Bener
Istanbul - Turkey                                                         Client Briefing
                          ...
Bener
Istanbul - Turkey                                                                                           Client B...
Bener
Istanbul - Turkey




        First example of a problem scenario

        A bank buys shares on the stock exchange ...
Bener
Istanbul - Turkey




       Second example of a problem scenario

       A construction company has a performance s...
Bener
Istanbul - Turkey




       In general :

       The establishment of a security requires redaction of formal paper...
Bener
Istanbul - Turkey




       In domestic situations, the legal background is usually known to both
                 ...
Bener
Istanbul - Turkey




        The EU- Directive on Financial Collateral :
            EU-

        * the number of t...
Bener
Istanbul - Turkey




        Within the framework of the Financial Markets Action Plan and
        in order to:

  ...
Bener
Istanbul - Turkey




        EU Collateral Directive

        1. Definitions :

        1. what do we mean by finan...
Bener
Istanbul - Turkey




       1. What is meant by a “financial collateral agreement”

       This is an arrangement u...
Bener
Istanbul - Turkey




       2. Which parties should be involved to make the Directive applicable:

       * public ...
Bener
Istanbul - Turkey




       3. The financial collateral / security can consist of :

       * cash (money credited ...
Bener
Istanbul - Turkey




       4. The debt has to be a “financial obligation”:

       * can be a present or future ob...
Bener
Istanbul - Turkey




        EU Collateral Directive

        2. Measures that have been taken :

        1. reduci...
Bener
Istanbul - Turkey




        1.          Reducing formal requirements

                    * There are no longer an...
Bener
Istanbul - Turkey




        2. Easy and rapid enforcement

        The collateral may be enforced:

              ...
Bener
Istanbul - Turkey




        3. Right of use

        If so agreed upon in the Financial Collateral Agreement and t...
Bener
Istanbul - Turkey




        Recognition of title transfer collateral arrangements

        The use of title deed t...
Bener
Istanbul - Turkey




       4. Certain insolvency provisions disapplied

       In general, the financial collatera...
Bener
Istanbul - Turkey




        Résume : present execution scheme in Turkey:

        1. creditor notifies debtor that...
Bener
Istanbul - Turkey




       Some relevant literature:

       Directive 2002/47/EC of 6 June 2002 on financial coll...
Bener
Istanbul - Turkey




        Paul WOUTERS,

        of counsel BENER Danışmanlık A.Ş., Istanbul - Turkey;
        a...
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Financial Collateral Directive 2002 - EC - 47

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Transcript of "Financial Collateral Directive 2002 - EC - 47"

  1. 1. Bener Istanbul - Turkey Client Briefing General Introduction EU-Directive on EU- Financial Collateral 2002/EC/47 Turkish point of view – the Belgian Window Paul WOUTERS - Bener Danışmanlık A.Ş. - Istanbul - Turkey
  2. 2. Bener Istanbul - Turkey Client Briefing General Introduction This Power Point Presentation introduces the viewer Into some highlights of the EU-Directive on Financial Collateral. EU- It only refers to the specific situation with respect to some of the Belgian-Turkish aspects. Belgian- If you live in another country then Turkey or refer to another EU-country then Belgium, EU- your situation might be different. In any case, we advice you to get proper legal advice before taking any legal action since every situation has its’ own merits. Paul WOUTERS - Bener Danışmanlık A.Ş. - Istanbul - Turkey
  3. 3. Bener Istanbul - Turkey First example of a problem scenario A bank buys shares on the stock exchange for the account of a client. Towards the other market player / seller the bank has a direct and personal obligation to pay. Most od the time the bank will be covered by some kind of collateral / security furnished by the client. However, when the client does not pay as agreed, the bank has to finance his credit, is exposed vis-a-vis those third counter parties on the vis- stock exchange for immediate payment and sometimes even is endangered (for instance at stock exchange crash situations where overnight a lot of clients do not pay their debts). Though properly secured with collateral, the financial insitution can not execute rapidly on the security of her clients and can get into trouble. trouble. Paul WOUTERS - Bener Danışmanlık A.Ş. - Istanbul - Turkey
  4. 4. Bener Istanbul - Turkey Second example of a problem scenario A construction company has a performance security from a subcontractor. The subcontractor becomes subject to insolvency proceedings and the construction company suddenly is facing (1)penalties for late performance by the principal and (2) supplementary costs for replacing the defaulting subcontractor. The performance security has to be enforced in order to cover these costs and penalties. Though properly secured with collateral, the construction company can not execute rapidly on the security of the subcontractor and can get into trouble. trouble. Paul WOUTERS - Bener Danışmanlık A.Ş. - Istanbul - Turkey
  5. 5. Bener Istanbul - Turkey In general : The establishment of a security requires redaction of formal paperwork / contracts that have to be updated regularly – for instance when the composition of the security changes (shares or bonds are sold in the course of time and substituted by other assets ...) or the debt to which it is applicable changes - ... If not properly managed, all this could affect the validity of an originally properly construed financial collateral. The enforcement of the collateral most of the time is a costly and lengthy procedure in courts with all risks attached to it. Nothing more frustrating then having good collateral but not being able to use it for a long time (and maybe see its’ market value go down all the time). Paul WOUTERS - Bener Danışmanlık A.Ş. - Istanbul - Turkey
  6. 6. Bener Istanbul - Turkey In domestic situations, the legal background is usually known to both situations, collateral provider and –taker and the law chosen normally coincides with the applicable insolvency laws. However, in a cross-border transaction the laws of different States cross- may apply to different parts of a transaction. For instance: the security provided by a debtor may be situated in one State, the debt itself may be governed by the law of another State, the debtor may be incorporated in a third State ... The cross-border use of securities, together with the international cross- nature of the market participants, make it increasingly difficult to identify which State’s laws apply to which parts of the transaction. Paul WOUTERS - Bener Danışmanlık A.Ş. - Istanbul - Turkey
  7. 7. Bener Istanbul - Turkey The EU- Directive on Financial Collateral : EU- * the number of transactions * the speed and sequence with which they have to be executed * the value in currency that each transaction represents * the speed with which (additional) security / margin has to be called * the sheer size of the (professional) counterparties make the likelyhood of a “mistake” in the perfection or maintenance phase and / or the consequences of a non-payment by the “client” a non- real danger AND increases the impact of such mistake on the stability of the financial institutions. The lengthy legal enforcement process further creates the danger that one insolvency in the financial chain could trigger another one. Undesired DOMINO-effect could happen. DOMINO- Paul WOUTERS - Bener Danışmanlık A.Ş. - Istanbul - Turkey
  8. 8. Bener Istanbul - Turkey Within the framework of the Financial Markets Action Plan and in order to: * safeguard financial stability and limit contagion effects in case of default of a party to a financial collateral arrangement * improve the legal certainty of financial collateral arrangements * avoid negative effects of cross border insolvency procedures on such financial collateral arrangements * limit the administrative burdens for parties using financial collateral * provide for rapid and non-formalistic enforcement procedures non- The EU-authorities issued a Directive that has been implemented now EU- in most EU-Member States. Belgium has inserted very “liberal” EU- provisions in its’ local legislation, open to a broad range of parties concerned and of different kinds of collateral that can be used. Paul WOUTERS - Bener Danışmanlık A.Ş. - Istanbul - Turkey
  9. 9. Bener Istanbul - Turkey EU Collateral Directive 1. Definitions : 1. what do we mean by financial collateral agreement 2. which parties should be involved in order to use the benefits of the EU-Directive as applied in Belgium EU- 3. what is financial collateral : cash or negotiable financial instruments 4. for which debts can it be used : financial debts Paul WOUTERS - Bener Danışmanlık A.Ş. - Istanbul - Turkey
  10. 10. Bener Istanbul - Turkey 1. What is meant by a “financial collateral agreement” This is an arrangement under which: * a collateral provider provides a financial collateral in favor of a collateral taker * to secure the performance of an obligation * and where either full ownership of the financial collateral remains with the collateral provider (pledge, charge, lien) OR whereby transfer of the full ownership of the assets with buy-back (repurchase or transfer buy- of title arrangement) is agreed upon The Directive did also expand to close out netting agreements . Paul WOUTERS - Bener Danışmanlık A.Ş. - Istanbul - Turkey
  11. 11. Bener Istanbul - Turkey 2. Which parties should be involved to make the Directive applicable: * public authorities from EU-Member States EU- * EU central banks, European Central Bank, Bank for International Settlements, a multilateral development bank, I.M.F., European Investment Bank * EU financial institution (credit institution, investment firm, financial institution, insurance institution, undertaking for collective investment, management company) * EU central counterparty, settlement agent or clearing house * a person - other then a natural person – including unincorporated firms and partnerships provided the other party is a EU “institution” as defined above (‘opt out’ possible – Belgium did not do this) Note: The Belgian Law of December 15, 2004 on Financial Collateral does NOT implement this restriction and is avaliable to ALL parties, natural persons included, EU non-residents included, even if neither non- collateral taker – giver or debtor are a EU financial institution. Paul WOUTERS - Bener Danışmanlık A.Ş. - Istanbul - Turkey
  12. 12. Bener Istanbul - Turkey 3. The financial collateral / security can consist of : * cash (money credited to an account in any currency - or money market deposits) * shares or securities equivalent to shares, bonds and other debt instruments, if these are negotiable on the capital markets * other securities which give the holder right to acquire such shares, bonds or debt instruments * derivatives and any rights relating to them (note: this definition can be slightly different in all EU-Memberstates) EU- Paul WOUTERS - Bener Danışmanlık A.Ş. - Istanbul - Turkey
  13. 13. Bener Istanbul - Turkey 4. The debt has to be a “financial obligation”: * can be a present or future obligation * can be an obligation owed to the collateral taker, by a person other then the collateral provider Paul WOUTERS - Bener Danışmanlık A.Ş. - Istanbul - Turkey
  14. 14. Bener Istanbul - Turkey EU Collateral Directive 2. Measures that have been taken : 1. reducing formal requirements 2. easy and rapid enforcement 3. right of use, recognition of title transfer financial collateral and close-out netting provisions close- 4. certain insolvency provisions disapplied 5. avoidance conflict of laws Paul WOUTERS - Bener Danışmanlık A.Ş. - Istanbul - Turkey
  15. 15. Bener Istanbul - Turkey 1. Reducing formal requirements * There are no longer any legal requirements to create, validate, perfect or admit in evidence such collateral. However, for matters of proof it is still advised to draft a broad collateral agreement. (e.g. notarial deeds, registration requirements, notification requirements, public announcements or other formal certification are NOT required) * The collateral however has to be transfered into the possession of the collateral taker. taker. The deposit of the cash or the financial instruments into a special account (even held by a third party – bank) is sufficient to organize transfer of possession and to ensure the validity and perfection of the collateral takers’ rights without any further formality. Paul WOUTERS - Bener Danışmanlık A.Ş. - Istanbul - Turkey * Margin calls and substitution of collateral have been accepted.
  16. 16. Bener Istanbul - Turkey 2. Easy and rapid enforcement The collateral may be enforced: * without prior notification to the collateral provider / debtor and without court intervention * if so agreed upon in the collateral agreement and if proper valuation standards have been stipulated: even without forced sale at the stock exchange, but by simple appropriation and setting off their value – money is enforced by simple compensation Paul WOUTERS - Bener Danışmanlık A.Ş. - Istanbul - Turkey
  17. 17. Bener Istanbul - Turkey 3. Right of use If so agreed upon in the Financial Collateral Agreement and to such extent: * the collateral taker is entitled to exercise a right of use in relation to the collateral (he can alienate, sell ... the collateral) * subject to the obligation to transfer equivalent collateral into the account on the due date of performance Paul WOUTERS - Bener Danışmanlık A.Ş. - Istanbul - Turkey
  18. 18. Bener Istanbul - Turkey Recognition of title transfer collateral arrangements The use of title deed transfer (repo) has been accepted as long as no natural persons are involved. Such is opposable to insolvency proceedings and third parties. Recognition of close-out netting provisions close- Such notwithstanding insolvency proceedings and are opposable to third parties. Paul WOUTERS - Bener Danışmanlık A.Ş. - Istanbul - Turkey
  19. 19. Bener Istanbul - Turkey 4. Certain insolvency provisions disapplied In general, the financial collateral arrangements may not be declared invalid or void or be reversed on the sole basis that winding up proceedings or reorganisation measures have commenced against one or more parties involved and they can be opposed to such insolvency proceedings and third parties. The rules of the so-called “suspect period” before insolvency are set aside so- – except with respect of fraudulent acts. 5. Conflict of laws The law of the EU-Memberstate in which country the relevant account is EU- maintained is applicable. Such bank account has to be held in Belgium in order to use all of the facilities mentioned above. Paul WOUTERS - Bener Danışmanlık A.Ş. - Istanbul - Turkey
  20. 20. Bener Istanbul - Turkey Résume : present execution scheme in Turkey: 1. creditor notifies debtor that due date has expired and summons to pay 2. if claim is contested: go to court and have debtor sentenced in payment 3. start and execute enforcement proceedings on the collateral 4. go to stock exchange and sell collateral “at best price” Résume : optimal use of Directive 2002/EC/47: The collateral may be enforced (sold) directly without prior notification to the collateral provider / debtor or court intervention. If so agreed upon in the collateral agreement and if proper valuation standards have been stipulated, simple appropriation of the financial instruments is possible, together with direct compensation of the money involved. If so agreed upon and to such extent,Turkey collateral taker is allowed to Istanbul - the Paul WOUTERS - Bener Danışmanlık A.Ş. - use the collateral, provided restitution by equivalent at due date.
  21. 21. Bener Istanbul - Turkey Some relevant literature: Directive 2002/47/EC of 6 June 2002 on financial collateral arrangements, Official Journal, L 168/43, Journal, 27.06.2002, p. 43 Wet van 15.12.2004 betreffende financiële zekerheden en houdende diverse fiscale bepalingen inzake zakelijke- zakelijke- zekerheidsovereenkomsten en leningen met betrekking tot financiële instrumenten, B.S., 01.02.2005 Devos, D.,‘The Directive 2002/47/EC on ‘Financial Collateral Arrangements of June 6, 2002’, Melanges en hommage à Jean-Victor Louis, 2003. p. 258 Löber, K., ‘The developping EU legal framework for clearing and settlement of financial instruments’, E.C.B., Legal Working Paper Series, No 1, February 2006 note: www.UNIDROIT.org almost literally copied the core provisions of the Collateral Directive in its draft convention on harmonised substantive rules regarding securities held with an intermediary, November 2004 (published 23.12.2004) – final report Augustus 2005 http://www.unidroit.org/english/publications/proceedings/2005/study/78/s-78-23rev-e.pdf Paul WOUTERS - Bener Danışmanlık A.Ş. - Istanbul - Turkey
  22. 22. Bener Istanbul - Turkey Paul WOUTERS, of counsel BENER Danışmanlık A.Ş., Istanbul - Turkey; admitted to the Antwerp (Belgium) Bar Association in 1985; Universiteit Antwerpen (Law School – 1983); Mediator (alternative dispute resolution – 2000) This presentation only intends to introduce to the broad guidelines of the Directive 2002/EC/47 on financial collateral. For details and further information on specific issues or implementation into different EU- EU- jurisdictions, consult your legal adviser. These areas of legislation are under constant evolution both on international and EU-level as on national levels. EU- It is advised to keep in touch and already prepare your services and administrations for upcomming changes on an ongoing and daily basis. Paul WOUTERS - Bener Danışmanlık A.Ş. - Istanbul - Turkey

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