A. INTRODUCTION
In 2001, the Governing Council approved and the General Assembly adopted the triennial Work Programme including a multi-item project “Transactions on Transnational and Connected Capital Markets”. In view of the rapid progress made by the Committee of governmental experts negotiating the draft Convention on Harmonised Rules regarding Intermediated Securities the Governing Council, in 2005, recommended that the General Assembly authorise, following indications of preferences by Member States Governments, work on the next item, i.e. the preparation of principles and rules capable of enhancing trading in securities on emerging markets.
B. OBJECTIVES AND POSSIBLE CONTENT
Both on the occasion of fact finding seminars, held in Asia and Latin America in the context of the work on intermediated securities, and in comments submitted to the Governing Council Member State Governments from those regions voiced the urgent need to have basic commercial law rules applicable to trading in securities developed in the context of a multilateral Organisation with special expertise such as UNIDROIT.
The Secretariat submitted the following list of problem areas which might merit further analysis for the Council’s consideration. The Council discussed the items and stressed the need to focus on transactional law. Further analysis will be conducted by the Secretariat in exchange with the special Advisory Committee on capital-markets related work, regulators and industry with a view to giving the future Study Group(s) a reasonably well defined mandate.
• Fungibility of securities and (degree of) dematerialisation: immobilised, fully dematerialised securities, substitutes.
• Transactional structure of bond issues: private-law restrictions on debt financing; direct placement by (specific types of) issuers; mandatory involvement of intermediaries; contractual and proprietary relationships between issuer, intermediaries/underwriters and investors (internal relationship between underwriters to the extent that local underwriters are involved and local law is governing that internal relationship and/or their rights and obligations vis-à-vis the issuer); standard contract terms and their – ex ante or ex post – scrutiny; potential conflicts between applicable company law and applicable contract law; legal or contractual community of bond holders.
• Transactional structure of share issues (IPOs) and in addition to problem areas common to bond issues: enabling or limiting rules of underlying company law; methods for determining initial share price (fixed, bookbuilding, auctions) and respective transactional law; differentiation private placement/public offering; allotment of shares, in particular equal treatment of investors/bidders; status and impact of codes of conduct for issuers and intermediaries; IPOs over the Internet, including conflict-of-laws issues; the issuer’s prospectus as the basic information provided in the event of a public offering, its content and liability of the issuer and intermediaries for inaccuracies.
• Organisational and transactional provisions to enhance liquidity on secondary markets, including role and legal position of intermediaries and central counter parties; conflict-of-laws rules regarding foreign market participants.
• General contract law or special regimes for trading in securities; impact of trade usages; impact of standard contract terms legislation; consumer/retail investor protection; special regimes for options, futures and other derivatives.
• Contractual and proprietary issues of clearing, settlement and custody as well as use of securities as collateral (to the extent not sufficiently addressed in the preliminary draft Convention on Intermediated Securities for the needs of any specific emerging market).
• Securities lending.
• Private law framework for disclosure, prevention of insider trading and other forms of market abuse and for the conduct of market participants.
Regarding the type of instrument envisaged, it is obvious that a binding instrument (convention) and even a model law is not only an unrealistic objective but also undesirable, especially from the point of view of the many emerging securities markets, their varied stage of evolution and their interest in building their individual competitiveness. On the other hand, the formulation of benchmark principles, developed in a legislative guide that focuses on the private law aspects would appear to be very challenging yet feasible. With respect to a number of issues such an instrument would provide relatively detailed guidance as to the available options for the transaction-related implementation of regulatory recommendations prepared by IOSCO and in other fora.
Given the considerable variety of types and degrees of evolution of emerging markets and their respective needs, work might usefully be organised in a decentralised fashion where UNIDROIT would assume the responsibilities of scientific preparation and co-ordination and where interested regional Organisations or member States would provide platforms for the work of Study Groups, etc. To the extent conflict-of-laws issues are to be addressed, co-operation with the Hague Conference on Private International Law would be desirable. To the extent issues of secured transactions in general become topical, close co-operation with UNCITRAL would be sought.