The division of work and responsibilities between Kredittilsynet and Norges Bank in relation to securities settlement systems
Introduction
A joint letter from the Financial Supervisory Authority of Norway (Kredittilsynet) and Norges Bank to the Ministry of Finance dated 19 March 2001 explains the cooperation between Kredittilsynet and Norges Bank. The purpose of the present document is to provide a more comprehensive description of the division of work and responsibilities between Kredittilsynet and Norges Bank in relation to securities settlement systems. A securities settlement system is defined in the Norwegian Payment Systems Act as a system based on common rules for the clearing, settlement or transfer of financial instruments. Attachment A provides an overview of securities settlement systems in Norway today.
Kredittilsynet
Kredittilsynet supervises among others financial institutions, investment firms, clearing houses and central securities depositories. These institutions are typically participants in or operators of securities settlement systems. Securities settlement systems may apply for approval by Kredittilsynet in accordance with section 4-1 of the Payment Systems Act in order to be covered by the particular legal protection and safety rules provided under this Act for clearing and settlement agreements. If the cash settlement is undertaken in a private settlement bank, the approval also covers the cash leg of the settlement. Approval under the Payment Systems Act is not compulsory, and some systems have not found it expedient to apply for such approval.
For systems where Norges Bank is the settlement bank, the conditions for cash settlements are determined by Norges Bank.
Norges Bank
Norges Bank regularly evaluates the significance of securities settlements for financial stability. According to international recommendations (see attachment B), cash settlement of securities trades should preferably be carried out in a central bank. Norges Bank is a settlement bank for securities settlement (VPO NOK) settled in the Norwegian central security depository (Verdipapirsentralen) and derivatives settlement cleared in VPS Clearing.
A number of securities settled in VPO are used as collateral for credit given in the interbank settlements in Norges Banks Settlement System (NBO). A failure or interruption in VPO operations might therefore impair the efficiency of the NBO and the conduct of monetary policy.
Cooperation
Norges Bank and Kredittilsynet keep each other informed and consult each other before important decisions affecting securities settlement systems are made. Norges Bank and Kredittilsynet have monthly meetings regarding the situation in financial institutions and the securities market. These meetings also cover topical issues in relation to securities settlement systems, including international recommendations, structural changes, risk assessment and contingency planning. In addition, there is contact between relevant departments in the central bank and Kredittilsynet as required.
Pursuant to the Payment Systems Act, Norges Bank shall notify the EFTA Surveillance Authority about securities settlement systems approved by Kredittilsynet. The same applies if a participant becomes insolvent. Kredittilsynet therefore informs the central bank in such cases.
Attachment A: Securities settlement systems in Norway
|
Systems approved in accordance with the payments systems act |
Financial instruments |
Settlementcurrency |
Settlement institution |
Settlement bank |
|
VPO NOK |
stocks, bonds etc |
NOK |
Verdipapirsentralen ASA |
Norges Bank |
|
VPO Euro |
at present not in use1 |
Euro |
Verdipapirsentralen ASA |
DnBNOR |
|
VPS Clearing Settlement System NOK |
financial derivatives |
NOK |
VPS Clearing ASA |
Norges Bank |
|
VPS Clearing Settlement System SEK |
financial derivatives |
SEK |
VPS Clearing ASA |
DnBNOR |
|
Systems that have not applied for approval in accordance with the Payment Systems Act |
|
|
|
|
|
VPO USD |
at present not in use2 |
USD |
Verdipapirsentralen ASA |
DnBNOR |
|
NOS S USD |
freight derivatives |
USD |
NOS Clearing ASA |
DnBNOR |
|
Nord Pool Clearing NOK |
electricity
derivatives |
NOK |
Nord Pool Clearing ASA |
Nordea |
|
Nord Pool Clearing Euro |
Electricity
derivatives |
Euro |
Nord Pool Clearing ASA |
Nordea |
Attachment B: Internationally established recommendations for securities settlement systems
BIS/IOSCO (2001): Recommendations for securities settlement systems. Committee on Payment and Settlement Systems (CPSS), Technical Committee of the International Organization of Securities Commissions (IOSCO). Bank for International Settlement (BIS), November 2001.
BIS/IOSCO (2002): Assessment methodology for ”Recommendations for securities settlement systems”. Committee on Payment and Settlement Systems (CPSS), Technical Committee of the International Organization of Securities Commissions (IOSCO). Bank for International Settlement (BIS), November 2002.
CESR/ECB (2003): Consultative report. Standards for securities clearing and settlement systems in the European Union. Committee of European Securities Regulators (CESR), European Central Bank (ECB), July 2003.
1 The system is planned to be used if papers is listed in Euro on Oslo Stock Exchange.
1 The system is planned to be used if papers is listed in USD on Oslo Stock Exchange.