Draft Directive on legal certainty of securities holding and dispositions - Main contents

Document date	06-04-2010
Publication date	08-04-2010
Reference	5075/1/10 REV 1 ADD 2
From	General Secretariat of the Council
To	Working Party on Civil Law Matters (General Questions)
External link	original PDF
Original document in PDF

COUNCIL OF PUBLIC Brussels, 6 April 2010

THE EUROPEAN UNION

5075/1/10 REV 1 ADD 2

LIMITE

JUSTCIV 8 AUDIO 10 COMPET 4 CONSOM 2 COUR 6 CULT 17 SURE 1 EF 1 ECOFIN 9 MI 13 PI 2 TELECOM 6 UD 72

INFORMATION NOTE

from : General Secretariat of the Council

to: Working Party on Civil Law Matters (General Questions)

No. prev. doc.: 6216/09 JUSTCIV 38 COMPET 71 CONSOM 26 SURE 2 EF 31 ECOFIN 109

PI 10

Subject : Draft Directive on legal certainty of securities holding and dispositions

I. DRAFT DIRECTIVE ON LEGAL CERTAINTY OF SECURITIES HOLDING

AND DISPOSITIONS

• 1. 

  In 2004, the Commission set out a roadmap for future action with a view to enhancing the

safety and efficiency of post-trading arrangements across Europe. It advocated, amongst

other proposals, pursuing work in the field of legal barriers to a safe and efficient posttrading

landscape. It mandated a group of legal experts, the Legal Certainty Group, to advise

the Commission on whether legislation in the field of securities holding and dispositions

should be improved, and if it should, how such improvement should be carried out.

5075/1/10 REV 1 ADD 2 FC/lg 1

• 2. 

  The Group presented its Advice to the Commission in August 2008. On the basis of this

  document and an open conference held on its outcome on 23 October 2008 in Brussels, the

  Commission services are preparing a directive on legal certainty of securities holding and

  dispositions.

  • 3. 

    In the current draft version which is being discussed, a chapter is dedicated to the

determination of the applicable law with respect to specific matters. 1 The main principles set

out are the following:

(a) Member States shall ensure that any question with respect to such matters arising in

relation to book-entry securities shall be governed by the law of the country where

the relevant securities account is maintained by the account provider. Where an

account provider has branches located in Member States different from the headquarter's

Member State, the account is maintained by the branch which handles the

relationship with the account holder in relation to the securities account, otherwise

by the headquarter.

(b) The reference to the law of the country is a reference to its domestic law,

disregarding any rule under which, in deciding the relevant question, reference

should be made to the law of another country. Furthermore, the applicable law is

determined regardless of the legal nature of the rights conferred upon the account

holder upon crediting of book-entry securities to his securities account.

1 These matters are:

(a) the legal nature of book-entry securities; (b) the legal nature and the requirements of an acquisition or disposition of book-entry securities as well as its effects between the parties and against third parties; (c) whether a disposition of book-entry securities extends to entitlements to dividends or other distributions, or redemption, sale or other proceeds; (d) the effectiveness of an acquisition or disposition and whether it can be invalidated, reversed or otherwise be undone; (e) whether a person's interest in book-entry securities extinguishes or has priority over another person's interest; (f) the duties, if any, of an account provider to a person other than the account holder who asserts in competition with the account holder or another person an interest in book-entry securities; (g) the requirements, if any, for the realisation of an interest in book-entry securities.

(c) A recital should be included drafted as follows:

"Since the conflict-of-laws rules contained in Directive 98/26/EC i on settlement finality and Directive 2002/47/EC i on financial collateral agreements are restricted in their personal and material scope and as the connecting factors used in both directives differ from each other, the question of a conflict-of-laws rule governing book-entry securities needs to be covered comprehensively. To this end, a single, uniform rule needs to be designed, encompassing the complete personal and material scope of the two aforementioned directives and the present directive. The connecting factor of the conflict-of-laws rule should be based on the factual criterion similar to the criterion used in the two directives, i.e. where a securities account is 'maintained'. However, more guidance is needed for proper interpretation of this criterion.. In this respect, regard has to be given to the reasonable perspective of the account holder, which expects that the law of the country is applicable where the branch is located by which it is serviced, taking into consideration through which branch the account was opened, which branch handles the commercial relationship with the account holder, and which branch administers payments or corporate actions relating to the securities credited to the securities account. However, the place of the location of supporting technology or of call or mailing centres shall be disregarded. In addition to additional clarification of the connecting factor, ex-ante legal certainty requires the account holder to expressly know which law governs its account. The account provider always knows where an account is maintained and serviced and shall communicate to the account holder the relevant location. However, this communication must not be able to alter the underlying, fact based analysis of where the account is actually maintained. The account provider shall be responsible for the correct fulfilment of this duty and the competent authority shall be in a position to intervene where the communication does not reflect the location where the account is actually serviced. There need to be a clarification so as to clearly include all securities booked to securities account, regardless the legal nature that national law attributes to them, in particular in cases where the legal nature of foreign securities booked to securities accounts is characterised as contractual."

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