- •1. Interpretation
- •1. “Securities” (“value papers”)
- •2. Fungibility of securities
- •3. Nominee holder
- •2. Scope of the convention
- •Traceability
- •Upper tier attachment
- •3. Securities accounts and account holders’ rights
- •1. Nominee holder’s duties
- •2. Appropriation of securities
- •3. “Omnibus” account
- •Acquisition and disposition of securities held with an intermediary
- •1. Nature of book-entry
- •2. Book-entry approach
- •5. Protection from adverse claims
- •1. Intangible property
- •2. “Without will”
- •3. Notice of adverse claims
- •6. Collateral: enforcement and right of use
- •2. Use of collateral securities
- •3. Restriction on foreclosure on security
6. Collateral: enforcement and right of use
1. Creation of security12
The creation of security in Russia is formal – it needs a special book-entry and begins to exist from the moment of such entry. But particular regulation depends on who maintains the book – the registrar or the depositary. For the registrar it is provided that a special account for a collateral taker should be opened by the registrar (collateral taker account). Perfection of a right to collateral securities is produced on the basis of the special collateral instruction and relates to both the collateral taker’s and collateral provider’s account (sec. 5 Securities Commission’s Regulation 2002 № 13/pc). In accordance with sec. 13 of High Arbitrazh Court’s Letter 2002 № 67 “right of pledge in respect of securities arises only from the moment of its perfection in a securities account”.
By contrast, there is almost no regulation for pledge in the books maintained by the depository. The Securities Commission’s Regulation № 36 provides that “the depository must record a charge of securities on the depositary account of its client in the manner provided for by the depositary agreement”. High Arbitrazh Court held that the depositary had lawfully requested documents – a pledge instruction and a copy of the pledge agreement - because it was provided for by the depositary agreement and the collateral provider could not sue the depositary, because “activity of the depositary is not governmental” and there is no contract between them (sec. 12 Informational Letter 21.01.2002 № 67).
The extent of freedom of contract regarding the collateral of the securities held by the nominee holder is hard to assess, the regulatory environment is quite heavy and could be said that the nominee holder’s client cannot be less then it is under regulation, provided for register holder.
2. Use of collateral securities
Supposedly, under influence of art. 346 CC, which mention about “enjoy” of the pledge property, the Securities Commission took the regulatory acts, which clearly allow the collateral provider to “enjoy” rights, provided for by the securities (by contrast, the lease of securities is commonly considered as impossible, because art. 664 CC mentions only the “thing” as an object of that contract). In practice there is a lot of ambiguity how the collateral provider can technically exercise his rights provided for by securities, because of the lack of appropriate regulation in this respect.
The Draft under the phrase “use of collateral” also means the possibility of the collateral provider to dispose the collateral securities. Such possibility is not express verbis provided by the Russian legislature. By analogy art. 854 CC can be used, which provides that “withdrawal of monetary funds that are located on the account shall be allowed by a decision of a court and also in other cases established by statute or provided by the contract between the bank and the client”13. But the mechanism, provided for by art. 854 CC, is not the same as the one the Draft offers. In case of art. 854 CC there are two problems: (i) the agreement between the bank (the nominee holder) and the client could be changed by their will; and (ii) the right, which the collateral taker obtains in such a case, is unenforceable against the intermediary (the nominee holder) and third parties. These problems make the mechanism of art. 854 CC regarding collateral of securities hardly practical and efficient.