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Finality directive to be implemented

In May 1999, a memorandum was published by a Ministry of Justice working group assigned to propose legislative amendments for the purpose of implementing the Directive 98/26/EC on settlement finality in payment and securities settlement systems (the Finality Directive). The Finality Directive was already partly implemented as of January 1 1999 when certain amendments to the Finnish Act on Certain Terms in the Securities and Currency Trade and Payment Systems (the Netting Act) became effective.

The memorandum contains a proposal for further amendments to the Netting Act according to which, in the event of insolvency proceedings being opened against a participant in a clearing system, the rights and obligations arising from, or in connection with, the participation of that participant will be determined by the law governing that clearing system. The above provision corresponds to Article 8 of the Finality Directive and would apply to foreign participants in a Finnish clearing system as well as to Finnish participants in a foreign clearing system covered by the Finality Directive, or in a corresponding clearing system in a non-EEA state.

Pursuant to another amendment to the Netting Act proposed in the memorandum, where a right in securities is provided as a collateral security to the clearing system, a participant in a clearing system or a central bank, and such a right is legally recorded on a register, account or centralized deposit system located in a foreign state, the right of the holder of the collateral securities will be governed by the law of the foreign state. The above provision is intended to correspond to Article 9 (2) of the Finality Directive.

Additionally, such Article will, according to the memorandum, be implemented by amending the Finnish Act on Book-Entry Accounts. If rights with respect to securities recorded in the Finnish book-entry system on a custodial account have been legally recorded on a register or account located in a foreign state, such rights are proposed to be governed by the law of the foreign state. The proposed provision appears wider than Article 9 (2) of the Finality Directive, since it does not only apply to securities provided as a collateral security to certain specified entities.

The memorandum includes a detailed proposal for a government bill on the basis of which amended legislation is intended to become effective as of December 11 1999, ie the last day allowed for implementation of the Finality Directive.

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