Opinion of the European Central Bank of 1 November 2000 at the request of the Danish Ministry of Economic Affairs on a draft Act amending the Securities Trading Act (CON/00/24)
Date: 2000-11-01
Institutions: European Central Bank
Subjects: Denmark, financial stability, financial supervision, national law, payment system, securities, stock exchange

1 November 2000

OPINION OF THE EUROPEAN CENTRAL BANK

of 1 November 2000

at the request of the Danish Ministry of Economic Affairs 

on a draft Act amending the Securities Trading Act

(CON/00/24)

1. 

On  27  September  2000 the  European  Central  Bank  (ECB)  received  a  request from  Danmarks

Nationalbank, on behalf  of  the  Ministry  of  Economic  Affairs, for  an  ECB  Opinion  on  a draft

Act amending the Securities Trading Act (hereinafter referred to as the “Draft Law”). 

2. 

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

Treaty  establishing  the  European  Community  (hereinafter  referred  to  as  the  “Treaty”)  and

Article 2 (1), fifth and sixth indent, of Council Decision No. 98/415/EC of 29 June 1998 on the

consultation  of  the  European  Central  Bank  by  national  authorities  regarding  draft  legislative

provisions, as the Draft Law contains rules (i) concerning payment and settlement systems and

(ii) applicable to financial institutions which could have a material influence on the stability of

financial institutions and markets. In accordance with Article 17 (5), first sentence, of the Rules

of Procedure of the ECB, this Opinion has been adopted by the Governing Council of the ECB.

This Opinion is based on an unofficial English translation of the relevant provisions of the Draft

Law. 

3. 

The ECB understands that the Draft Law has three main purposes: (i) to regulate the access to

membership  of  a  Danish  securities  settlement  system  or  stock  exchange  for  members  from

countries  outside  the  EEA,  which  will  be  subject  to  the  approval  of  the  Danish  Financial

Supervisory  Authority  (hereinafter  referred  to  as  the  “FSA”);  (ii)  to  extend  the  provisions  on

insider  trading  and  price  manipulation  to  include  crimes  committed  by  Danish  citizens,  or

persons  resident  in  Denmark  concerning  securities,  which  are  listed  on  stock  exchanges  and

authorised  marketplaces  in  third  countries  outside  the  EEA;  and  (iii)  to  extend  the  existing

access for securities settlement systems and clearing participants to establish collateral rights in

connection with settlement of securities trades to apply also to all payment systems, as well as

participants thereof, with regard to loans granted in connection with the settlement of payments

within  the  system.  Finally,  the  Draft  Law  contains  suggestions  for  some  minor  editorial

amendments to the Securities Trading Act.

4. 

It  is  noted  that  according  to  Article  1(2)  and  (13)  of  the  Draft  Law  the  existing  scope  of

application for entities, which are eligible to become members of a stock exchange, is widened

to cover a range of different financial entities. 

5.  More importantly, the existing access for companies and branches both within and outside the

EEA  to  become  members  of  a  securities  settlement  system  is  proposed  to  be  specified  by

requiring  an  authorisation from  the  FSA  before  allowing  remote  membership  from  applicants

from countries outside the EEA. A similar specification is suggested for remote membership of

a stock exchange. The background for this legislative initiative is to be seen as a consequence of

alliances  between  securities  settlement  systems  and  between  stock  exchanges  across  national

borders as well as of technological advances, which have created a growing interest in remote

membership of the Copenhagen Stock Exchange respectively the Danish Securities Centre. 

6. 

Based  on  the  mutual  recognition  under  the  “European  passport”,  derived  from  the  Council

Directive 93/22/EEC of 10 May 19993 on investment services in the securities field, there is no

requirement to obtain an authorisation from the FSA for members from the EEA. However, it is

proposed  that  remote  members  from  countries  outside  the  EEA  obtain  such  an  authorisation

from the FSA. The ECB has been informed that such a requirement is necessary to ensure that

companies  from  these  countries  are  subject  to  sound  supervision  in  their  respective  home

countries  and/or  in  order  to  avoid  financial  instability  in  connection  with  acceptance  of  an

applicants’  listing  on  the  stock  exchange.  Furthermore,  the  FSA  will  only  grant  such  an

authorisation  if  a  cooperation  agreement  has  been  concluded  between  the  FSA  and  the

supervisory authority in the applicant's home country. The acceptance of members from a third

country shall not prevent the FSA from performing its supervisory tasks. Should the FSA find

that  an  applicant  is  not  subject  to  sound  supervision,  it  may  oppose  the  acceptance  of  that

applicant as a member. 

7. 

The ECB notes that Article 1(6) of the Draft Law proposes that the existing prohibitions against

insider trading and price manipulation are extended to also include securities that are accepted

for listing or for trading on stock exchanges or which are traded in authorised marketplaces or

equivalent regulated marketplaces outside the EEA. This will create a global prohibition against

insider  trading  and  price  manipulation,  which  is  reaching  further  than  strictly  required  by  the

Council Directive 89/592/EEC of 13 November 1989 on insider trading.

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8. 

Article  1(7)  of  the  Draft  Law  proposes  to  extend  the  existing  access  for  clearing  centres  and

clearing  participants  to  establish  collateral  rights  in  connection  with  settlement  of  securities

trades to apply also to registered payments systems as well as participation therein with regard

to  loans  granted  in  connection  with  the  settlement  of  payments  within  such  systems.  The

borrowers can be both direct and indirect participants in these payment systems. The proposal

puts clearing centres and registered payment systems on the same footing, as is already the case

for a number of other items such as netting and immediate realisation of collateral in case of a

default. The ECB appreciates that under article 1(7) of the Draft Law, the area of application of

the above-mentioned collateral rights is expanded to apply also in connection with settlement in

the payment systems operated by the Danish central bank. As a whole, the new Article 1(7) will

improve  risk  and  liquidity  management  and,  as  laid  down  in  the  Directive  98/26/EC  of  the

European Parliament and of the Council of 19 May 1998 on settlement finality in payment and

securities settlement systems, reduce systemic risk at the same time.

9. 

Traditionally,  pledging  of  collateral  includes  the  deposit  of  collateral  security  in  specific

securities in a safekeeping account. This has led to a binding of the securities portfolios, which

are normally part of the participants' liquid reserve of securities used to manage the participants'

risks. The suggested collateral right is seen to make the pledging of collateral within payment

systems  more  flexible  since  the  safekeeping  account  as  such,  and  not  the  individual  paper,

constitutes the  collateral. The  ECB  welcomes  this  initiative  since  it  improves  the  participants'

opportunities  for  effective  risk  and  liquidity  management  and,  at  the  same  time,  reduces

systemic risk to the benefit of financial stability.

10.  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 1 November 2000.

The President of the ECB

[signed]

Willem F. Duisenberg

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