- •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
3. Restriction on foreclosure on security
Under the current law there are three different ways of realisation: the general one (sale by public auction under court supervision), which can be changed by an agreement (sale by public auction) and the special one (for broker in case of securities loan).
The last one is provided for by sec. 4 art. 3 the Securities Market Act (amended 2003). In that case collateral is only possible in respect of the “securities which belong to the client and/or are purchased by the broker for the client pursuant to the securities loan agreement”; besides, the securities should be liquid securities and quoted on the exchange (criteria for liquid securities, procedure and conditions of foreclosure on collateral securities shall be set out in regulatory acts). In the events defined by law, “broker can levy on the collateral securities secured a loan agreement with him in an out-of-court procedure by selling such securities on an exchange and/or in otherwise organised trading of securities”. Obviously, this special procedure corresponds to one that is provided by the Draft, but to fit it needs in several aspects to be extended.
To conclude, Russian law suffers from (i) lack of regulation for collateral of securities on account maintained by the nominee holder; (ii) different formalities at different tiers make considerable room for errors; (iii) contractual mechanisms without sufficient legal intervention could have only low efficiency.
1 Information relating the “nominee holder account” see paragraph 3.3.
2 The Arbitrazh Court of NCR has rich practice with art. 890 CC. At first, it follows the way provided by previous Civil Code of RSFSR (1964) and recognised the co-ownership of persons whose things were mixed with applying pro rata principle. But latter it changed its position and use the principle of chronological order.
3 Previous reduction of Securities Market Act 1996 provided that registered emissive securities could be certificate or uncertificated. In case of certificated registered securities rights in securities are transferred “from the moment of certificate delivery after appropriate book-entry”, but in case deposition – “from the moment of book-entry in securities account maintained by depository” (part 3 art. 29). Time showed that this regulation was very complex and problematic. Due to that people mostly relied on book entry it provoked many disputes and mistakes in the courts. For example, judgment of 21.07.2000 № A40-21958/00-100-220 of Moscow Arbitrazh Court was canceled because claimer was recognised as owner on the basis of the book-entry, but above that he had to prove the possession of the certificates.
4 Similar situation there is with government bonds, which are certificated, but their global certificate are subject for mandatory deposition (art. 4 of State and Municipal Securities Act 1998). Furthermore, when these bonds are in voluntary deposit the role of book entries is weak (it becomes to evidence rights, not to constitute them).
5 FAS of PR hold that legal nature of the “rights in promissory notes [uncertificated]”, being a kind of patrimonial rights, is different from monetary claim; and to depository relationships between bank and client the rules on cancellation of bank deposit could not applied (judgment 01.04.2003 № A 65-13856/2002-СG1-5).
6 Exception is bearer corporate bonds, concerning to which should be applied art. 302 CC, which stated that “money and also bearer securities may not be recovered bearer value papers from good faith acquirer”.
7 Judgment of FAC NWR of 11.06.2003 № A05-7962/02-389/17.
8 Judgment FAC NWR of 07.08.2003 № А56-32510/02.
9 For example, FAC UR of 02.04.2001 № Ф09-443/01-ГК (uncertificated securities are kind of securities, which by art. 128 CC called as thing, thus it could be applied the rule on vindication).
10 Judgment of FAS NWR of 18.02.2003 № А56-8121/01 (sale contract and instruction were forged and thus invalid; loosing of securities was without the will of owner and therefore the shares could be taken from bona fide acquirer).
11 Rahmilovitch V.A. O prave sobstvennosti na vesch, otchuyzhdennyy neypravomochennim lizom //Problemi sovremennogo grazhdanskogo prava. M., 2000, p. 135.
12 In legal literature it was an opinion that because of par. 6 sec. 2 art. 8 Law 39-FS (“operations between clients of the same nominee holder…”) the pledge of securities – as a kind of operation – is not subject for fixation (Makovskaya A.A. Zalog deneg i zcennih bumag. M., 2000, p. 106).
13 It was expressed the opinion in literature that disposition of money and securities through book entries has similarities (See: Efimova L.G. Bank sdelki, M., 2000, p.78).
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