Faria presentation harmonisation_20-09-2012

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Faria presentation harmonisation_20-09-2012

  1. 1. International conference 10TH ANNIVERSARY OF COMPANY LAW 20t– 21h September, 2012 University of Latvia, RigaHarmonisation of Securities Law at the Global and European Level: Implications for Company Law José Angelo Estrella Faria Secretary-General UNIDROIT 28 Via Panisperna, 00184 Roma
  2. 2. The UNIDROIT Convention on Substantive Rules forIntermediated Securities: Economic context – Estimated combined value of bonds, equities and bank assets : > US$ 256 trillion; – trading volume and collateral transactions per day > US$ 2 trillion (i.e. world’s total GDP every 20 trading days) – Challenge: cross-border links of holding systems (for holding and transfer) 28 Via Panisperna, 00184 Roma
  3. 3. The UNIDROIT Convention on Substantive Rules forIntermediated Securities: Historical evolution of securities laws – Originally conceived as a mere evidence of intangible rights against issuer – In the late 19th century, securities were assimilated to negotiable instruments for the purpose of facilitating trading • Share certificates, debentures, bonds etc. were treated as tangible property (corporeal moveable goods) • Banks, brokers and traders held securities in deposit for their clients • Owners had a right to repossession and their securities were not part of the depositary’s insolvency estate • Good faith acquirer of securities were protected claims from previous owners 28 Via Panisperna, 00184 Roma
  4. 4. The UNIDROIT Convention on Substantive Rules forIntermediated Securities: Historical evolution of securities laws – Before the end of 20th century, paper-based trading systems gave way to dematerialisation of securities – Evolving technology and market structures led to varying intermediation patterns in different jurisdictions – Need to adapt the law led to different and inconsistent responses across the world – The result is significant legal uncertainty in cross border transactions and to greater risk exposure 28 Via Panisperna, 00184 Roma
  5. 5. Certificates (if any) CSD Issuer abcd efgh ijklm no p qrs tuvwx yz IntermediaryBasic legalapproaches I-a Intermediary PropertyJapan, France, Germany … Intermediary Investor 28 Via Panisperna, 00184 Roma
  6. 6. Certificates abcd efgh ijklm nop CSD Issuer qrs tuvwx yz Legal Ownership (if any) IntermediaryBasic legal TRUSTapproaches II IntermediaryEngland TRUST Intermediary TRUST Investor 28 Via Panisperna, 00184 Roma
  7. 7. Legal Ownership Certificates abcd efgh ijklm nop qrs tuvwx yz CSD Issuer (if any) IntermediaryBasic legal Entitlementapproaches III IntermediaryUS, Canada Entitlement Intermediary Entitlement Investor 28 Via Panisperna, 00184 Roma
  8. 8. Certificates abcd efgh ijklm nop CSD Issuer qrs tuvwx yz (if any)Basic legalapproaches I-b IntermediaryNordic countries, Spain, Brazil, PropertyChina,China Malaysia … Investor 28 Via Panisperna, 00184 Roma
  9. 9. The UNIDROIT Convention on Substantive Rules forIntermediated Securities: History and Purpose “EU Member States have different concepts of property and ownership (often disguised by the use of expressions such as ‘proprietary rights’ and ‘rights in rem’ as if they had a meaning common to all EU legal systems.) The absence of an EU-wide framework for the treatment of interests in securities (including procedures for the creation, perfection and enforcement of security) has been identified as the most important source of legal risk in cross-border transactions.” (Cross-Border Clearing and Settlement Arrangements in the European Union, Report of the “Giovannini Group”, Brussels, November 2001) 28 Via Panisperna, 00184 Roma
  10. 10. The UNIDROIT Convention on Substantive Rules forIntermediated Securities: History and Purpose – Project started in 2002 and involved detailed comparative law research done by renowned experts form various countries – Extensive international negotiations at 4 sessions of a Committee of Government Experts and two sessions of a Diplomatic Conference – Adopted in Geneva on 9 October 2009 – General purposes: • to improve the legal framework for securities holding, transfer and collateralisation, • to protect market participants, • to enhance the internal stability of national financial markets and their cross-border compatibility and, as such, to promote capital formation 28 Via Panisperna, 00184 Roma
  11. 11. The UNIDROIT Convention on Substantive Rules forIntermediated Securities: the “functional” approach – Use of neutral language and formulation of rules by reference to results, rather than legal concepts – Convention covers methods for the transfer of intermediated securities, describes the rights resulting from the credit of securities to a securities account and clarifies the rules regarding the finality of book entry and the irrevocability of instructions – Convention leaves it for domestic law to define the nature of the rights of the account holder and the intermediaries 28 Via Panisperna, 00184 Roma
  12. 12. The UNIDROIT Convention on Substantive Rules forIntermediated Securities: key provisions – Rights of an account holder (Article 9) • The credit of securities to a securities account confers the right to receive and exercise the rights attached to the securities (dividends, other distribution, voting right, etc) • Enforceable against third parties (property effect) – Acquisition and disposition by debit and credit (Article 11, 12) • An account holder acquire/dispose of intermediated securities or create a security or other limited interest in respect of intermediated securities by way of a debit and credit (book entry) • Rights so acquired are effective against third parties and no further steps may be required 28 Via Panisperna, 00184 Roma
  13. 13. The UNIDROIT Convention on Substantive Rules forIntermediated Securities: Company law aspects– The Convention does not define the nature of the account holder’s right in the securities (e.g. whether “property”, “joint property”, “entitlement” etc.)– Account holder is nevertheless protected because • Acquisition of securities is effective against third parties, including the insolvency administrator and creditors (Article 9(1)(d)) • Intermediaries are obliged to hold or have available securities of an aggregate number or amount equal to the aggregate number credited to its clients (Article 24(1)(a)) 28 Via Panisperna, 00184 Roma
  14. 14. The UNIDROIT Convention on Substantive Rules forIntermediated Securities: Company law aspects– Relationship with issuers • The Convention does not affect any right of the account holder against the issuer of the securities (Article 8) • The Convention does not determine whom the issuer is required to recognise as the shareholder, bondholder or other person entitled to receive and exercise the rights attached to the securities; • But , if provided by the non-Convention law, the account agreement or the securities settlement system rules intermediaries are obliged pass to their clients (Article 10) – information necessary for them to exercise their rights – dividends and other distributions received in relation to intermediated securities 28 Via Panisperna, 00184 Roma
  15. 15. The compatibility of the UNIDROIT Convention with a“transparent” system – Performance of functions of intermediaries by other persons (Article 7) • A Contracting State may declare that under its non- Convention law a person other than the relevant intermediary is responsible for the performance of a function or functions (but not all functions) of the relevant intermediary under this Convention, either generally or in relation to intermediated securities, or securities accounts, of any category or description. 28 Via Panisperna, 00184 Roma
  16. 16. EU Commission Proposal for Harmonisation of Securities Law– Legal Certainty Group: 2008 Advice on Solutions to Legal Barriers related to Post-Trading within the EU • Called for EU-wide harmonisation– Endorsement by ECOFIN Council on 2 December 2008 : • “EU legislation is needed in this area providing for a more harmonised legal framework for intermediated securities and a better protection of investors’ rights enshrined in their securities.– EU Commission preparing draft Directive on legal certainty of securities holding and transactions that will deal with • Legal framework for holding and disposition of securities held in securities accounts; • Legal framework for the exercise of investors rights flowing from securities, in particular in cross-border situations; • Supervisory regime for safekeeping and administration of securities 28 Via Panisperna, 00184 Roma
  17. 17. Thank you for your attention! For more information, please visit our website www.unidroit.org 28 Via Panisperna, 00184 Roma

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