Opinion of the European Central Bank of 13 November 2014 on book-entry securities (CON/2014/81)
Date: 2014-11-13
Institutions: European Central Bank
Subjects: Slovenia, intra-EU payment, national law, payment system, securities

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 13 November 2014 

on book-entry securities 

(CON/2014/81) 

Introduction and legal basis 

On  29  September  2014,  the  European  Central  Bank  (ECB)  received  a  request  from  the  Slovenian 
Ministry of Finance for an opinion on a draft law on book-entry securities1 (hereinafter the ‘draft law’). 

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the fifth indent of Article 2(1) of Council Decision 98/415/EC2, 

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.  

Purpose of the draft law 

1.1  The  draft  law  is  a  recast  of  the  current  Law  on  book-entry  securities3  and  makes  certain 

amendments  thereto.  It  regulates  book-entry  securities,  encumbrances  on  book-entry  securities, 

transfer  of  book-entry  securities,  fulfilment  of  the  obligations  arising  in  respect  of  book-entry 
securities, the central register of book-entry securities and access to the data maintained therein4.  

1.2  The draft law has several objectives including the facilitation of a legal framework that will enable 

the use of TARGET2-Securities (T2S) in Slovenia. The explanatory memorandum outlines that the 

amendments  introduced  by  the  draft  law  are  proposed  in  the  light  of  the  TARGET2-Securities 

corporate action standards on flows, i.e. pending settlement transactions (hereinafter referred to as 
the ‘T2S corporate actions standards’)5 and the Corporate Actions Joint Working Group6 standards 

for corporate actions on stock, i.e. corporate actions on settled balances (hereinafter referred to as 

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Predlog Zakona o nematerializiranih vrednostnih papirjih (ZNVP-1). 
Council Decision 98/415/EC of  29 June 1998 on the consultation of the European Central Bank by national authorities 
regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 
Zakon o nematerializiranih vrednostnih papirjih (ZNVP) (Official Journal of the Republic of Slovenia, No. 2/07 – official 
consolidated text, 67/07 - ZTFI, 58/09 and 78/11). 
See Article 1 of the draft law. 
The  T2S  corporate  actions  standards  were  approved  by  the  T2S  Advisory  Group.  The  standards  are  available  on  the 
ECB’s website at www.ecb.europa.eu. 
The CAJWG was set up in summer 2008 as one of the work streams of the ‘CESAME 2’ Group. The CESAME 2 Group 
followed up on the work of the ‘CESAME Group’ (the European Commission’s Clearing and Settlement Advisory and 
Monitoring  Expert  Group)  and  aimed  to  achieve  the  goal  of  a  barrier-free  single  European  market  for  clearing  and 
settlement of securities transactions. The CAJWG is composed of representatives of the main stakeholders, i.e. issuers, 
market infrastructures, and intermediaries.  

 
 
 
 
                                                 
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the  ‘CAJWG  standards’)7.  The  explanatory  memorandum  outlines  that  the  Law  on  book-entry 

securities  currently:  (a)  governs  the  execution  of  a  smaller  number  of  corporate  actions  than  are 

governed by the above standards; (b) does not govern the manner in which obligations arising from 

a  corporate  action  are  fulfilled,  as  envisaged  by  the  standards;  and  (c)  allows  the  execution  of 

corporate  actions  which  the  standards  require  to  be  processed  through  a  central  securities 

depository (CSD), in a manner not laid down by the standards. The draft law aims to address these 

issues in Articles 38 and 39, as further described below.  

1.3  A further objective of the draft law is to adapt the Slovenian legal framework to the provisions of 
Regulation  (EU)  No  909/2014  of  the  European  Parliament  and  of  the  Council8  (hereinafter  the 

‘CSDR’). The draft law states that its provisions shall apply to the central register managed by a 

CSD that has a registered office in Slovenia and to a branch of a CSD of a Member State that is 

registered  in  the  Slovenian  business  register.  Furthermore,  the  draft  law  permits  book-entry 

securities to be entered in the central register where the issuer’s obligations are governed by foreign 

law. 

2. 

General observations 

The ECB welcomes the draft law as it contributes to facilitating the Slovenian market’s adaptation to T2S 

and the wider harmonisation of standards in post-trade services. 

3. 

Specific observations 

3.1  Corporate actions 

Pursuant to the draft law, a corporate action on a book-entry security is defined as the fulfilment of 
the obligations arising from that security9. Article 39(1) of the draft law requires corporate actions 
to  be  processed  through  the  CSD10  and  through  the  CSD  members  that  manage  book-entry 

securities  holders’  accounts  (hereinafter  the  ‘CSD  members’).  Article  39(2)  defines  particular 

requirements  regarding  the  fulfilment  of  the  obligations  arising  from  book-entry  securities  and 

requires the CSD to further specify and implement the requirements in its rules. Such requirements 

cover, inter alia, the information flow between the issuer and the CSD, and between the CSD and 

the  CSD  members,  the  key  dates  relating  to  a  corporate  action  event,  e.g.  record  date,  ex-date, 

payment date, and other deadlines associated with managing corporate action events. As stated in 

the  explanatory  memorandum  to  the  draft  law,  in  defining  the  requirements  in  Article  39(2),  the 

draft  law  takes  into  account  the  main  principles  of  the  T2S  corporate  actions  standards  and  the 

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As  regards  the  CAJWG  standards  for  corporate  actions  on  stock,  see  ‘Market  Standards  for  Corporate  Actions 
Processing’ (Revised version 2012). The report is available on the ECB’s website at www.ecb.europa.eu. 
Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities 
settlement  in  the  European  Union  and  on  central  securities  depositories  and  amending  Directives  98/26/EC  and 
2014/65/EU and Regulation (EU) No 236/2012 (OJ L 257, 28.8.2014, p. 1). 
See Article 38 of the draft law.  
The Slovenian CSD is ‘KDD - Centralna klirinško depotna družba’. 

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CAJWG  standards11.  Moreover,  Article  39(2)  provides 

that 

further  specification  and 

implementation by the CSD in its rules of the requirements in Article 39(2), shall be ‘in accordance 

with internationally accepted standards for processing corporate actions on book-entry securities’. 

The ECB welcomes the above provisions of the draft law, which will facilitate the implementation 

of the T2S corporate actions standards and the CAJWG standards in Slovenia, as the explanatory 
memorandum to the draft law proposes12. 

3.2  Termination of registry accounts in the central register 

A registry account is defined in the CSD’s rules of operation as a provisional account that is not 
managed by any member13. Historically, the registry accounts held in the central register of book-

entry securities were established for the purpose of privatisation. They allowed the distribution of 

book-entry  securities to the shareholders of privatised companies  without requiring them to  enter 

into  a  legal  relationship  with  a  member  of  the  CSD.  The  CSD  only  maintains  the  book-entry 
securities  on  the  registry  accounts  and  does  not  perform  associated  services14.  According  to  the 

explanatory  memorandum  to  the  draft  law,  this  renders  registry  accounts  incompatible  with  the 

CAJWG standards and the T2S corporate action standards. To address this issue, the holders of the 

book-entry  securities  on  registry  accounts  will  have  to  enter  into  an  appropriate  contractual 

relationship  with  a  member  of  the  CSD.  The  securities  held  on  registry  accounts  that  are  not 

transferred  to  other  accounts  by  the  deadline  laid  down  in  Article  19(2)  of  the  draft  law  will  be 

transferred in accordance with the CSD’s rules to an account held by a competent court and will be 

subject to the law governing court deposits. The draft law requires the CSD to lay down in its rules 

a detailed method for terminating registry accounts. 

It  follows  from  the  above  that  the  accounts  of  securities  holders  who  enter  into  contractual 

relationships with CSD members to manage their accounts before the deadline are intended to be 

compatible with the CAJWG standards and the T2S corporate action standards. However, it is not 

entirely  clear  how  the  arrangement  regarding  the  holding  of  any  remaining  securities  on  courts’ 

accounts will interact with T2S. In particular, it is unclear whether these remaining securities on the 

courts’  accounts  will  be  tradeable  and  therefore  freely  negotiable.  An  arrangement  whereby  the 

courts are holders of book-entry securities accounts in the central register and where such accounts 

are  managed  by  CSD  members  as  investment  service  providers  suggests,  in  the  light  of  T2S 

requirements,  that  the  securities  on  the  courts’  accounts  may  be  considered  tradeable.  The  ECB 

invites the Slovenian authorities to clarify this arrangement. 

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See Article 39 of the draft law. 
See,  further,  the  ʻT2S  Corporate  Actions  Standards  -  2014  Gap  Analysis  Reportʼ,  which  identified  that  Slovenian  law 
does not recognise the role of the CSD in processing the settlement of corporate actions in accordance with the CAJWG 
standards and the T2S corporate actions standards. The report is available on the ECB’s website at www.ecb.europa.eu. 
Article 26(4) of the KDD Operations Rules. 
See the explanatory memorandum to the draft law. 

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3.3 

Settlement finality 

3.3.1  Article 17 of the draft law provides that the CSD shall define in its rules the moments of entry and 

of irrevocability of a transfer order.  

Article  39  of  the  CSDR  requires that  the  rules of  each securities settlement system that the CSD 

operates  must  define  those  moments  in  line  with  Articles  3  and  5  of  Directive  98/26/EC  of  the 
European  parliament  and  of  the  Council15,  as  amended  (hereinafter  the  ‘SFD  Directive’). 

Furthermore,  Article  48(8)  of  the  CSDR  requires  that  interoperable  securities  settlement  systems 

and  CSDs,  which  use  a  common  settlement  infrastructure  shall  establish  identical  moments  of: 

(a) entry of transfer orders into the settlement system and (b) irrevocability of transfer orders.  

3.3.2  Furthermore, the ECB notes that the T2S Advisory Group has undertaken work towards agreement 

on a common definition of the moment of entry of a transfer order into the settlement system and of 

the moment at which the transfer order is protected against insolvency in accordance with the SFD 

Directive  (Settlement  Finality  I),  as  well  as  the  moment  of  irrevocability  of  transfer  orders 

(Settlement Finality II). As part of the intended legal harmonisation of CSD rules within T2S, the 

CSD rules should also ensure that it is not possible to unilaterally cancel the order after matching 

has  taken  place  within  T2S  (Settlement  Finality  II).  Common  definitions  will  need  to  be  applied 

before  migration  to  T2S  in  order  to  ensure  compliance  with  the  CSDR  and  T2S  harmonised 

standards.  

3.4  Foreign law 

The  ECB  understands that, whilst Slovenian law applies to  book-entry securities, to  the rights  of 

holders  arising  from  such  securities  and  to  the  encumbrances  on  such  securities,  the  draft  law 

permits book-entry securities to be entered in the central register where the issuer’s obligations are 
governed by a foreign law16. In situations where the issuer’s obligations are governed by a foreign  

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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 (OJ L 166, 11.6.1998, p. 45). 
See Article 11 in conjunction with Article 13(2) of the draft law. 

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law,  the  Slovenian  law  applicable  to  book-entry  securities  would  apply  in  other  respects,  e.g.  as 
regards the rights of holders arising from the securities17. 

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

Done at Frankfurt am Main, 13 November 2014. 

[signed] 

The President of the ECB 

Mario DRAGHI 

17  

Article 13(1) of the draft law. 

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