Opinion of the European Central Bank of 15 June 2004 at the request of the French Ministry of Economic A (CON/2004/21)ffairs, Finance and Industry on certain provisions of a draft order reforming transferable securities issued by joint-stock companies (CON/2004/22)
Date: 2004-06-15
Institutions: European Central Bank
Subjects: France, company with share capital, financial stability, national law, payment system, securities

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 15 June 2004 

at the request of the French Ministry of Economic Affairs, Finance and Industry 

on certain provisions of a draft order reforming transferable securities issued 

by joint-stock companies  

(CON/2004/22) 

1. 

On 1 April 2004 the European Central Bank (ECB) received a request from the French Ministry of 

Economic  Affairs,  Finance  and  Industry  for  an  opinion  on  certain  provisions  of  a  draft  order 

(ordonnance)  reforming  transferable  securities  issued  by  joint-stock  companies  (hereinafter  the 

‘provisions of the draft order’). 

2. 

The ECB’s competence to deliver an opinion is based on the fifth and sixth indents of Article 2(1) 

of Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank 
by  national  authorities  regarding  draft  legislative  provisions1,  as  the  provisions  of  the  draft  order 

relate  to  payment  and  settlement  systems  and  rules  applicable  to  financial  institutions  insofar  as 

they materially influence the stability of financial institutions and markets. In accordance with the 

first  sentence  of  Article 17.5  of  the  Rules  of  Procedure  of  the  European  Central  Bank,  the 

Governing Council has adopted this opinion. 

3. 

As  a  whole  the  draft  order  aims  to  simplify  and  modernise  the  regime  applicable  to  transferable 

securities (valeurs mobilières) issued by joint-stock companies. The ECB notes that this reform is 

principally  intended  to  facilitate  the  issuance  of  transferable  securities  while  maintaining  legal 

certainty  as  regards  the  applicable  regime.  The  ECB  understands  that  the  final  Order  will  amend 

the relevant provisions of the French Commercial Code. However, this consultation only concerns 

the two provisions of the draft order clarifying Articles L.431-2 and L.431-3 of the Monetary and 

Financial  Code  (hereinafter  the  ‘Code’).  These  two  Articles  of  the  Code  concern  rules  on  the 

transfer of ownership of financial instruments. 

4. 

The ECB understands that the French Financial Markets Authority (the ‘AMF’) will complement 

these  amendments  to  the  Code  by  adopting  detailed  implementing  measures  in  its  General 

Regulation (Règlement Général) (hereinafter the ‘AMF’s General Regulation’). In this respect, the 

ECB notes that the French authorities intend to consult the ECB on the relevant provisions of the 

AMF’s  General  Regulation  prior  to  their  adoption.  It  should,  therefore,  be  stressed  that  the  ECB 

1  

OJ L 189, 3.7.1998, p. 42. 

 
 
 
                                                      
may review its position as stated in this opinion at a later date once it has comprehensively assessed 

the implementing measures contained in the AMF’s General Regulation, taken in conjunction with 

the relevant provisions of the Code (as amended). 

5. 

Article L.431-2 of the Code provides for different rules depending on whether financial instruments 

are  transferred  on  or  outside  a  regulated  market.  Under  the  current  regime,  in  the  case  of  a 

transaction on a regulated  market, the transfer of ownership of financial instruments results from 

their  being  credited  to  the  buyer’s  account  on  the  date  and  under  the  conditions  laid  down  by 

marketplace  rules.  For  operations  outside  a  regulated  market,  the  Code  provides  that  transfer  of 

ownership  results  in  the  irrevocable  settlement  of  the  transaction  as  laid  down  by  the  rules 

governing the functioning of the settlement system. Under the proposed new regime, the transfer of 

ownership  of  financial  instruments  (whether  listed  or  unlisted)  would  result  from  their  being 

credited  to  the  buyer’s  account,  with  the  date  and  the  conditions  being  laid  down  by  the  AMF’s 

General Regulation. The ECB understands that the provisions of the draft order would simplify this 

dual  regime  and  replace  it  with  a  single  regime.  Furthermore,  the  ECB  notes  that  the  concept  of 

‘regulated market’/‘outside a regulated market’ would disappear from Article L.431-2 of the Code. 

6. 

The ECB welcomes the French authorities’ aim of simplifying the existing transfer of ownership 

regimes  for  financial  instruments  and  trusts  that  the  provisions  of  the  draft  order  will  further  the 

continuing integration of clearing and settlement arrangements in the European Union (EU). In the 

ECB’s  view,  the  effectiveness  of  transfers  and  the  finality  of  transfers  as  a  result  of  book-entry 

debits  and  credits  made  within  systems  are  crucial  to  reduce  uncertainty  and  systemic  risk.  The 

ECB  assumes  that  future  implementation  measures  to  be  included  in  the  AMF’s  General 

Regulation,  will  take  full  account  of  these  matters,  in  particular  to  ensure  the  finality  and 

irrevocability of transfers of ownership in financial instruments within a system. As mentioned in 

paragraph 5, Article L.431-2 of the Code makes it clear that the transfer of ownership of financial 

instruments is effected when the buyer’s account is credited; however, the date and the conditions 

of  the  transfer  will  be  defined  in  the  AMF’s  General  Regulation.  In  this  respect  it  would  be 

advisable  to  ensure  specifically  that  the  rules  relating  to  the  point  in  time  when  securities  are 

credited on an account and the value date for such transfer should not give rise to legal uncertainty 

that  could  undermine  the  smooth  operation  of  securities  settlement  systems,  raising  potential 

systemic concerns. 

7. 

By way of exception from the general rule regarding transfer of ownership, Article L.431-2 of the 

Code provides that the AMF’s General Regulation may, under certain conditions, lay down specific 

conditions  for  the  transfer  of  ownership  of  financial  instruments.  The  ECB  understands  this 

provision  as  meaning  that  when  irrevocable  settlement  occurs  on  a  real-time  basis  within  a 

settlement system for financial instruments, a specific regime for the transfer of ownership may be 

laid  down  in  the  AMF’s  General  Regulation.  The  ECB  notes  in  this  respect  that  this  specific 

regime,  as  mentioned  above,  will  be  subject  to  ECB  consultation  and  should  further  clarify  the 

scope  of  the  exception  provided  for  in  the  fourth  paragraph  of  Article  L.431-2  of  the  Code.  The 

2 

ECB  also  notes  that  the  ownership  rights  of  intermediaries  where  a  purchaser  of  financial 

instruments has not paid the transaction price are not affected by the proposed amendments of the 

Code. 

8. 

The  ECB  understands  that  the  provisions  of  the  draft  order  concern  the  following  financial 

instruments: shares, debt instruments, UCITS units and any equivalent financial instruments issued 

under foreign laws, when they are admitted to the operations of a central securities depository or 

delivered  within  a  settlement  system  for  financial  instruments.  In  addition,  the  first  paragraph  of 

Article L.431-2 of the Code refers to the settlement systems for financial instruments ‘mentioned in 

Article L.330-1’ of the Code. For the sake of clarity, the ECB would propose replacing the words 

‘mentioned  in  Article  L.330-1’  with  the  words  ‘as  defined  in  Article  L.330-1’.  The  ECB 

understands in this respect that the definition provided for in Article L.330-1 of the Code  covers 

both systems operating under French law and systems operating under the law of a Member State 

of the European Economic Area. 

9.  More  generally,  the  ECB  would  like  to  emphasise  that  it  is  fundamental  to  the  functioning  and 

creation of a safe, efficient and integrated EU clearing and settlement infrastructure to have clear 

rules regarding transfer of ownership in the context of securities clearing and settlement systems, 

applicable to financial instruments held with central securities depositories. The ECB is of the view 

that  this  objective,  as  highlighted  in  the  Second  Report  on  EU  Clearing  and  Settlement 
Arrangements  published  by  the  Giovannini  Group  in  April  20032,  and,  more  recently,  in  the 

Commission’s Communication to the Council and the European Parliament regarding clearing and 
settlement in the EU3, should be considered when elaborating any new domestic legislation in this 

area. 

10.  The  ECB  confirms  that  it  has  no  objection  to  the  competent  national  authorities  making  this 

opinion publicly available at their discretion. This opinion will be published on the ECB’s website 

six months after the date of its adoption. 

Done at Frankfurt am Main, 15 June 2004. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

2  

3  

the  Commission’s  website  at  http://europa.eu.int/comm/internal_market/en/finances/mobil/clearing/ 

Published  on 
index.htm. 
‘Clearing and Settlement in the European Union – The Way Forward’ COM/2004/0312/final, 28 April 2004, published 
on the Commission’s website at http://europa.eu.int/comm/internal_market/en/finances/ mobil/clearing/index.htm. 

3