Circular BCL 2007/214 of 16 November 2007 — Modification of the General Conditions of the BCL

Luxembourg, 16 November 2007
To all credit institutions and to the financial services of the Post and Telecommunications Company (post office checking accounts service)

CIRCULAR BCL 2007/214
MODIFICATION OF THE GENERAL CONDITIONS OF THE BCL

Dear Sirs,

The general conditions of operations, Annexes 5, 6, 8, 9, 10, 13, 14, and 15 have been updated and supplemented in order to implement:

• the ECB Guideline ECB/2007/2 on the Trans-European Automated Real-time Gross settlement Express Transfer system (TARGET2), which was adopted by the Governing Council of the European Central Bank; and
• the ECB Guideline ECB/2007/10, amending ECB Guideline 2000/7 on the instruments and procedures of monetary policy of the Eurosystem, which was adopted by the Governing Council of the European Central Bank.

The amendments mainly take into account decisions recently taken by the Governing Council and concern, in particular, the following four themes:

1. Monetary policy instruments: After reviewing monetary policy instruments, the Governing Council decided to remove the possibility of using outright transactions for fine-tuning operations. This instrument has never been used in the past. At the same time, the Governing Council retained the possibility of using outright transactions for structural operations.

2. Eligible assets: The amendments regarding assets eligible for Eurosystem credit operations mainly reflect decisions previously taken by the Governing Council:

• The Governing Council approved on 25 May 2007 a modification of the schedule regarding the phase-out of Level 2 negotiable assets. Negotiable assets, which were issued before 31 May 2007 and are traded on unregulated markets meeting the Eurosystem's current security and accessibility requirements, but not the transparency requirement, will remain eligible until 31 December 2009 and will become ineligible thereafter.
• The Governing Council clarified on 25 May 2007 that, with the exception of supranational or international institutions, issuers of negotiable assets eligible for Eurosystem credit operations must be established either in the European Economic Area (EEA) or in one of the four G10 countries not belonging to the EEA. Thus, assets issued by entities domiciled outside the EEA or G10 countries not belonging to the EEA are not eligible, regardless of whether a guarantee is provided by an entity established in the EEA. Negotiable assets issued before 1 January 2007, which were issued by an entity not established in the EEA or in one of the G10 countries not belonging to the EEA, but guaranteed by an entity established in the EEA, remain eligible until 31 December 2011 and will become ineligible after this date.
• The Governing Council decided on 22 February 2007 to modify the credit assessment for bank covered bonds. Bank covered bonds issued from 1 January 2008 are treated in the same way as all other negotiable assets, as they are subject to the same rating requirements. Regarding bank covered bonds issued before 1 January 2008, the previous credit assessment will apply until their maturity. Consequently, these bank covered bonds are deemed to satisfy the Eurosystem's credit quality assessment, provided they strictly meet the criteria set out in Article 22(4) of the UCITS Directive. This change aims to rationalize and simplify the collateral framework and has no impact on the eligibility of bank covered bonds, insofar as the latter generally meet the Eurosystem's rating requirements.
• The Governing Council clarified its decision of 13 January 2006, specifying that French law common investment funds (FCC) shares issued before 1 May 2006 will remain eligible for a transitional period until 31 December 2008, but that FCCs issued on or after 1 May 2006 will not be eligible.

3. TARGET2: On 26 April 2007, the Governing Council adopted ECB Guideline 2007/2 on the Trans-European Automated Real-time Gross settlement Express Transfer system (TARGET2), establishing the TARGET2 system, which replaces the current TARGET system under Article 14, second paragraph, of ECB Guideline 2007/2. National central banks will migrate to TARGET2, in accordance with the schedule specified in Article 13 of ECB Guideline 2007/2. The BCL notified the European Commission of the TARGET2-LU system on 30 October 2007.

4. Enlargement of the euro area: The enlargement of the euro area to Cyprus and Malta, effective 1 January 2008, requires some amendments to the General Documentation.

The amendments relating to points 1) to 3) mentioned above will apply from 19 November 2007. The amendments relating to the enlargement of the euro area set out in point 4) above will apply from 1 January 2008.

The modifications concerning ECB Guideline 2007/2 on the Trans-European Automated Real-time Gross settlement Express Transfer system (TARGET2) have been made on the following pages:

• General Conditions of Operations: section 1.14, new second paragraph, page 12, and last paragraph, page 13; section 2.13, first paragraph, page 18; section 4.7, “TARGET2-LU and TARGET2”, page 22; section 7.5, “Marginal Lending Facility”, second paragraph, page 35; section 7.8 “Deposit Facility”, first paragraph, page 36;
• Annex 5: section 2(b)(i), page 2;
• Annex 6: section 5(c)(ii), page 6;
• Annex 8: section 2.1 “Opening”, first paragraph, page 2-1; section 2.2.1 “Current Account”, second paragraph and fifth paragraph, pages 2-2 to 2-3; section 2.2.3 “Unavailable Account for Cash Withdrawals”, page 2-4; section 2.2.4 “Cash Collateral Account”, page 2-5; section 3 “Payment”, first paragraph and footnote No. 7, page 3-1; section 3.1.1 “Introduction”, pages 3-1 and 3-2; section 3.1.2 “Participation in Payment Systems”, page 3-2; section 3.2.1.1. “Operations carried out by TARGET2-LU system participants”, pages 3-2 and 3-3; section 3.2.1.2. “Operations carried out by financial institutions not participating directly in the TARGET2-LU system”, subtitle, page 3-3; section 3.2.2.1 “Operations carried out by counterparties not participating directly in the TARGET2-LU system”, subtitle, page 3-4; section 3.2.2.2 “Operations carried out by counterparties participating directly in the TARGET2-LU system”, page 3-5; section 3.2.3.2 “Transfer on request”, page 3-5; section 3.2.3.5 “Transfer terms”, pages 3-6 and 3-7; section 3.2.4 “Various fees”, page 3-7; section 3.3.1 “Payments by direct TARGET2-LU participants” and footnote No. 12, page 3-7; section 3.3.2 “Transfers issued by non-direct TARGET2-LU participants or transfers in their favor” and footnote No. 13, page 3-7; section 3.3.2.1 “Transfer from a non-direct TARGET2-LU account holder to its correspondent in TARGET2-LU/TARGET2”, page 3-7; section 3.3.2.2 “Payments by a correspondent via TARGET2 in favor of a non-direct TARGET2-LU account holder”, page 3-8; section 3.3.2.3 “Payments between account holders not participating directly in TARGET2-LU”, subtitle, page 3-8; section 4 “Assets serving as support or collateral (underlying assets - collateral)”, footnote No. 14; section 4.1.2.1 “Claims”, “Minimum Amount”, page 4-15; section 4.1.3.1 “Obligation to have certain controls performed by the external auditor regarding the use of claims as collateral”, second paragraph, sixth sub-paragraph, page 4-22; section 4.4.2 “Negotiable assets: coupon payments and principal repayment”, second paragraph, page 4-30; section 4.9.1 “Negotiable assets”, first paragraph, page 4-53; section 5. “Monetary Policy Operations”, page 5-55; section 6 “Intraday credit and permanent facilities”, page 6-1; section 6.2.1.1 “Deposit creation”, page 6-1; section 7 “Reserves”, page 7-1; section 8 “Night Time Link (NTL) with Clearstream Banking S.A.”, page 8-1; section 10.1 “Annex 1: List of contact persons at the BCL”, page 10-2 and page 10-3;
• Annex 9: section 2.2.1 “TARGET2-LU Participants”, page 1; section 2.2.2 “Non-direct TARGET2-LU participants”, page 1;
• Annex 10: articles 2-4 and 6-7 are replaced by articles 2-5 and 7-11, page 1-5;
• Annex 13: section 1, deletion of text before section 1.1.; section 2; section 3; “Examples of an MT300”, page 41; “Examples of an MT320”; “Example of an MT392”, page 52; “Examples of an MT399”, pages 56 and 57; section 5.1., “Mandatory Sequence B – Trade Details”, fourth line, pages 58 and 59; section 5.1., “Mandatory Sequence E – Settlement Details”, fourth column, last line, page 59; section 5.1., “Repetitive Mandatory Subsequence E1 – Settlement Parties”, second line, page 59 and second line, page 60; “:35B: Identification of Financial Instrument” and “:36B: Quantity of Financial Instrument to be Settled”, page 62; “:97a: Safekeeping Account”, page 63; “70a: Declaration details”, page 64; “Examples of an MT540”, page 66; section 5.2., “Mandatory Sequence B – Trade Details”, third line, sixth column; “Repetitive Mandatory Subsequence E1 – Settlement Parties”, second line, page 69; “:35B: Identification of Financial Instrument”, pages 71 and 72; “:36B and :97a”, page 72; “:22F and 97a”, page 73; “Example of an MT542”, pages 74 and 75; section 5.3., “Mandatory Sequence B – Trade Details”, fourth column, page 77, “Mandatory Sequence E – Settlement Details”, fourth column, page 78; “:35B”, page 80; “:36B”, page 81; “:97a, :22F”, page 82; “Examples of an MT544”, pages 84 and 85; section 5.4., “Mandatory Sequence B – Trade Details”, fourth line, last column; page 87; “:35B and :97a”, page 90; “Examples of an MT546”, pages 92 and 93; section 5.5., title, page 94, “Field Specifications”, page 95; “A2”, page 96; “Examples of an MT548”, page 97; “Optional Subsequence B1 – Financial instrument”, last column, page 99; “Optional Subsequence B1a – Financial instrument attributes”, second and third lines, page 99; “A1 and B”, pages 103 and 104; “Example of an MT535”, pages 105 and 106; “:22F”, page 111; “B”, page 112; “:90a”, page 114; “Example of an MT564”, pages 116 and 117, “B”, page 121; section 5.9., pages 124 to 144; section 5.10., table; section 5.11., pages 146 to 158; section 5.12., table; section 6, deletion of text before section 6.1., page 160;
• Annex 14: article 1.2, fourth paragraph;
• Annex 15: LIPS-Gross (Luxembourg Interbank Payment System-Real Time Settlement System), page 9; Night Time Settlement or NTS, page 10; Participants or direct participants, page 11; Single Shared Platform, page 13; Target System, page 15 (delete); TARGET2-LU, page 15.

The modifications concerning ECB Guideline 2007/10, amending ECB Guideline 2000/7 on the instruments and procedures of monetary policy of the Eurosystem have been made on the following pages:

• General Conditions of Operations: Annexes, point 3, page 5; article 1.22; article 5.4., fourth and fifth paragraphs, page 25; section 6 “Open Market Operations” footnote No. 2, page 28; article 6.23., last paragraph, page 33; article 7.4., second paragraph, second sentence, page 36; article 7.5., first paragraph, page 36;
• Annex 8: section 3.2.2.2., deletion of the last paragraph, page 3-5; section 4.1 “Eligible Assets”, first paragraph, second sentence and footnote; section 4.1 “Eligible Assets”, third paragraph, first sentence and footnote; section 4.1.1., “Place of Issue”, footnote No. 20, page 4-12; section 4.1.1., “Accepted Markets”, footnote No. 26, page 4-13; section 4.1.1., “Place of Establishment of Issuer/Guarantor”, footnote No. 28, page 4-14; section 4.5.2., “Credit Assessment by an ECAI”, footnote No. 47; section 5.6.1., second paragraph, page 5-72; section 6.2.1.1., last sentence, page 6-2; section 6.2.1.2., last sentence, page 6-2; section 6.2.2, first paragraph, first line, page 6-2; section 6.2.2, from the third to the sixth paragraphs, pages 6-2 and 6-3; Annex 4, page 10-12; 10 Annexes, Annex 2, deletion of form GTC 003;
• Annex 15: Settlement Account, page 3; End of Day, page 7; Open Market Operation, page 11; RTGS System, page 14; TARGET, page 15; TARGET2, page 16.

The General Conditions of Operations, Annexes 5, 6, 8, 9, 10, 13, 14, and 15, as amended, enter into force on 19 November 2007. Annex 4 “List of Websites of National Central Banks Members of the Eurosystem” of Annex 8 enters into force on 1 January 2008.

The updated versions of the aforementioned modified documents are available from 19 November 2007 on the BCL website: www.bcl.lu.

Regarding direct participants in TARGET2-LU, the document titled “Terms and Conditions for participation in TARGET2-LU” is also published on the BCL website.

A printed version of the General Conditions of the BCL is available upon request.

Please accept, Ladies and Gentlemen, the assurance of our distinguished sentiments.

BANQUE CENTRALE DU LUXEMBOURG
The Management

Serge KOLB Andrée BILLON Yves MERSCH