Opinion of the European Central Bank of 7 August 2009 on amending the legal framework for clearing operations (CON/2009/66)
Date: 2009-08-07
Institutions: European Central Bank
Subjects: Finland, commercial bank, financial supervision, national law, payment system, securities

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 7 August 2009 

on amending the legal framework for clearing operations 

(CON/2009/66) 

Introduction and legal basis 

On  3 July  2009  the  European  Central  Bank  (ECB)  received  a  request  from  the  Finnish  Ministry  of 

Finance for an opinion on a draft government proposal for a law amending the Law on securities markets 

and certain other related laws (hereinafter the ‘draft law’). 

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

European Community and the fifth indent 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  law  relates  to  payment  and  settlement  systems.  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.  

Existing legislation and purpose of the draft law 

1.1  The draft law relates to securities clearing, in particular to the operation, licensing and supervision 

of  foreign  clearing  organisations;  it  proposes  amendments  to  the  Law  on  securities  markets,  the 

Law on the Financial Supervisory Authority and the Law on the supervision fees of the Financial 

Supervisory Authority. It is part of a more comprehensive reform of securities markets legislation, 
and it is planned that the remaining part of the reform will be carried out in the near future2. 

1.2  Under  the  existing  Law  on  securities  markets,  ‘clearing  organisation’  is  defined  as  a  limited 

liability company that professionally and on a regular basis carries out clearing operations on behalf 

of  organisations  authorised  to  lodge  securities  transactions  and  other  transfers  for  clearing. 

‘Clearing operations’ are defined as the determination and realisation of obligations resulting from 

public trading in securities on behalf of the parties to the transaction. The operation of a clearing 

organisation is subject to a licence, which may be granted to a Finnish limited liability company by 

the Ministry of Finance. The law further provides that the stock exchange must arrange the clearing 

1  
2  

OJ L 189, 3.7.1998, p. 42.  
Under  the  Ministry  of  Finance’s  decision  of  2  February  2009  on  the  appointment  of  the  working  group,  the  working 
group’s  term  of  office is  from  3  February  2009 to  31  December  2010.  The  purpose  of  the  comprehensive  reform  is  to 
ensure,  inter  alia,  that  legislation  on  securities  markets  is  effective,  clear  and  comprehensible  and  that  it  promotes  the 
competitiveness of the Finnish market, thereby permitting international structures and operating models that increase the 
efficiency of cross-border operations. The working group has the task of drafting necessary legislative proposals in the 
form of a government draft law. 

 
 
 
 
                                                 
of securities trades concluded in public trading in an appropriate manner. If the stock exchange uses 

a  securities  clearing  and  deposit  institution  other  than  a  licensed  clearing  organisation  in  the 

clearing  of  securities  trades,  the  stock  exchange,  the  clearing  organisation  and  the  clearing  and 

custody  institution  must  arrange  their  cooperation  so  that  the  reliability  of  public  trading  is  not 

endangered. 

1.3  According to the current  Finnish legislation, a clearing organisation undertakes both clearing and 

settlement. At present, the Finnish central securities depository, Euroclear Finland Ltd, is the sole 

licensed  clearing  organisation  in  the  Finnish  securities  market.  Foreign  organisations  whose 

business consists of both clearing and settlement are allowed to operate in Finnish markets through 

a  licensed  Finnish  subsidiary.  Currently,  foreign  organisations  undertaking  clearing  but  not 

settlement, such as central counterparties, have not been considered as clearing organisations and 

no licence has been required from them to operate in Finland. 

1.4  The draft law proposes new provisions that would apply to foreign clearing organisations that are 

being  used  for  clearing  purposes  by  the  stock  exchange  or  an  organiser  of  multilateral  trading, 

allowing such entities to conduct clearing operations in Finland upon authorisation granted by the 

Ministry of Finance. Foreign clearing organisations domiciled within the European Economic Area 

(EEA) will be able to operate on a cross-border basis or through a branch, while entities domiciled 

outside the EEA will, in principle, only be able to operate through a branch. The draft law further 

provides that foreign clearing organisations and other foreign entities will be under an obligation to 

apply for clearing party status in a Finnish clearing organisation when they undertake the clearing 

of  obligations  arising  from  trading  in  securities  that  are  regularly  settled  by  a  Finnish  clearing 

organisation. 

1.5  Under the draft law, foreign clearing organisations will be supervised by the Financial Supervisory 

Authority.  According  to  the  explanatory  memorandum,  the  draft  law  aims  to  ensure  that  foreign 

clearing  organisations  chosen  by  the  stock  exchange  or  an  organiser  of  multilateral  trading  are 

reliable and solvent, that adequate risk management measures are put in place, that the supervisory 

authorities receive necessary and adequate information from the foreign clearing organisation and 

from  the  competent  supervisory  authority  of  its  home  country,  and  that  the  authorities  are,  if 

necessary, able to restrict or prevent clearing operations conducted cross-border or through a branch 

in Finland. 

1.6  The draft law proposes to amend the definition of the term ‘clearing operations’ so that it refers to 

the clearing ‘or’ settlement (formerly the reference was to ‘clearing and settlement’) of obligations 

resulting  from  public  or  multilateral  trading  in  securities  or  from  a  trade  or  transfer  concluded 

elsewhere than in public or multilateral trading of a security incorporated in the book-entry system 

or in a security subject to public or multilateral trading, on behalf of the parties to the transaction. 

2 

 
2. 

General observations 

The ECB understands that the purposes of the draft law are to establish a consistent legal framework for 

entities providing clearing or settlement services in the Finnish securities market, in particular for foreign 

clearing-service  providers,  to  ensure  the  reliability  and  stability  of  the  market  and  to  establish  a  level 

playing field between market participants. With a view to implementing the core tasks of the European 

System  of  Central  Banks  (ESCB)  under  the  Treaty  and  the  Statute  of  the  European  System  of  Central 

Banks  and  of  the  European  Central  Bank  (hereinafter  the  ‘Statute  of  the  ESCB’),  the  ECB  has  serious 

concerns  relating 

to 

the  proposed  requirements  for 

location/establishment  of  foreign  central 

counterparties.  In  the  ECB’s  view,  the  provision  of  clearing  services  by  foreign  clearing  organisations 

offering services in Finland is in line with the internal market freedoms, as laid down in the Treaty and 

addressed in further detail below. However, such provision of services may adversely affect the location 

policy of the Governing Council for infrastructures offering services in euro. 

3. 

Location of infrastructures 

3.1  The Governing Council’s location policy 

3.1.1  The  location  policy  has  been  publicly  expressed  on  a  number  of  occasions  since  the  ECB’s 
establishment.  Already  in  November  1998,  the  first  policy  statement3  was  made  in  which  it  was 

stressed, inter alia, that ‘As is the case with every central bank, the ECB has a direct interest in the 

prudent  design  and  management  of  any  payment  and  settlement  system  processing  its  own 

currency, the euro. Indeed, the smooth functioning of payment and settlement systems is a crucial 

aspect  of  a  sound  currency  and  essential  to  the  conduct  of  monetary  policy.  These  systems  also 

have  a  significant  bearing  on  the  functioning  of  financial  markets.  Changes  in  payment  systems 

may  cause  unpredictable  shifts  in  the  demand  for,  or  supply  of,  base  money.  Moreover,  safe  and 

efficient payment systems are critical to the maintenance of banking and financial stability. Against 

this  background,  …  the  Governing  Council  of  the  ECB  wishes  to  underline  that,  as  in  any  other 

monetary system, central bank money in euro can only be provided by the central banks that belong 

to the euro area.’ 

3.1.2  The  November  1998  statement  was  followed  up  by  another  policy  statement  in  September  2001 
relating to central counterparty clearing4. Section 2(b) of this statement stated, inter alia, that the 

‘logical  geographical  scope  of  a  market  infrastructure  is  in  practice  the  currency  area’,  and  that 
domestic  infrastructures  for  the  euro5  ‘should  logically  be  located  in  the  euro  area,  as  is  the  case 

with  core  infrastructures  in  other  monetary  areas.  This  would  be  preferable  from  a  regulatory 

perspective and would help the Eurosystem, as the “central bank” of the euro, to ensure the smooth 

3  

4  

5  

See  ‘Policy  statement  on  euro  payment  and  settlement  systems  located  outside  the  euro  area’,  available  on  the  ECB’s 
website at www.ecb.europa.eu. 
See ‘The Eurosystem’s policy line with regard to consolidation in central counterparty clearing’, available on the ECB’s 
website. 
A  domestic  system  is  defined  in  the  policy  statement  as  a  system  ‘which  handles  mainly  or  exclusively  assets 
denominated in one currency’. 

3 

 
                                                 
functioning of payment systems, efficient monetary policy implementation and financial stability.’ 

It  also  stated  that  the  ‘location  of  central  counterparties  in  the  euro  area  would  facilitate  the 

provision, when deemed necessary and appropriate, of central bank money in euro.’ In this regard, 

point b) of the conclusions stresses that ‘The natural geographical scope for any “domestic” market 

infrastructure (including central counterparty clearing) for securities and derivatives denominated in 

euro is the euro area. Given the potential systemic importance of securities clearing and settlement 

systems, this infrastructure should be located within the euro area.’ 

3.1.3  The Governing Council’s location policy is expressly based on the premise that ‘the ECB and the 

national central banks of the Eurosystem (the central banks of issue) need to retain, in any event, 

ultimate control over their currency, the euro. Therefore, from both a general policy and systemic 

risk  perspective,  the  Eurosystem  cannot,  as  a  matter  of  principle,  accept  that  payment 

infrastructures  for  euro  transactions  which  are  located  outside  the  euro  area  (the  home  currency 

area) have the potential to develop into major euro payment infrastructures, particularly if this were 

to  put  at  stake  the  Eurosystem’s  control  over  the  euro.  …  Payment  infrastructures  settling  euro-

denominated payment-versus-payment (PvP) and/or non-PvP payment transactions (gross, hybrid, 

net, net with high underlying gross amounts) that have the potential to reach systemic relevance for 

the  euro  area  should,  as  a  matter  of  principle,  settle  these  payment  transactions  in  central  bank 

money  and  be  incorporated  in  the  euro  area  with  full  operational  responsibility  for  euro 
transactions’6.  

3.1.4  Finally,  the  Governing  Council  confirmed  its  location  policy  more  recently  in  relation  to  central 

counterparties for over-the-counter derivatives in December 2008 and July 20097.  

3.2  Location policy and Treaty freedoms 

3.2.1  As  to  whether  the  Governing  Council’s  location  policy  could  be  seen  to  pose  any  regulatory  or 

legal  issues  related  to  the  concept  of  the  internal  market,  it  is  recalled  that  Article  14(2)  of  the 

Treaty states that the internal market comprises ‘an area without internal frontiers in which the free 

movement of goods, persons, services and capital is ensured in accordance with the provisions of 

this Treaty’. These freedoms are further regulated in particular in Title III of the Treaty (Articles 

39-60) and also apply to the Eurosystem (because Article 1.1 of the Statute of the ESCB provides 

that the ESCB and the ECB must perform their tasks and carry out their activities ‘in accordance 

with  the  provisions  of  [the]  Treaty  and  [the]  Statute’).  Furthermore,  Article  3(1)(c)  of  the  Treaty 

provides  that  the  establishment  of  an  internal  market  characterised  by  the  abolition,  as  between 

Member States, of obstacles to the free movement of, inter alia, services and capital is one of the 

activities  of  the  Community.  Moreover,  under  Article  4(1)  of  the  Treaty,  the  activities  of  the 

Member  States  and  the  Community  include  the  adoption  of  an  economic  policy  which  is  based, 

6  

7  

See  paragraphs  2  and  3  of  ‘The  Eurosystem  policy  principles  on  the  location  and  operation  of  infrastructures  settling 
euro-denominated payment transactions’, published on 19 July 2007 and available on the ECB’s website. 
See ‘Decisions taken by the Governing Council of the ECB (in addition to decisions setting interest rates)’ for December 
2008 and July 2009, available on the ECB’s website. 

4 

                                                 
inter  alia,  on  the  internal  market.  From  the  foregoing  it  is  evident  that  the  establishment  and 

functioning of the internal market is one of the core activities of the Community itself. 

3.2.2  The Treaty freedoms underlying the internal market must be seen in the context of the Treaty as a 

whole.  In  this  respect,  the  ECB  emphasises  that  the  tasks  of  the  Community  are  identified  under 

Article 2 of the Treaty as being achieved ‘by establishing a common market and an economic and 

monetary union’. Moreover, Article 4(2) of the Treaty states that ‘concurrently with the foregoing’ 

(i.e. with the adoption of an economic policy based, inter alia, on the internal market), the activities 

of the Member States and the Community include, inter alia, the introduction of a single currency 

and  the  definition  and  conduct  of  a  single  monetary  policy  the  primary  objective  of  which  is  ‘to 

maintain  price  stability  and,  without  prejudice  to  this  objective,  to  support  the  general  economic 

policies in the Community, in accordance with the principle of an open market economy with free 

competition’.  

3.2.3  The  Eurosystem’s  tasks  relating  to  monetary  policy,  payment  systems  and  financial  stability  are 

inextricably linked to the Governing Council’s abovementioned express statement in July 2007 that 

the Eurosystem central banks ‘need to retain, in any event, ultimate control over their currency, the 

euro’. While the Eurosystem generally has to comply with the Treaty freedoms, and in particular 

has to consider their implications if it wishes to make use of its regulatory power to ensure efficient 

and  sound  clearing  and  payment  systems,  this  does  not  mean  that  the  ECB  may  not  impose 

measures that would have an impact on the Treaty freedoms, if such measures are strictly warranted 

in order to perform the Eurosystem’s basic tasks. In this respect, the ECB considers that it is highly 

significant  that,  under  the  Treaty,  the  Eurosystem’s  monetary  policy,  financial  stability  and 

oversight tasks only apply to those Member States that have adopted the euro. In view of the above, 

the ECB is of the clear view that, in order for the Eurosystem to be able to perform its core central 

banking  tasks,  in  particular  the  provision  of  central  bank  liquidity  to  infrastructures  offering 

services in euro, such infrastructures need to be established and located within the euro area.  

3.3  Location policy and oversight of settlement systems 

3.3.1  In  order  to  perform  its  core  tasks,  the  Eurosystem  needs  to  ensure  the  safety  and  efficiency  of 

systems  processing  the  euro.  In  the  case  of  an  infrastructure  located  outside  the  euro  area,  the 

Eurosystem’s  ability  to  oversee  these  systems  and  to  detect  risks  that  could  jeopardise  the 

performance of its abovementioned core tasks at an early stage is undermined due to a mismatch 

between  public  responsibilities  and  public  powers.  Thus  for  instance,  as  highlighted  by  the 
‘Eurosystem Oversight Policy Framework’ of February 20098, cooperative oversight arrangements 

at international level can mitigate the loss of direct influence to some extent but cannot ensure the 

same  level  of  influence  of  the  issuing  central  bank  as  direct  oversight,  especially  in  a  crisis 

situation, where access to timely information by the issuing central bank may not be possible.  

3.3.2  Consequently, if such risks are not identified at an early stage, the malfunctioning of infrastructures 

located  outside  the  euro  area  processing  the  euro  could  lead  to  spillover  effects  to  infrastructures 

8  

Available on the ECB’s website. 

5 

                                                 
within the euro area. Direct Eurosystem oversight, which is possible provided that infrastructures 

are  located  in  the  euro  area,  is  key  to  ensuring  the  safety  and  efficiency  of  infrastructures 

processing the euro and thus to maintaining ultimate control over the euro.  

3.3.3  It is in this broader context that the draft Finnish government proposal opening up the possibility 

for foreign clearing organisations to provide services in Finland is being considered by the ECB.  

3.3.4  It is appreciated that the examination of an application by a foreign clearing organisation includes 

measures  to  ensure  that  that  clearing  organisation  does  not  constitute  a  risk  to  the  interests  of 

investors and of financial stability in general. In this regard, it is noted that Suomen Pankki and the 

Financial Supervisory Authority’s opinion will, inter alia, be sought in relation to applications by 

foreign clearing organisations from another EEA/non-EEA Member State for authorisation by the 

Ministry  of  Finance.  It  is  understood  that  there  are  plans  to  establish  cooperative  oversight 

arrangements between Suomen Pankki and the relevant competent authorities. Such prior process 

and  cooperative  oversight  arrangements  cannot,  however,  take  the  place  of  the  Eurosystem’s 

ongoing need for the same regular performance of direct oversight on the foreign clearing system 

that  would  be  conducted  in  the  case  of  a  Finnish  organisation  in  order  to  ensure  the  safety  and 

efficiency of the systems in question.  

3.3.5  Furthermore, it is noted that while an EEA clearing organisation will be able to offer services on a 

cross-border basis, non-EEA clearing organisations seeking to provide services in Finland will, in 

principle, be obliged to establish a branch in Finland. However, in the ECB’s view infrastructures 

processing  the  euro  should  be  incorporated  in  the  euro  area  by  way  of  establishment  of  a  legal 

entity that has full responsibility for all critical functions of the infrastructure.  This would ensure 

that the Eurosystem has regulatory power over and direct access to the decision-making body of the 

relevant  infrastructure  in  order  to  bring  about  any  necessary  changes  in  relation  to  the 

infrastructure’s  compliance  with  the  applicable  Eurosystem  oversight  policies  and  standards.  A 

branch, unlike a subsidiary, does not constitute a separate legal entity in the relevant jurisdiction. 

3.3.6  Moreover,  given  that  central  counterparty  clearing  has  a  specific  role  in  managing  counterparty 

risk, but also given the aim that central counterparty clearing should expand in view of the recent 

market  turmoil,  it  is  of  the  utmost  importance  that  the  Eurosystem  has  direct  oversight  over 

infrastructures processing the euro. The need for this is even more pronounced due to the fact that 

crisis management is only vaguely addressed in the draft law.  

3.3.7  Consequently, the ECB is of the view that enabling the use of foreign clearing organisations located 

outside the euro area in Finland without requiring that the Eurosystem should have sufficient means 

to ensure the safety of such non-Eurosystem clearing organisations has the potential ultimately to 

undermine the Eurosystem’s control over the euro and the proper performance of its core tasks. 

6 

 
4. 

Other specific observations 

4.1  Account-holding structures 

The  ECB  notes  that  the  Finnish  securities  holding  system  (which  is  also  a  book-entry  based 
system) is based on the principle of direct holding9, where the rights pertaining to the book entries 

are  registered  directly  in  each  account  holder’s  book-entry  account.  Book-entry  securities  owned 

by a foreign individual, corporation or foundation may be entered in a custodial nominee account 

administered  by  a  custodial  account  holder  on  behalf  of  a  beneficial  owner  on  the  basis  of  an 

authorisation. The ECB understands that the draft law does not intend to amend these securities-

holding structures and that it is planned that the more comprehensive reform of Finnish securities 

markets legislation will follow in 2010. In this context, the ECB nevertheless would like to refer to 

the  explanatory  memorandum  to  the  draft  law,  which  provides  that  ‘in  the  foreign  central 

counterparty  model,  the  objective  of  the  legislation  to  ensure  cost  efficiency  cannot  be  fully 

achieved unless the direct holding system will be developed towards a multi-tier holding structure, 

making indirect holding possible also to Finnish investors’.   

4.2 

Supervision 

The  ECB  notes  that,  under  the  draft  law,  the  Financial  Supervisory  Authority  will,  in  addition  to 

Finnish  clearing  organisations,  also  supervise  foreign  clearing  organisations  and  the  provision  of 

services  by  foreign  clearing  organisations  without  the  establishment  of  a  Finnish  branch.  Such 

foreign entities would be subject to Chapter 6 of the Law on the Financial Supervisory Authority, 

which contains general provisions on the supervision of foreign EEA/non-EEA entities as well as 

on cooperation and the exchange of information between Finnish and foreign authorities. 

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

Done at Frankfurt am Main, 7 August 2009. 

[signed] 

The Vice-President of the ECB 

Lucas D. PAPADEMOS 

9  

As provided for in the Law on the book-entry system (826/1991) and the Law on book-entry accounts (827/1991), the 
book-entry  system  consists  of  book-entry  accounts  and  lists  of  the  owners  of  book  entries  registered  in  the  accounts. 
‘Book  entry’  means  a  dematerialised  and  transferable  security  that  is  issued  or  intended  to  be  issued  to  the  public, 
together with several other securities with similar rights. 

7