Opinion of the European Central Bank of 8 December 2008 at the request of the French Ministry for Economic Affairs, Industry and Employment on a draft order relating to financial instruments (CON/2008/85)
Date: 2008-12-08
Institutions: European Central Bank
Subjects: France, financial instrument, financial stability, legal code, payment system, securities

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 8 December 2008  

at the request of the French Ministry for Economic Affairs, Industry and Employment  

on a draft order relating to financial instruments 

(CON/2008/85) 

Introduction and legal basis 

On 31 October 2008 the European Central Bank (ECB) received a request from the French Ministry for 

Economic  Affairs,  Industry  and  Employment  for  an  opinion  on  a  draft  order  relating  to  financial 

instruments and amending the Monetary and Financial Code and the Commercial Code (hereinafter the 

‘draft order’). 

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

European Community and the third, 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 order relates to the Banque de France, 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. 

1. 

Purpose of the draft order 

1.1.  The  draft  order  aims2  at  reforming  the  law  applicable  to  financial  instruments  and  market 

infrastructures  with  a  view  to:  (i)  reforming  and  simplifying  the  rules  applicable  to  financial 

instruments by amending the definitions, terminology and presentation of the relevant provisions so 

as  to  make  the  law  on  securities  more  coherent  and  to  integrate  and  anticipate  developments  in 

European standards and international agreements in the field of securities law; and (ii) amending 

the list of participants in a securities settlement system for financial instruments so as to make these 

systems  more  stable.  It  also  aims  at  reforming  the  indexing  limits  applicable  to  debt  instruments 

and  financial  futures  and  introduces  some  amendments  to  the  rules  applicable  to  negotiable  debt 

securities (titres de créance négociables). 

1  
2  

OJ L 189, 3.7.1998, p. 42. 
On the basis of the authorisation granted to the French Government by Article 152(1)(g) and (h) of Law No 2008-776 of 
4  August  2008  on  the  modernisation  of  the  economy  (Journal  Officiel  de  la  République  française  No  0181  of 
5 August 2008). 

 
 
 
 
                                                 
1.2.   The draft order liberalises the indexing of debt instruments and financial futures and introduces3 a 

new  provision  in  the  Monetary  and  Financial  Code  (hereinafter  the  ‘Code’)  which  expressly 
authorises the indexing of debt instruments and financial futures without any restriction4. 

1.3.  The reform of the rules applicable to financial instruments is largely a reorganisation of the existing 

provisions of the Code on financial instruments in order to group them all in Book II of the Code. 

Among  the  provisions  moved  to  Book  II  of  the  Code  are  the  rules  governing  the  transfer  of 
ownership in financial securities5. These rules first state the principle that transfer of ownership in 

financial  securities  results  from  the  securities  being  entered  on  the  acquiring  party’s  securities 

account.  They  then  set  out  the  detailed  provisions,  which  remain  unchanged  in  substance, 

applicable  to  the  transfer  of  ownership:  (i)  where  financial  securities  are  admitted  to  the 

transactions  of  a  central  custodian  or  delivered  to  a  securities  settlement  system  for  financial 
instruments6; or (ii) where the securities settlement system delivers the financial securities on the 

basis  of  continuous  irrevocable  settlement.  The  draft  order  also  moves  the  rules  relating  to 

compensation and transfers of claims and to the guarantee of financial obligations into Book II of 
the Code7. 

1.4.  The provisions of the Code on financial instruments are reorganised around a new classification of 

financial  instruments  differentiating  between  financial  securities  (titres  financiers)  and  financial 

futures  (contrats  financiers).  The  reason  for  introducing  the  concept  of  financial  securities  is  to 

regroup  within  one  legal  category  those  instruments  that  present  identical  formal  characteristics 

such  as  dematerialisation  and  registration  and  that  are  therefore  subject  to  the  same  rules  on 
holding  of  account,  account-holders,  tradability,  etc.8.  As  regards  voluntary  or  forced  public 

auctions,  this  results  in  a  broadening  of  the  scope  of  the  relevant  provision  to  cover  financial 
securities9,  which  also  include  negotiable  debt  securities.  The  draft  order  therefore  includes  a 

reference to the Banque de France in the list of persons and entities entitled to hold voluntary or 

forced public auctions of financial securities, with the exception of auctions involving securities of 

public debt carried out for the account of the State which fall outside the scope of this provision of 

the Code. 

1.5.  Moreover, the reform also entails the introduction of new principles governing financial securities. 

The draft order introduces the general principle according to which financial securities are deemed 
to belong to the account holder10. The draft order also contains a provision introducing in the Code 

3  

4  
5  

6  
7  

8  
9  
10  

The draft order also abrogates the reference to such instruments in Article L. 112-3 of the Monetary and Financial Code 
which allows indexing to the general level of prices by derogation to the general principle of prohibition (Article L. 112-1 
and Article L. 112-2, first paragraph, of the Code). 
Article L. 112-3-1 of the Code, as proposed by the draft order. 
Article L. 211-17 of the Code, as proposed by the draft order. The rules governing the transfer of ownership of financial 
instruments are currently part of Book IV of the Code (Article L. 431-2 of the Code). 
Referred to in Article L. 330-1 of the Code. 
Articles  L.  211-36  to  L.  211-40  of  the  Code,  as  proposed  by  the  draft  order.  These  provisions  are  currently  part  of 
Book IV of the Code (Articles L.431-7 to L.431-7-5 (and Article D. 211-1A(II)). 
See the explanatory memorandum to the draft order relating to L.211-1, p. 2. 
Article L. 211-21 of the Code, as proposed by the draft order. 
Article L. 211-4 of the Code, as proposed by the draft order. 

2 

                                                 
the  protection  of  an  account  holder’s  right  of  ownership  where  financial  securities  have  been 
acquired  in  good  faith11.  Further,  the  draft  order  introduces  in  the  Code  a  provision  pursuant  to 

which the custody-account keeper may, subject to the conditions set out in the General Regulation 

of the Financial Markets Authority, allocate to a third party all or some of the tasks linked to its 
activity of custody-account keeping for financial securities12. As regards negotiable debt securities, 
the draft order ends the requirement for a fixed term13. 

1.6.  The draft order14 clarifies and broadens the list of entities qualifying as participants in an interbank 

settlement  system  or  a  securities  settlement  system  for  financial  instruments  (hereinafter 

‘participants’) so as to include, inter alia, the central securities depositories and the operators of a 

securities settlement system for financial instruments. 

2. 

General observations 

2.1.  The ECB welcomes the draft order’s aim15 of improving the coherence and readability of the law 

on  financial  instruments,  thereby  enhancing  the  legal  certainty  and  clarity  of  French  law  in  this 

area. 

2.2.  The  draft  order  reflects  the  work  that  has  been  done  at  the  level  of  the  European  Union  (Legal 
Certainty Group)16 and at the global level (Unidroit)17 aiming to promote future legislative action to 

address  the  legal  effects  of  book  entries  in  securities  accounts  for  the  purpose  of  the  acquisition, 

disposal  and  creation  of  security  interests  over  securities,  and  related  aspects,  thereby 

complementing  a  range  of  other  EU  and  non-EU  initiatives.  The  introduction  of  clear  concepts, 

such  as  financial  securities  and  securities  accounts,  relating  to  both  individual  accounts  and 

‘omnibus accounts’, as well as a clear description of the position of an account holder as owner of 

the securities is welcomed in this regard. 

3. 

Specific comments 

3.1.  Protection of acquirers against reversal 

The draft order introduces in the Code a provision regarding the protection of an account holder’s 
right  of  ownership  where  financial  securities  have  been  acquired  in  good  faith18.  At  the 

international  level,  concerns  have  been  raised  about  the  need  for  an  account  holder  acquiring 

11  
12  
13  
14  
15  
16  

17  

18  

Article L. 211-16 of the Code, as proposed by the draft order. 
Article L. 211-8 of the Code, as proposed by the draft order. 
Article L. 213-1 of the Code, as proposed by the draft order. 
Article L. 330-1 of the Code, as proposed by the draft order. 
See the explanatory memorandum to the draft order relating to Article 2 of the draft order. 
See the Second Advice of the Legal Certainty Group entitled ‘Solutions to Legal Barriers related to Post-Trading within 
http://ec.europa.eu/internal_market/financial-
the 
markets/docs/certainty/2ndadvice_final_en.pdf). 
See  the  Draft  UNIDROIT  Convention  on  substantive  rules  regarding  intermediated  securities,  12.9.2008  (available  at: 
http://www.unidroit.org/). 
Article L. 211-16 of the Code, as proposed by the draft order. 

(available 

August 

2008 

EU’, 

at: 

3 

 
 
                                                 
financial instruments to be able to rely on a credit on his account and for a harmonised protective 

rule in this regard. The abovementioned provision introduced in the Code suggests that a reversal 

can  only  be  requested  in  the  case  of  the  account  holder’s  bad  faith.  In  addition,  the  relevant 

provision of the draft order links the protection of the holder of the securities to the crediting of the 

book-entry securities to the acquirer’s securities account. The ECB assumes that the application of 
the provision introduced by the draft order19 will result in an adequate level of protection for the 

acquirer of book-entry securities and considers that flexibility should be maintained with respect to 

a  possible  further  harmonisation  that  could  result  from  the  ongoing  work  in  this  area  at  the 

European and international level. The ECB therefore welcomes the new provision proposed by the 
draft order20 as a first step in this direction. 

3.2.  List of participants 

The  draft  order  extends  the  list  of  entities  qualifying  as  participants  to  include,  inter  alia,  the 

central  securities  depositories  and  the  operators  of  a  securities  settlement  system  for  financial 
instruments21.  The  draft  order  therefore  clarifies  in  a  legislative  provision  that  central  securities 

depositories qualify as participants, even though they are not credit institutions, thereby increasing 

legal certainty. With regard to the inclusion of the operators of a securities settlement system for 

financial  instruments  as  participants,  the  ECB  notes  that  the  draft  order  anticipates  the  expected 
changes22  to  Directive  98/26/EC  on  settlement  finality  in  payment  and  securities  settlement 
systems23  (hereinafter  the  ‘SFD’).  Moreover  the  list  of  entities  qualifying  as  participants 

corresponds  to  a  large  extent  to  the  definition  of  participant  as  provided  for  in  the  SFD.  In  this 
regard, the ECB suggests examining whether reference to ‘members of a clearing house’24, should 
be broadened to ‘clearing house’, as is the case in the SFD25, as such change may be of relevance 

with regard to foreign clearing houses. 

3.3.  Access to a securities settlement system for financial instruments 

The  Code26  provides  that  a  securities  settlement  system  for  financial  instruments  may  refuse,  on 

legitimate commercial grounds, access by credit institutions and investment companies with their 

registered  office  or,  otherwise,  their  effective  headquarters  in  another  member  state  of  the 

European Community or in another state that is a member of the European Economic Area. Against 

this background, the ECB draws attention to the draft ESCB/CESR recommendations for securities 

19  
20  
21  
22  

23  

24  
25  
26  

Article L. 211-16 of the Code, as proposed by the draft order. 
Article L. 211-16 of the Code, as proposed by the draft order. 
Article L. 330-1.II of the Code, as proposed by the draft order. 
See in this respect the revised Presidency Compromise on a  Proposal for a directive of the European Parliament and of 
the  Council  amending  Directive  98/26/EC  on  settlement  finality  in  payment  and  securities  settlement  systems  and 
Directive  2002/47/EC  on  financial  collateral  arrangements  as  regards  linked  systems  and  credit  claims  (available  at: 
http://register.consilium.europa.eu/pdf/en/08/st11/st11968-re02.en08.pdf) (Article 2). 
Directive  98/26/EC  of  the  European  Parliament  and  of  the  Council  of  19  May  1998,  OJ  L  166,  11.6.1998,  p.  45 
(Article 2). 
Article L. 330-1.II, first paragraph, point.3 of the Code, as proposed by the draft order. 
Clearing houses are covered by the definition of participant in a system (Article 2(f) of the SFD). 
Article  L.  330-1.I,  fourth  paragraph,  of  the  Code;  Article L.330-1.II.  third  paragraph,  of  the  Code,  as  proposed  by  the 
draft order.  

4 

                                                 
settlement  systems,  which  invite  public  authorities  to  ensure  that  central  securities  depositories, 

including  the  securities  settlement  systems  operated  by  these  entities,  expressly  limit  rules  and 
requirements restricting access to those aimed at controlling risk27. Although an amendment of the 

abovementioned provision would go beyond the scope of the draft order, the ECB considers that, in 

the context of a reform of the law applicable to market infrastructures, it could be useful to amend 

the rules governing access to a securities settlement system for financial instruments accordingly. 

3.4.  Outsourcing the activity of central securities depositories 

The draft order provides that a custody-account keeper may allocate to a third party all or some of 
the  tasks  related  to  its  activity  of  custody-account  keeping  for  financial  securities28.  The  ECB 

understands that no specific rules currently apply to the outsourcing by a French central securities 

depository of all or part of its operations to another entity. In this respect, although this would go 

beyond the scope of the draft order, the ECB would like to point out that it could be useful from the 

point  of  view  of  promoting  further  integration  of  European  securities  infrastructures  to  introduce 

requirements  in  respect  of  outsourcing  to  third  parties  the  activities  of  the  central  securities 

depositories conducting settlement functions. 

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

Done at Frankfurt am Main, 8 December 2008. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

27  

28  

access 

See  the  draft  ESCB/CESR  recommendations  for  securities  settlement  systems  and  draft  recommendations  for  central 
counterparties, CESR/ESCB consultation paper, CESR/08-749, October 2008 and more particularly Recommendation 14 
(available 
on 
at 
http://www.ecb.int/paym/cons/html/escb-cesr.en.html 
http://www.cesr-
eu.org/index.php?page=contenu_hearings_details&id=91). 
Article L. 211-8 of the Code, as proposed by the draft order. 

(Part  1,  Recommendations 

systems,  pp.  64-66. 

settlement 

securities 

for 

or 

5