Overview

 

The UNIDROIT Legislative Guide on Intermediated Securities addresses important matters to be considered in the creation of an intermediated securities holding system or the evaluation of an existing system. The Guide summarises the key principles and rules from the UNIDROIT Convention on Substantive Rules for Intermediated Securities (the Geneva Securities Convention or the Convention) and offers recommendations and guidance on those principles and rules as well as related matters not addressed in the Convention.

 

As the Convention’s drafters adopted a core and functional harmonisation approach, the Convention provides harmonised rules regarding certain intermediated securities issues, but also leaves various issues to be defined and determined by other rules of law in force in a Contracting State. The Guide complements the Convention by addressing these issues and, like the Convention, seeks to improve the legal framework for holding and transfer of intermediated securities, in order to enhance the internal soundness of domestic financial markets and their cross-border compatibility and, as such, to promote sustainable capital formation. In particular, the Guide explains what is and what is not covered by the Convention and provides guidance for States to consider in creating an intermediated securities holding system or evaluating an existing one. The Guide thus makes clear that the Convention is capable of accommodating different domestic holding systems and rendering their interactions significantly less risky and more predictable.

 

The Guide further seeks to promote the creation of comprehensive and coherent sets of legal rules for intermediated securities in two ways. First, in complementing the Convention, itis hoped that the Guide will promote its adoption and implementation. Second, in summarising the Convention’s key principles and rules, it is hoped that, even where the Convention is not adopted, such principles and rules could be chosen and implemented in those systems. Either way, the end result would be enhanced legal certainty and economic efficiency with respect to the holding and transfer of intermediated securities, in both domestic and cross-border situations.

 

The Guide is structured in nine Parts. Part I provides an overview on securities, describing their origins and development and identifying five general models of intermediated securities holding systems. Part II describes in brief the Geneva Securities Convention, including its purpose to reduce legal uncertainty and risk, its core and functional harmonisation approach, and the important role of law outside the Convention. Parts III-VII identify legislative principles, summarise key principles and rules regarding holding and transfer of intermediated securities, and explain their interaction with law outside the Convention. These Parts include coverage of the rights of account holders and the duties and liabilities of intermediaries (Part III), the transfer of intermediated securities (Part IV), the integrity of the intermediated holding system (Part V), insolvency protection (Part VI), and special provisions in relation to collateral transactions (Part VII). Lastly, Parts VIII-IX also identify legislative principles and provide overviews on conflict of laws aspects (Part VIII) and on other instruments and regulations and the implementation of the Convention or its principles and rules in a domestic legal framework (Part IX). In addition, model examples of legislative or regulatory texts or related descriptions, as well as bibliographic references, are to be made available at the respective links on the right side of this page.

 

The UNIDROIT Legislative Guide on Intermediated Securities is available here.

 

 

 

Background

 

In 2001, the Governing Council approved and the General Assembly adopted the triennial Work Programme, including a multi-item project entitled “Transactions on Transnational and Connected Capital Markets”. Work on the project was conducted on an item-by-item basis and resulted in the adoption of (1) the UNIDROIT Convention on Substantive Rules for Intermediated Securities in October 2009 by the diplomatic Conference to adopt a Convention on Substantive Rules regarding Intermediated Securities; (2) the UNIDROIT Principles on the Operation of Close-Out Netting Provisions by the UNIDROIT Governing Council at its 92nd session in May 2013 (“UNIDROIT Netting Principles”); and (3) the UNIDROIT Legislative Guide on Intermediated Securities by the UNIDROIT Governing Council at its 96th session in May 2017. This page discusses the background and preparatory work on the UNIDROIT Legislative Guide on Intermediated Securities, while more information about the Geneva Securities Convention and the UNIDROIT Netting Principles are available via this link.

 

In view of the rapid progress made by the Committee of Governmental Experts negotiating the then draft Convention on Harmonised Rules regarding Intermediated Securities, the Governing Council recommended in 2005 that the General Assembly authorise, following indications of preferences by member States, work on the next item in the project, i.e. the preparation of principles and rules capable of enhancing trading in securities in emerging markets.  Upon adoption of the UNIDROIT Netting Principles at its 92nd session in May 2013, the Governing Council decided to elevate the priority given to the preparation of such principles and rules. This decision was approved by the General Assembly at its 72nd session in December 2013, which included preparation of the Legislative Guide on Principles and Rules capable of enhancing trading in securities in emerging markets in the Work Programme of the Organisation for the 2014-2016 triennium at this higher level of priority (UNIDROIT 2013 – A.G. (72) 4). Under the current Work Programme for the 2017-2019 triennum, this project enjoys high priority (UNIDROIT 2016 – A.G. (75) 3 corr.).

 

 

 

Development and documentation 

 

In addition to the Geneva Securities Convention, the diplomatic Conference to adopt a Convention on Substantive Rules regarding Intermediated Securities (Geneva, 5-9 October 2009) adopted a Resolution relating specifically to activities to support promotion of the entry into force and implementation of the Convention. To this effect UNIDROIT, in its capacity as Depositary of the Convention, was requested to make all appropriate efforts to organise activities such as meetings, conferences, and seminars with a view to promoting awareness and understanding of the Convention and assessing its continued effectiveness. 

 

The diplomatic Conference also established a Committee on Emerging Markets Issues, Follow-up and Implementation (the Committee) to assist the Secretariat in its task. The Committee is co-chaired by Brazil and China. The current members of the Committee are: Argentina, Cameroon, Chile, France, Greece, India, Japan, Nigeria, Republic of Korea, South Africa, Turkey, United States of America, and the European Community. The observers are: Indonesia, European Central Bank, European Issuers, Hague Conference on Private International Law and Trade Association for the Emerging Markets. Since the conclusion of the diplomatic Conference, the Committee has met four times. The first meeting was held at UNIDROIT’s seat in Rome (6-8 September 2010), the second in Rio de Janeiro (27-28 March 2012), and the third in Istanbul (11-13 November 2013), and the fourth in Beijing (29-30 March 2017).

 

Using the Committee’s guidance from those meetings, an informal group of experts assisted the Secretariat with the preparation and review of a draft Legislative Guide on principles and rules capable of enhancing trading in securities in emerging markets, which was provisionally re-entitled by that group the “UNIDROIT Legislative Guide on Intermediated Securities: Implementing the Principles and Rules of the Geneva Securities Convention”. That draft was circulated both within the Committee and to other organisations and interested stakeholders and was reviewed during the Committee’s fourth meeting, which was convened in Beijing, China on 29-30 March 2017. 

 

Following the Committee’s fourth meeting and in accordance with the Committee’s recommendation, the draft Legislative Guide was submitted to the UNIDROIT Governing Council for consideration and adoption at its 96th session (Rome, 10-12 May 2017). At that session, the Governing Council adopted the Legislative Guide and authorised the Secretariat to promote its dissemination and implementation.

 

The UNIDROIT Legislative Guide is available here. In addition, documentation for each of the Committee’s four meetings is below.

 

 

 

   

(1) 6-9 September 2010 (Rome):

 

The first two days consisted of a Colloquium on “The law of securities trading in emerging markets: lessons learned from the financial crisis and long-term trends”, with a view to identifying possible topics suitable for insertion in a future Legislative Guide on Principles and Rules capable of enhancing trading in securities in emerging markets. 25 speakers made presentations on a wide range of topics related to securities trading and the functioning of capital markets.

 

On the remaining days, the Committee met and considered a draft guidance document (draft Accession Kit, see UNIDROIT 2010 – S78B/CEM/1/Doc. 3) that was prepared by the UNIDROIT Secretariat as a first step toward the development of a Legislative Guide on Principles and Rules capable of enhancing trading in securities in emerging markets. It was intended to provide advice for countries that ratify the Geneva Securities Convention on how best to incorporate the Convention and integrate it into their domestic legal systems. The Committee decided to divide the document in two. The first part containing an explanatory memorandum for the assistance of States and Regional Economic Integration Organisations on the system of declarations under the Geneva Securities Convention ultimately became an UNIDROIT document in its capacity as Depositary of the Geneva Securities Convention (see UNIDROIT 2011 – DC11/DEP/Doc. 1 rev.). The second part containing references to sources of law outside the Convention was subsequently prepared and provided to the Committee in advance of its meeting in Rio de Janeiro and could serve as the basis for the future Legislative Guide (see UNIDROIT 2011 – S78B/CEM/2/Doc. 2).

 

Colloquium: Programme and presentations

 

Committee on Emerging Markets Issues, Follow-up and Implementation. First meeting, Rome, 6-9 September 2010. Colloquium "The law of securities trading in emerging markets: lessons learned from the financial crisis and long-term trends". Villa Aldobrandini, Via Panisperna 28, 00184 Rome, 6-7 September 2010. 

 

The integral versions of some of the presentations have been published in the Uniform Law Review, vol. 15 (2010) and vol. 16 (2011).

 

UNIDROIT 2010 – S78B/CEM/1/Doc. 4

Committee on Emerging Markets Issues, Follow-up and Implementation. First meeting, Rome, 6-9 September 2010. Report (prepared by the UNIDROIT Secretariat) 

 

UNIDROIT 2010 – S78B/CEM/1/Doc. 3

Committee on Emerging Markets Issues, Follow-up and Implementation. First meeting, Rome, 6-9 September 2010. Accession Kit to the UNIDROIT Convention on Substantive Rules for Intermediated Securities ("Geneva Securities Convention"). Information for Contracting States in respect of the Convention's declarations and references to sources of law outside the Convention. Draft prepared by the Secretariat 

 

UNIDROIT 2010 – S78B/CEM/1/Doc. 2 

Committee on Emerging Markets Issues, Follow-up and Implementation. First meeting, Rome, 6-9 September 2010. Proposal for an international instrument on the Netting of Financial Instruments - August 2010

  

UNIDROIT 2010 – S78B/CEM/1/Doc. 1

Committee on Emerging Markets Issues, Follow-up and Implementation. First meeting, Rome, 6-9 September 2010. Annotated agenda - June 2010 

   

 

 

 

(2) 27-28 March 2012 (Rio de Janeiro):

 

The first day was devoted to a Colloquium on financial markets law which considered the actions taken by emerging markets to create a favourable environment for trading in intermediated securities and discussed how emerging markets have reacted to the financial crisis and which means are to be adopted to increase legal security and investor protection.

 

On the second day, the Committee examined the reception given to the Geneva Securities Convention in various countries, particularly in emerging countries, was presented the Official Commentary on the Convention, and considered legislative measures to implement the Convention and incorporate it in domestic law, as well as concrete proposals for its promotion. It also considered future work by UNIDROIT in the area of financial markets law.

 

 

Colloquium: Programme and presentations

Committee on Emerging Markets Issues, Follow-up and Implementation. Second meeting – Rio de Janeiro, 27 and 28 March 2012. Colloquium " Promoting investor confidence and enhancing legal certainty for securities trading in emerging markets". Rio de Janeiro, 27 March 2012. 

 

UNIDROIT 2012 – S78B/CEM/2/Doc. 3 

Committee on Emerging Markets Issues, Follow-up and Implementation. Second meeting, Rio de Janeiro, 27-28 March 2012. Report (prepared by the UNIDROIT Secretariat)

  

UNIDROIT 2011 – S78B/CEM/2/Doc. 2 

Committee on Emerging Markets Issues, Follow-up and Implementation. Second meeting, Rio de Janeiro, 27-28 March 2012. Information for Contracting States in respect of the Convention’s references to sources of law outside the Convention – November 2011

  

UNIDROIT 2011 – S78B/CEM/2/Doc. 1

Committee on Emerging Markets Issues, Follow-up and Implementation. Second meeting, Rio de Janeiro, 27-28 March 2012. Annotated agenda – November 2011

  

 

 

 

(3) 11-13 November 2013 (Istanbul):

 

The first two days consisted of the Colloquium on financial markets law to consider actions taken by emerging markets to create a favourable environment for trading in intermediated securities, with particular emphasis on enhancing financial integrity under national law. The Colloquium focused particular attention on the disparities between national law and the Geneva Securities Convention, the need for national and cross-border insolvency rules, the potential effect of corporate governance systems on securities trading, and the role of specialised investment instruments. It also covered the impact of the UNIDROIT Netting Principles in reducing systemic and counter-party risk in emerging markets and the manner in which they may be incorporated into national law. 

 

On the third day, the Committee first welcomed the participation of Turkey as a member since May 2013, at the invitation of the other Committee members, and considered the follow-up and promotional measures undertaken by the Secretariat, as well as legislative measures undertaken by the States to implement the Convention in emerging markets. The Committee then focused its attention on the scope and structure of the Legislative Guide by discussing the Draft Annotated Outline presented by the Secretariat in cooperation with the informal working group established at by the Committee at its second meeting (see UNIDROIT 2013 - S78B/CEM/3/Doc. 2 ), as well as a narrower outline presented by a group of States (see Annexe 2, UNIDROIT 2014 – C.D. (93) 5 ). It was proposed that the Committee commence drafting of the Legislative Guide based on the structure and content of the narrower outline and such proposal was accepted by consensus by the Committee.

 

 

Colloquium: Programme and presentations 

Committee on Emerging Markets Issues, Follow-up and Implementation. Third meeting, Istanbul, 11-13 November 2013. Colloquium "Enhancing Financial Integrity in Emerging Markets: The Geneva Convention and the UNIDROIT Principles on Close-Out Netting under National Law". Istanbul, 11-12 November 2013. 

 

UNIDROIT 2014 – S78B/CEM/3/Doc. 3

Committee on emerging markets issues, follow-up and implementation. Third meeting, Istanbul, 11-13 November 2013. Report (prepared by the UNIDROIT Secretariat) 

 

UNIDROIT 2013 - S78B/CEM/3/Doc. 2 

Committee on Emerging Markets Issues, Follow-up and Implementation. Third meeting, Istanbul, 11-13 November 2013. Annotated Draft Outline: Legislative Guide on Principles and Rules capable of enhancing trading in securities in emerging markets - October 2013 

  

UNIDROIT 2013 – S78B/CEM/3/Doc. 1 

Committee on Emerging Markets Issues, Follow-up and Implementation. Third meeting, Istanbul, 11-13 November 2013. Annotated agenda - July 2013

 

 

 

(4) 29-30 March 2017 (Beijing):

 

The first day of the meeting took the form of an open Colloquium on Financial Markets Law. It considered UNIDROIT’s financial markets instruments and related efforts to enhance and ensure legal certainty in both current and future securities holding systems and included experts panels discussing, inter alia: intermediated securities holding and transfer in the Asia-Pacific region; recent developments with respect to insolvency law, regulation, and international development; technological advances, such as distributed ledger and blockchain technologies, and their possible application to securities holding and transfer; and ensuring legal certainty with respect to distributed ledger and blockchain technologies.

 

The second day of the meeting covered the other items on the Committee’s Annotated Agenda (UNIDROIT 2017 - S78B/CEM/4/Doc. 1). In particular, the Committee focused on the review of the draft Legislative Guide for Intermediated Securities (UNIDROIT 2017 - S78B/CEM/4/Doc. 2), as well as the model examples of legislative or regulatory texts or related descriptions which are continuing to be collected and are to be included on UNIDROIT’s future webpage for the Legislative Guide (UNIDROIT 2017 - S78B/CEM/4/Doc. 3). During its deliberations, the Committee agreed upon certain amendments and additions and ultimately recommended that the draft Legislative Guide, as revised, be submitted to the UNIDROIT Governing Council for consideration and adoption at its 96th session (10-12 May 2017).

 

Colloquium: black right 01Programme

Committee on Emerging Markets Issues, Follow-up and Implementation. Fourth meeting, Beijing, 29-30 March 2017. Colloquium on "Capital Markets and Intermediated Securities: Enhancing and Ensuring Legal Certainty in Both Current and Future Holding Systems". Beijing, 29 March 2017.

 

UNIDROIT 2017 – S78B/CEM/4/Doc. 1

Committee on Emerging Markets Issues, Follow-up and Implementation. Fourth meeting, Beijing, 29-30 March 2017. Draft Annotated Agenda.

 

UNIDROIT 2017 – S78B/CEM/4/Doc. 2

Committee on Emerging Markets Issues, Follow-up and Implementation. Fourth meeting, Beijing, 29-30 March 2017. Draft Legislative Guide on Intermediated Securities.

 

UNIDROIT 2017 – S78B/CEM/4/Doc. 3

Committee on Emerging Markets Issues, Follow-up and Implementation. Fourth meeting, Beijing, 29-30 March 2017. Possible examples and options, in particular legislative or regulatory texts or related descriptions for States to consider in connection with the indicated paragraphs of the Legislative Guide, which are continuing to be collected and are to be made available on Unidroit’s future webpage for the Legislative Guide.

 

UNIDROIT 2017 – S78B/CEM/4/Doc. 4

Committee on Emerging Markets Issues, Follow-up and Implementation. Fourth meeting, Beijing, 29-30 March 2017. Report (prepared by the UNIDROIT Secretariat).