Opinion of the European Central Bank of 5 July 2006 at the request of the Belgian Ministry of Finance on a draft royal decree extending the list of the participants in securities settlement systems (CON/2006/34)
Date: 2006-07-05
Institutions: European Central Bank
Subjects: Belgium, financial stability, national law, payment system, securities

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 5 July 2006 

at the request of the Belgian Ministry of Finance 

on a draft royal decree extending the list of the participants in securities settlement systems 

(CON/2006/34) 

Introduction and legal basis 

On  7  April  2006,  the  European  Central  Bank  (ECB)  received  a  request  from  the  Belgian  Ministry  of 

Finance for an opinion on a draft royal decree extending the list of the participants in securities settlement 

systems  as  referred  to  in  Article  2§2  of  the  law  of  28  April  1999  implementing  Directive  98/26/EC  of 

19 May  1998  on  settlement  finality  in  payment  and  securities  settlement  systems  (hereinafter  the  ‘draft 

royal decree’). 

The  ECB’s  competence  to  deliver  an  opinion  is  based  on  Article  105(4)  of  the  Treaty  establishing  the 

European Community and 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 draft royal decree concerns the criteria for direct participation in securities 

settlement  systems  (SSSs),  which  raise  issues  in  terms  of  assessing  their  systemic  risk  and  financial 

stability implications. 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. 

1.  

Purpose of the draft royal decree 

The purpose of the draft royal decree is to extend the list of participants to SSSs that are covered by the 

Belgian law of 28 April 1999 implementing Directive 98/26/EC of 19 May 1998 on settlement finality in 

payment  and  securities  settlement  systems  (hereinafter  the  ‘Law  of  28  April  1999’)  and,  thus,  by  the 

settlement  finality  protection  of  Directive  98/26/EC  of  the  European  Parliament  and  of  the  Council  of 
19 May  1998  on  settlement  finality  in  payment  and  securities  settlement  systems2  (hereinafter  the 

‘Settlement  Finality  Directive’).  To  this  end,  the  draft  royal  decree  introduces  a  third  subparagraph  in 

Article  2§2  of  the  Law  of  28  April  1999.  This  new  provision  is  intended  to  allow  any  legal  person  to 

acquire the status of direct participant in an SSS within the meaning of the Law of 28 April 1999, thus 

benefiting  from  settlement  finality  protection  even  if  this  legal  person  does  not  qualify  as  a  credit 

1  
2  

OJ L 189, 3.7.1998, p. 42. 
OJ L 166, 11.6.1998, p. 45. 

 
 
 
 
                                                           
institution  or  investment  firm  or  does  not  perform  similar  functions  (see  current  first  subparagraph  of 

abovementioned Article 2§2) or as a designated central counterparty, settlement agent, clearing house or 

similar  institution  (see  current  second  subparagraph  of  abovementioned  Article  2§2),  provided  at  least 

three other participants in this SSS fall within one of these two categories. 

2.   General Observations 

2.1  The draft royal decree intends to use the possibility under the second subparagraph of Article 2(b) 

of the Settlement Finality Directive for Member States to opt for such extension. The ECB trusts 

that, in accordance with the principle of supremacy of Community law and with Article 2§52° of 

the Law of 28 April 1999, the extension of the list  of participants by the draft royal decree will, 

besides  the  condition  already  expressly  mentioned  in  this  draft,  also  be  subject  to  the  other  two 

conditions  in  Article  2(b)  of  the  Settlement  Finality  Directive,  namely  (i)  that  the  legal  entity  in 

question  has  responsibility  for  discharging  the  financial  obligations  arising  from  transfer  orders 

with  the  SSS;  and  (ii)  that  the  extension  decision  is  warranted  on  grounds  of  systemic  risks.  For 

reasons of legal certainty, the Belgian legislator could clarify this, for instance through an express 

statement to this effect in the statement of reasons accompanying the royal decree. 

2.2 

In  view  of  the  Eurosystem  and  ECB  tasks,  amongst  others  the  protection  of  financial  stability 

through  the  removal  of  systemic  risks,  the  ECB  is  particularly  attentive  to  the  systemic  risk 

requirement  in  the  second  subparagraph  of  Article  2(b)  of  the  Settlement  Finality  Directive  (see 

also paragraph 4 above). In this respect, the ECB understands that the draft royal decree is intended 

to  respond  to  an  issue  regarding  Recommendation  1  (‘Legal  risk’)  of  the  CPSS/IOSCO 
Recommendations for Securities Settlement Systems3. The ECB notes that this issue was addressed 

as  follows  in  the  2006  Financial  System  Stability  Assessment  on  Belgium  by  the  International 
Monetary  Fund4:  ‘There  are  adequate  rules  for  addressing  the  event  of  a  participant  default, 

including  the  effective  use  of  collateral,  and  these  rules  can  legally  be  enforced.  However,  non-

financial  participants  in  the  [Euroclear  System],  which  account  for  less  than  0,5  percent  of  total 

settlement  activities,  are  not  protected  against  the  zero  hour  rule.  A  legislative  project  is  already 

underway  that  would  address  this  residual  risk’.  The  ECB  therefore  strongly  welcomes  the 

objective  of  the  draft  royal  decree  of  swiftly  removing  this  residual  risk,  especially  as  there  is 

neither a limitation on the potential number of such non-financial participants, nor on the possible 

volume of instructions that such non-financial participants might give. 

2.3  Finally,  the  ECB  points  out  that  the  Settlement  Finality  Directive  grants  far-reaching  legal 

protection,  which  amongst  others  consists  of  the  exclusion  of  the  zero-hour  rule  in  case  of 

insolvency.  It  should  therefore  only  cover  payment  and  security  transfer  orders  by  participants 

3  
4  

Available at www.iosco.org. 
See  IMF  Country  Report  No  06/75,  Belgium,  Financial  System  Stability  Assessment,  including  Reports  on  the 
Observance  of  Standards  and  Codes  on  the  following  topics:  Banking  Supervision,  Securities  Regulation,  Insurance 
Supervision and Regulation, and Securities Settlement Systems, p. 52, No 112 and p. 55, Table 11, Recommendation 1. 

2 

 
                                                           
who,  because  of  their  nature,  activities  and/or  status,  merit  the  benefit  of  this  protection.  In  this 

context,  the  ECB  notes  that  the  ‘normal’  categories  of  direct  participants  that  benefit  from  this 

protection are, in one way or the other, either public authorities or entities subject to a supervisory 

regime (see first subparagraph of Article 2(b) of the Settlement Finality Directive and Article 2§2 

of the Law of 28 April 1999). By contrast, this is not the case for the entities covered by the second 

subparagraph of Article 2(b) of the Settlement Finality Directive, and similarly also the draft royal 

decree, which only generally designate the direct participants that can benefit from the extension of 

the  protection  of  the  Settlement  Finality  Directive  (compare  ‘undertaking’  and  ‘legal  person’, 

respectively). This designation does, in particular, not require any specific legal supervisory status 

or  other  statutory  qualifications  for  such  participants.  This  is  particularly  relevant  for 

‘undertakings’  within  the  meaning  of  the  second  subparagraph  of  Article  2(b)  of  the  Settlement 

Finality Directive whose head office is outside the Community (compare with ‘any undertaking’ in 

the first subparagraph of Article 2(b)). For financial stability and systemic risk reasons, the ECB 

considers that all legal persons that benefit from this extension should first be subject to the same 

conditions,  including  access  conditions,  as  those  imposed  by  an  SSS  for  public  authorities  or 

supervised entities to be accepted as direct participants and retain this capacity. Furthermore, the 

ECB trusts that both the authority responsible for oversight of the concerned SSS and the authority 

responsible for prudential supervision of the entity operating this SSS will ensure as part of their 

supervisory  and  regulatory  duties  that  the  extension  of  the  direct  participation  benefit  is,  in 

practice, only granted to legal entities that do not endanger the reputation and financial stability of 

the concerned SSS. 

This opinion will be published on the ECB’s website. 

Done at Frankfurt am Main, 5 July 2006. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

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