Opinion of the European Central Bank of 9 October 2000 at the request of the Luxembourg Ministry of Finance on 1. a draft law pertaining to the circulation of securities and other financial instruments; and 2. a draft law: a) concerning transfer of title intended to serve as security; b) amending and completing the law of 21 December 1994 concerning repurchase transactions carried out by credit institutions; c) amending and completing the amended law of 5 April 1993 concerning the financial sector; d) amending and completing the law of 21 June 1984 concerning the options and futures markets of the Luxembourg exchange and concerning the forward markets in which a credit institution operates (CON/00/18)
Date: 2000-10-09
Institutions: European Central Bank
Subjects: Luxembourg, financial stability, national law, payment system, securities

OPINION OF THE EUROPEAN CENTRAL BANK

of 9 October 2000

at the request of the Luxembourg Ministry of Finance on

1. 

2. 

a draft law pertaining to the circulation of securities and other financial instruments; and

a draft law:

a) 

b) 

concerning transfer of title intended to serve as security;

amending  and  completing  the  law  of  21  December  1994  concerning  repurchase

transactions carried out by credit institutions;

c) 

amending  and  completing  the  amended  law  of  5  April  1993  concerning  the  financial

sector;

d) 

amending and completing the law of 21 June 1984 concerning the options and futures

markets of the Luxembourg exchange and concerning the forward markets in which a

credit institution operates.

(CON/00/18)

1.  On  4  August  2000,  the  European  Central  Bank  (ECB)  received  a  request  from  the  Luxembourg

Ministry of Finance for an ECB opinion on: 1. a draft law pertaining to the circulation of securities

and other financial instruments (“Draft Law 1”); and 2. a draft law:  a)  concerning  transfer  of  title

intended to serve as security; b) amending and completing the law of 21 December 1994 concerning

repurchase transactions carried out by credit institutions; c) amending and  completing  the  amended

law of 5 April 1993 concerning the financial sector; and d) amending and completing the law of 21

June 1984 concerning the options and futures markets of the Luxembourg exchange and concerning

the forward markets in which a credit institution operates (“Draft Law 2”).

2.  The ECB’s competence to deliver an opinion is based on the second indent of Article 105(4) of the

Treaty establishing the European Community and on Article 2(1) of Council Decision 98/415/EC of

29 June  1998  on  the  consultation  of  the  ECB  by  national  authorities  regarding  draft  legislative
provisions1,  as  the  legislative  proposal  contains  provisions  concerning  means  of  payment.  In

1 OJ L 189, 3.7.1998, pp. 42-43.

                                                     
accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central

Bank, this opinion has been adopted by the Governing Council of the ECB. 

Draft Law 1

1.  The  ECB  welcomes  the  Luxembourg  initiative  to  further  modernise  its  law  of  1971  governing

ownership  and  pledging  of  interests in securities  held  through  intermediaries  by  allowing  investors

and secured creditors to be certain that they have a distinct package of rights that cannot successfully

be attached by adverse claimants and by simplifying pledging and realisation procedures.

2.  With  respect  to  Article  3,  the  definition  of  “dépositaire”  encompasses  all  institutions  dealing  with

securities  without  making  a  clear  difference  between  the  activities  related  to  securities  settlement

systems (SSSs) and the ones related to other financial intermediaries. The two types of activities have

different  business  objectives,  and  have  different  roles  in  the  organisation  of  the  securities  market

infrastructure.  It  is  the  ECB’s  understanding  that  services  that  focus  on  issuers  of  securities  and

participants in SSSs, rendered by operators of SSSs, on the one hand, and services towards investors,

mutual funds, SSSs and own activity rendered by other financial intermediaries, on the other, are not

similar; and that, when performed in a single institution, the corresponding pools of assets ought to be

segregated,  in  particular  in  case  of  loss-sharing  and  for  the  definition  of  their  operational

environment. In  this respect,  the  current  wording  of  Draft  Law  1  may  generate  a  certain  confusion

when reading Articles 4, 10, 11 and 14. 

3.  With  respect  to  Article  4,  the  ECB  understands  that  the  transfer  of  securities  from  one  account  to

another, with the same depository or with another depository, would be carried out upon the initiative

of the “déposant” and not of the “dépositaire”.

4.  With  respect to  Article  7,  the  ECB  notes  the  importance  of  specifying  the  nature  of  entitlement  to

securities held on account with an intermediary or through several tiers of intermediaries. The ECB is

also of the view that interests in securities held through one or several financial intermediaries can be

defined  or  otherwise  interpreted  as  a  type  of  pro  rata  co-ownership  right  over  the  fungible  pool  of

securities, or interests in securities, of the same issue held by the intermediary with whom the person

entitled to  the  securities  has  a  direct  contractual  relationship  and  evidenced  solely  by  this  person’s

account with the intermediary, and not as a traceable property right in individual securities or a mere

contractual claim. 

5.  With respect to Article 13, the ECB favours the proposal to increase legal certainty and predictability

in case of a holding of securities through a chain of account. This would seem to take account of the

development of the system for holding, transferring and pledging interests in securities by book-entry

to  accounts  with  financial  intermediaries.  As  a  result,  the  selection  of  the  law  governing  the

characterisation, transfer and pledge of interests in securities represented or effected by book-entry to

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accounts with a financial intermediary is determined by reference to where the office of the financial

intermediary  maintaining  such  accounts  is  located  or  otherwise  by  reference  to  the  intermediary’s

jurisdiction.

6.  With  respect  to  Article  15,  the  ECB  welcomes  the  introduction  of  the  non-seizability  (with  the

exception  of  realisation  of  collateral)  of  the  securities  accounts  opened  in  the  books  of  an

intermediary operating principally a payment system or a SSS. It is noted at the same time that this

Article 15 is somewhat broader than Article 9 of the Belgian Royal Decree No. 62 of 10 November

1967, on which Article 15 is based. Indeed, such Article 9 provides that no attachment may be carried

out  on  securities  current/settlement  accounts  opened  in  the  books  of  the  interprofessional

organisation.  The  ECB  understands  that  the  objective  of  this  provision  is  to  further  reduce  the

systemic  risk  inherent  in  payment  and  SSSs  which  is  a  concern  shared  by  the  central  bank

community. At the same time, the ECB is inclined  to think  that  the  objective  of  reducing  systemic

risk  can  be  achieved  by  limiting  the  non-seizability  to  securities  settlement  accounts  rather  than

extend the scope to any securities account.

In the first sentence of Article 15, the wording “de l’accord du dépositaire” seems to suggest that the

enforcement and/or the creation of a collateral arrangement over a securities interest is subject to the

consent of the depository. This requirement seems peculiar since according to Article 9 of the Draft

Law 1, pledges created in accordance with the requirements set out in the first sentence of the said

Article are valid and enforceable and may be realised, without any further formalities. Hence, such

requirement seems not to be in line with the aim of Draft Law 1 to simplify pledging and realisation

procedures.  It  would  be,  moreover,  questionable  to  confer  a  discretionary  right  to  a  depository  to

authorise the creation of a collateral arrangement over deposited securities.

7.  Article 17, in the perspective of further reducing systemic risk inherent in payment and SSSs, reflects

the provisions already included in the Decree of 17 February 1971 and grants intermediaries which

operate principally a payment system or a SSS, a statutory lien over securities, claims, cash and other

rights  which  participants  hold  on  account  with  such  intermediaries  (as  opposed  to  assets  held  by

participants  on  behalf  and  for  the  account  of  their  customers).  The  statutory  lien  secures  the

obligations of participants in a payment system or SSS arising from the clearing, settlement or netting

of securities transactions (in a payment or SSS) vis-à-vis the intermediary. According to Draft Law 1,

this  statutory  lien  conferred  to  the  benefit  of  these  intermediaries  supersedes  all  other  privileges

except those listed in Article 2101 of the Civil Code.

It  should  be  recalled  that  the  draft  legislative  proposal  implementing  Directive  98/26/EC  of  the

European Council and of the Council of 19 May 1998 on settlement finality in payment and securities
settlement systems2 (the “Directive”) in Luxembourg by amending the law of 5 April 1993, contains
a new Article 61-3 which implements Article 9.1 of the Directive. Article 17 of the Draft Law should

2 OJ L 166, 11.6.1998, p. 45-50.

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not negatively affect the provisions of Article 61-3 above concerning the rights of EU central banks

and the ECB. The said Article 61-3 stipulates that the rights of the above central banks to collateral

security  provided  to  them  shall  not  be  affected  by  insolvency  proceedings  against  participants  or

counterparties which provided the collateral security. These provisions should remain unaffected.

The ECB is further  concerned that  some  uncertainty  may  subsist  for takers of  collateral  by  way  of

pledge over assets held on account in a Luxembourg SSS. Indeed, the statutory lien granted by this

Article 17 to intermediaries which operate principally a payment or a SSS could possibly prevail over

contractual  pledges  with  respect  to  the  same  assets  held  on  account  in  a  Luxembourg  SSS.  In  this

respect, the ECB is of the view that the relationship between the statutory lien and contractual pledges

would  benefit  from  further  clarification.  In  order  to  strengthen  legal  certainty,  in  particular  with

regard to the effectiveness of collateral arrangements, the ECB would be in favour of excluding from

the statutory lien any proprietary assets which participants have pledged to third parties.

In addition, the wording of Article 17 seems to indicate that only obligations of participants arising

from the clearing, settlement or netting of securities transactions would be covered to the exclusion of

obligations  of  participants  arising  from  the  clearing,  settlement  or  netting  of  payment  transactions.

This may seem somewhat peculiar considering that Article 17 covers both payment and SSSs.

8.  With  respect to  Article  18,  the  ECB  would  like  to  express  a  reservation.  This  Article  would  allow

depositories which operate principally a payment system or a SSS to credit with finality securities or

other  financial  instruments  to  the  accounts  of  their  participants  on  the  basis  of  an  irrevocable  and

unconditional  commitment  1)  of  a  central  bank,  2)  of  another  operator  of  a  payment  or  SSS

authorised and supervised by the competent authorities of a Member State of the OECD, or 3) of a

credit  institution  authorised  and  supervised  by  the  competent  authorities  of  a  Member  State  of  the

OECD  and  authorised  as  a  sub-depository  by  the  above-mentioned  intermediaries  to  credit  such

securities  in  their  system  to  an  account  in  the  name  of  such  depository  or  in  the  name  of  an

intermediary or to otherwise deliver such securities to the depository. The ECB views this provision

to be overly broad in scope. The equivalent of this Article 18 in Belgian law, for example, is much

more restrictive and cautious. Indeed, the third paragraph of Article 4, 3° of the law of 2 January 1991

(as amended) makes it possible, but only by way of a specific Royal Decree, to authorise institutions

which  hold  accounts  in  connection  with  the  management  of  a  securities  clearing  and  settlement

system  to  credit  securities  to  the  accounts  of  their  participants  on  the  basis  of  an  irrevocable  and

unconditional commitment of the Nationale Bank van België/Banque Nationale de Belgique that the

latter  will  credit  such  securities,  within  the  same  day  and  in  the  securities  clearing  and  settlement

system operated by the Nationale Bank van België/Banque Nationale de Belgique, to an account in

the name of such institution, or, as the case may be, to an account in the name of an intermediary of

such institution (in the securities clearing and settlement system operated by the National Bank van

België/Banque Nationale de Belgique). It is also noted that the Banque centrale du Luxembourg does

not,  as  is  the  case  for  the  National  Bank  van  België/Banque  Nationale  de  Belgique,  operate  a

securities clearing and settlement system.

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9.  The ECB is of the view that provisional crediting of securities to the accounts of investors in a SSS

prior to the final delivery of such securities ought to be avoided to the extent possible considering that

doing so is of a nature to increase the systemic risk inherent in such systems. It may be allowed on a

case-by-case  basis  only  and  after  examination  of  the  identity  and  financial  strength  of  the  entities

involved.  A  general  statutory  authorisation  of  such  provisional  crediting  is  hence  not  advisable.

System operators who decide to credit a securities account prior to the final delivery of such securities

must  be  fully  aware  of  the  risks  incurred  and  take  appropriate  safeguards  in  order  to  protect  the

interests of the investors and system participants. 

10.  Lastly, the ECB is of the view that the opportunity of this Draft Law 1 could be taken to introduce

into  Luxembourg  law  a  statutory  provision  on  segregation  by  depositories  of  clients’  accounts  and

assets similar to the provision of Article 2.1 of Circular 2000/15 of the Commission de Surveillance

du Secteur Financier.

Draft Law 2

11.  The  ECB  welcomes  the  Luxembourg  initiative  to  confirm  the  validity  and  enforceability  vis-à-vis

third parties of the collateralisation technique of fiduciary transfer of title (i.e. transfer of ownership

intended to serve as security) used by professionals of the financial sector, both in situations of going

concern  and  of  bankruptcy.  Outright  transfer  of  title  to  collateral,  as  opposed  to  other  forms  of

security interest, can be an attractive option for collateral takers and is indeed required under certain

standard  documentation  governing  securities  lending,  repurchase  transactions  and  derivatives

transactions.

The ECB confirms that it has no objection to this opinion being made public by the competent national

authorities at their discretion.

Done at Frankfurt am Main on 9 October 2000.

The President of the ECB

[signed]

Willem F. DUISENBERG

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