Pankki and foreign central banks to hold custodial

accounts, which would accommodate needs in relation to the collateral requirements of the

European System of Central Banks (ESCB) for Stage Three of EMU; and

to  add  legislative  provisions  to,  inter  alia,  the  Securities  Market  Act  (495/1989)

(värdepappersmarknadslagen av den 26 maj 1989) regarding the introduction of the euro in

relation to the public trading of securities and clearing activities.

2. 

In  accordance  with  Article  1091  (2)  of  the  Treaty  establishing  the  European  Community

(hereinafter referred to as the “Treaty”), the ECB has taken over the advisory functions of the

European Monetary Institute (EMI), which went 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 both clearing systems, in  particular

for  those  cross-border  transactions,  and  the  stability  of  financial  markets  and  institutions.  In

accordance with Article 17.5, first sentence, of the Rules of Procedure of the ECB, this ECB

Opinion has been adopted by the Governing Council of the ECB. 

3. 

The ECB notes that the objective of the legislative proposal is to facilitate the introduction of

the euro and to promote the international links of the Finnish securities market. The legislative

proposal  is  also  intended  to  improve  the  practical  conditions  for  State  borrowing  within  the

euro area and, from an investment perspective, the proposed amendments  would  represent  an

adaptation of the Finnish clearing and settlement arrangements to the European markets.

4. 

The ECB welcomes the legislative proposal and notes in particular the amendments suggested

in order to facilitate the establishment of links between the Finnish CSD  and  other  European

and  international  CSDs  for  the  cross-border  transfer  and  administration  of  foreign  securities.

This will enhance the integration of the Finnish and European securities markets. The ECB also

notes  and  welcomes  the  proposal  to  strengthen  the  risk  control  measures  which  have  to  be

applied by the Finnish CSD, which is aimed at reducing the risks associated with cross-border

securities transfers. 

5. 

The ECB also welcomes the new provisions concerning the holding of securities by, inter alia,

Suomen Pankki and other national central  banks  (NCBs)  in  custodial  accounts  in  the  Finnish

book-entry system.

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6. 

The proposed amendments to Section 26b of the Act on the Book-Entry System will allow the

Finnish CSD to establish the links and necessary arrangements with other CSDs envisaged as

part  of  the  future  securities  settlement  infrastructure  in  support  of,  inter  alia,  euro  area-wide

financial markets and the single monetary policy of the euro  area.  The  ECB  understands  that

the scope of application of the amended Section 26b of the Act on the Book-Entry System will

also extend to links with international central securities depositories (ICSDs), the NCBs and the

ECB (cf. Section 16 of the Act on the Book-Entry System, on international relations). Such a

wide  scope  of  application  and  the  flexibility  afforded  under  the  new  legal  provisions  should

prove  useful  when  the  Finnish  CSD  implements  the  new  regime  in  relation  to  corresponding

entities in other countries. In this connection, it is noted that the explanation in relation to the

legislative proposal recalls the standards set out in the report published by the EMI in January

1998  entitled  “Standards  for  the  use  of  Securities  Settlement  Systems  in  ESCB  credit

operations”.  These  standards,  and  the  further  reports  on  the  topic  produced  by  the  ECB,  are

indeed  important  for  the  future  activities  of  CSDs  and  ICSDs  as  such  activities  relate  to  the

credit operations of the ESCB.

7. 

As noted in the explanatory part of the legislative proposal, it is not expected, however, that it

will  be  possible  for  the  work  under  the  auspices  of  the  European  Central  Securities

Depositories Association (ECSDA), which is aimed at establishing all the envisaged links, to be

fully concluded by the start of Stage Three. The correspondent central banking model (CCBM)

developed  by  the  ESCB,  and  referred  to  in  connection  with  the  legislative  proposal,  will

therefore provide an important arrangement in respect of the collateral requirements in relation

to ESCB operations. The CCBM has been established on the basis of NCBs holding collateral

on behalf of other members of the ESCB and, in this context, the ECB welcomes the proposed

amendment to Section 5a of the Act on Book-Entry Accounts (827/1991) (lagen av den 17 maj

1991  om  värdeandelskonton),  which  will  prove  useful,  inter  alia,  in  relation  to  Suomen

Pankki’s  participation  in  the  CCBM  and  the  utilisation  of  Finnish  securities  as  collateral  for

ESCB operations.

8. 

Finally, the ECB notes the proposed provisions concerning the introduction of the euro and the

redenomination  of  bonds,  whereby  the  Finnish  legislative  proposal  is  intended  to  apply  to

issues which are not already covered by the two euro regulations directly applicable in Finland.

The  ECB  has  also  taken  note  of  the  provisions  for  the  practical  implementation  measures  in

relation to the redenomination of  debt,  particularly  redenominations  within  the  Finnish  book-

entry  system,  and  the  scope  provided  by  the  legislative  proposal  for  the  application  of  the

“bottom-up” approach. The analysis provided in the explanatory part of the legislative proposal

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concludes  that  the  suggested  amendments  will  conform  with  Article  8.4  of  the  EU  Council

Regulation  (EC)  No.  974/98  on  the  introduction  of  the  euro,  and  the  ECB  does  not  wish  to

express any contrary opinion in this respect.

9. 

The  ECB  confirms  that  it  has  no  objection  to  this  ECB  Opinion  being  made  public  by  the

competent national authorities at their discretion.

Done at Frankfurt am Main on 2 November 1998.

The President of the ECB

[signed]

Willem F. Duisenberg