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.
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.
• Nature and types of securities.
• 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.
Hypotheses regarding work process
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.
The UNIDROIT Convention on Substantive Rules for Intermediated Securities (to be known as the ‘Geneva Securities Convention’) was adopted in Geneva, Switzerland on 9 October 2009 by the diplomatic Conference to adopt a Convention on Substantive Rules regarding Intermediated Securities.
The Conference adopted a Resolution relating specifically to activities to support promotion of the entry into force and implementation of the Geneva Securities 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 established a Committee on Emerging Markets Issues, Follow-up and Implementation to assist the Secretariat in its task. This Committee met twice. For the first time in Rome from 6 to 9 September 2010 and for the second time in Rio de Janeiro on 27 and 28 March 2012 (see documentation below).
The Committee on Emerging Markets Issues, Follow-Up and Implementation is co-chaired by Brazil and China. The members are: Argentina, Cameroon, Chile, France, Greece, India, Japan, Nigeria, Republic of Korea, South Africa, 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.
On the occasion of the first meeting of the Committee, the Secretariat organised, on 6 and 7 September 2010, 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.
As a first step toward the development of a Legislative Guide on Principles and rules capable of enhancing trading in securities in emerging markets, the UNIDROIT Secretariat is preparing a guidance document intended to provide advice for countries that ratify the 2009 Geneva Securities Convention on how best to incorporate the Convention and integrate it into their domestic legal systems (“Accession Kit”). A draft was submitted to the Committee on Emerging Markets Issues, Follow-up and Implementation at its first session (UNIDROIT 2010 – S78B/CEM/1/Doc. 3) which decided to divide the document. The first part contains an explanatory memorandum for the assistance of States and Regional Economic Integration Organisations on the system of declarations under the Geneva Securities Convention. It became an Unidroit document in its capacity of Depositary of the Geneva Securities Convention (the Declarations Memorandum, Unidroit 2011 – DC11/DEP/Doc. 1)). The second part containing references to sources of law outside the Convention is still under discussion within the Committee as a basis for the prospective Legislative Guide.
The second meeting of the Committee on Emerging Markets Issues, Follow-Up and Implementation was held in Rio de Janeiro (Brazil) on 27 and 28 March 2012. The first day of the meeting 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 the investors’ protection. In the second day, Committee members and observers meeting examined the reception given to the 2009 Geneva Securities Convention in the various countries, in particular in emerging countries, were presented the Official Commentary on the 2009 Convention, considered legislative measures to implement the Convention and incorporate it in domestic law as well as concrete proposals for its promotion. It will also consider future work by Unidroit in the area of financial markets law.
- Second meeting of the Committee on Emerging Markets Issues, Follow-up and Implementation, Rio de Janeiro 27 and 28 March 2012
Colloquium: Programme and presentations
Committee on Emerging Markets Issues, Follow-up and Implementation. 2nd 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. Programme and presentations.
Unidroit 2012 – S78B/CEM/2/Doc. 3
Committee on emerging markets issues, follow-up and implementation. 2nd meeting, Rio de Janeiro, 27 and 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. 2nd meeting – Rio de Janeiro, 27 and 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. 2nd meeting – Rio de Janeiro, 27 and 28 March 2012. Annotated provisional agenda – November 2011
- First meeting of the Committee on Emerging Markets Issues, Follow-up and Implementation, Rome 6-9 September 2010
Colloquium: Programme and presentations
Committee on Emerging Markets Issues, Follow-up and Implementation. 1st meeting - Rome, 6-9 September 2010. Colloquium "The law of securities trading in emerging markets: lessons learned from the financial crisis and long-tem trends", Villa Aldobrandini, Via Panisperna 28, 00184 Rome, 6-7 September 2010. Programme and presentations.
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 to 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 to 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 to 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 to 9 September 2010. Annotated provisional agenda - June 2010