учебный год 2023 / Haentjens, Harmonisation Of Securities Law. Custody and Transfer of Securities in European Private Law

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terms of issuance that may declare otherwise, immobilised securities are eligible for delivery out of the system,43 whereas the delivery of dematerialised securities is impossible by nature.44 Moreover, as of 1 January 2008, the retrieval of bearer certificates in physical form out of the custody system will be prohibited by statute.45 Therefore, the decision of the legislature to regulate the custody of immobilised bearer securities and of dematerialised securities separately has been severely criticised.46

5.3.2 Securities accounts

Entries in securities accounts

Both securities immobilised under KB no. 62 and dematerialised securities may be held in book-entry custody. In such instance, entitlements to these securities are expressed by credit balances on securities accounts. Belgian law characterises a securities account as a rekening-courant (current account). A securities account credit balance represents all securities to which an accountholder is entitled47 and debits to the account are set off against credits.

However, only certain, i.e. fixed and permissible, claims or entitlements regarding fungible assets are eligible for set-off; Article 1291 BW. A securities account balance may therefore represent only certain entitlements to securities.48 Claims that are uncertain as to their object, as well as provisional or future claims, cannot be credited to a regular securities account, but are registered in the so-called différé. In an account-holder’s insolvency, the différé is available to his creditors.49 An account provider that has (remaining) claims against an insolvent accountholder is therefore allowed to set these claims off against all uncertain claims to securities which this accountholder might have. Such a set-off after the

43Cf. KB no. 62 Article 6(2).

44See SCHRANS & STEENNOT (2003), 287. For a concise overview of other, minor differences (e.g. regarding issuers, instruments and investors eligible for either category of securities), see TISON (1996), 261.

45Act of 14 December 2005, Article 4.

46E.g. TISON (1996), 260, SUNT (1996), 429 and SERVAES (2000), 519-520.

47Technically however, all securities of the same kind form separate pools, as a result of which as many pools exist as there are kinds of securities admitted to the system; e.g. SUNT (1996), 429, n.12.

48BODDAERT (2004), 212.

49KB no. 62 Article 11(1) for immobilised securities and the Act of 2 January 1991 Article 10(2) and Article 472(2) W. Venn. for dematerialised securities. Interestingly, the cited Articles of the KB no. 62 and the Act of 2 January 1991 restrict the différé to the (provisional) obligations resulting from the relationship between the accountholder and its (immediate) custodian, contrary to the W. Venn. which has a broader scope; KB no. 62 Article 11(3) and the Act of 2 January 1991 Article 10(3).

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commencement of insolvency proceedings clearly derogates from Article 1298 BW.50

Belgian law does not permit a securities account to indicate a negative balance, as a negative balance is considered to imply the unauthorised creation of securities. In a recent case tried by the Antwerp Court of Appeal, a participant of the CIK had erroneously transferred the same securities twice on behalf of one of its customers; first by physical delivery, and later by book-entry. As a result of the second transfer, the participant’s account with the CIK showed a negative balance. The CIK consequently penalised the participant for not replenishing the negative balance in due time. The court ruled however, that the imposed fine was unlawful since the CIK was not permitted to allow a negative balance under any circumstances.51

The Act of 2 August 2002 abolished KB no. 62 Article 2(2) and modified Articles 469(1) W. Venn. and the Act of 2 January 1991 Article 4(1). These provisions required intermediaries to separate their own assets from the assets they hold for their clients on the books of the CSD. The rationale behind the abolition of this rule was that the segregation could not be controlled or certified by the CSD and that any such rule could not be imposed on or enforced against possible foreign intermediaries maintaining securities accounts with a Belgian CSD.52 The obligation to separate one’s own assets from clients’ assets has now become a matter of regulatory law and is directed at Belgian intermediaries only.53

Ownership of book-entry securities

It is a settled view in Belgian legal doctrine that general private law rules on the possession of assets are not applicable to the ‘possession’ of a securities account or a credit balance on such an account,54 as only movable tangibles

50BODDAERT (2004), 213. On the other hand, insolvent accountholders are still prohibited from engaging in new securities transactions; Article 16 Loi sur les Faillites/Faillissementswet (Insolvency Code).

51Hof van Beroep te Antwerpen (Antwerp Court of Appeal) 21 November 2002, Forum Financier/Droit Bancaire et Financier 2003, 313. As a consequence, ‘short’ positions should be covered by securities lendings; see the comment on this case by R. Steennot and M. Tison:

Forum Financier/Droit Bancaire et Financier 2003, 316. It has been suggested on the other hand, that for administrative purposes, a negative balance in individual cases would be allowed; BODDAERT (2004), 122.

52Explanatory Memorandum to the draft Act of 2 August 2002, Doc 50 1842 and 1843, 116-

117.Cf. SCHRANS & STEENNOT (2003), 268 and BODDAERT (2004), 123.

53See the Act of 2 August 2002 Article 26(16).

54SCHRANS & STEENNOT (2003), 106-107. For the purpose of the protection of a bona fide acquirer however, KB no. 62 Article 19, Article 475bis W. Venn. and the Act of 2 January 1991 Article 13 bis (all introduced by the Act of 14 December 2005), apply Articles 2279 and 2280 to the accountholder of immobilised and dematerialised securities respectively; see Explanatory Memorandum to the draft Act of 14 December 2005, Doc 51 1974, 24 and infra.

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can be ‘possessed’ in the sense of, e.g., Article 2279 BW.55 Moreover, the distinction between the rights of an accountholder against his account provider and the rights that his securities account refers to, i.e. the security itself or the rights against the issuer, is generally acknowledged in Belgian legal literature;56 the rights against the issuer, i.e. the security itself, are classified as an uncorporeal movable right, whereas the certificate or the securities account is considered a material or immaterial instrumentum (bearer), respectively, of those rights. Thus, although a credit entry in a securities account provides the accountholder with proof of ownership of the underlying securities and renders the accountholder’s entitlement to the underlying securities opposable against third parties, an entry in a securities account is not constitutive for the creation of an investor’s right against the issuer, i.e. it is not constitutive for the existence of the security itself.

Moreover, a (credit entry in a) securities account does not represent unchallengeable evidence of the accountholder’s title to the underlying securities.57 Regarding securities accounts that refer to immobilised securities under KB no. 62, (the possession of) the bearer certificate(s) provide conclusive evidence of title. Regarding dematerialised securities, title to these securities is determined in the last resort by the issue itself,58 although only the securities accounts can provide any proof of ownership and only crediting these accounts can render the investors’ rights opposable against third parties. Furthermore, dematerialised securities can be transferred through book-entries only59 and securities accounts are thus a necessary element for all transfers of dematerialised securities to be effected. In other words: although it may be possible for an investor to have certain rights against an issuer without these rights being expressed by a securities account, this investor’s power regarding his rights against the issuer is extremely limited.

Yet the possibility of errors and fraud by operators of a settlement system can account for the fact that securities accounts provide (mere) challengeable proof of ownership. It has also been argued60 that as the KB no. 62 system was merely intended to supplement existing systems of custody and to facilitate securities transactions, its technical consequences, i.e. securities accounts, should not be attributed stronger legal force than the original systems attributed to the possession of certificates and to issuer registration, which also provided mere challengeable proof of ownership.

55See, e.g., VAN NESTE (1990), 454. But see the Act of 14 December 2005, discussed infra.

56E.g. SCHRANS & STEENNOT (2003), 109 - 112. See also explicitly the Explanatory Memorandum to the draft Act of 2 August 2002, Doc 50 1842 and 1843, 116.

57See infra and cf. KB no. 62 Article 7(2).

58SCHRANS & STEENNOT (2003), 107. But cf. TISON (1996), 230.

59See Article 468(2) W. Venn. and the Act of 2 January 1991 Article 6(1).

60BODDAERT (2004), 107.

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Challenges to the ownership of book-entry securities

As a matter of private law, a verus dominus (rightful owner) may always successfully revendicate his assets from other parties, but in the cases of theft or loss, he enjoys this right only during the three years that follow the event. Moreover, if stolen or lost assets are sold on a market, the acquirer in good faith is protected against proprietary challenges and a revendication claim will fail; Articles 2279(2) and 2280 BW. Although it is doctrinally questionable whether these rules apply to securities accountholders, the Act of 14 December 2005 expressly states so.61

However, at first sight, the position of an entitlement holder who has been involuntarily dispossessed of his securities seems promising. In the case of a mistake made by the accountholder’s intermediary, the accountholder may (contractually) reclaim his assets under Article 1376 BW, provided the latter still holds the assets.62 If the assets have been transferred to a third party transferee, however, it is unlikely that a (proprietary) claim of revendication would succeed, even before the enactment of the Act of 14 December 2005 was passed.

First, as a practical matter, a claim of revendication against a third party acquirer suggests that the verus dominus has been able to track down the acquirer. In the context of modern anonymised stock-markets, this is highly unlikely. Second, as a general rule of private law, assets must be sufficiently individualised to be susceptible to any proprietary claim.63 Consequently, a claim of revendication can only succeed if the securities concerned have not (yet) been commingled with other securities in the third party acquirer’s account.64 Third, it has been argued that all proprietary claims should have a tangible object and that the uncorporeal character of an accountholder’s entitlement would thus prevent successful revendication. Recent literature indicates otherwise however; the doctrine now generally accepts that proprietary claims have intangibles as an object.65 Fourth, a revendication challenge would fail if Article 2279(1) BW would be applied. Under this rule, all possessors in good faith are deemed to be owners and good faith acquirers are thus protected against competing property claims. Although the provision originally applied to the possessors of movable tangibles only,66 the Act of 14 December 2005 extended its scope so that it now also applies to bona fide holders of entitlements to immobilised and dematerialised securities.

61By introducing KB no. 62 Article 19, Article 475bis W. Venn. and the Act of 2 January 1991 Article 13 bis; Act of 14 December 2005, Articles 21, 34 and 36 respectively.

62Moreover, the intermediary may be liable to a criminal charge; BODDAERT (2004), 109.

63SAGAERT (2003), 380-381.

64BODDAERT (2004), 111 and SUNT (1996), 457, n.153.

65BODDAERT (2004), 109, with reference to recent French case law.

66See, e.g., VAN NESTE (1990), 454.

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However, before this Act was passed, accountholders were thus liable to revendication claims by dispossessed veri domini, provided these accountholders were traced as third party acquirers and the securities concerned had not been commingled with other securities of the same kind in the acquirer’s account.67 This situation had been criticised on grounds of legal certainty and the prevention of systemic risk.68 The Belgian legislator had therefore granted the accountholder protection against competing claims in three specific situations. First, stolen or lost certificates must be filed; once filed, these securities cannot be acquired in good faith. Conversely, all acquirers are protected against competing claims that concern stolen or lost, but not filed certificates.69 Second, if an accountholder as a pledgee has received securities in good faith and these securities have been credited to a pledge account in the pledgee’s name, the pledgee is protected against competing claims.70 Third, a good faith acquirer of government bonds was protected against competing claims if these bonds had been transferred by participants who were not allowed to engage in transactions with these securities as they belonged to their clients.71 In the latter two instances however, the protection was not absolute.72

5.3.3 KB no. 62 custody

Custody structure

As stated previously, KB no. 62 of 10 November 1967 originally created a system of custody in which toondereffecten (bearer securities) are rendered fungible; Article 6. The system is based on the accountholder’s (implicit) consent to that effect and is therefore not a mandatory one.73 As its most important accomplishments, it has enabled the transfer of securities by bookentry with proprietary effect and has resulted in the immobilisation of bearer certificates.74

Although KB no. 62 creates a typical pyramid-shaped structure of custody, it allows for multiple CSDs and for the possibility of certificates to be immobilised only in the vaults of a participant. To these securities, KB no.

67TISON (1996), 250-251 and 260.

68TISON (1996), 250-251 and 260 and BODDAERT (2004), 112.

69Act of 24 July 1921 and KB no. 62 Articles 9 and 10. See infra, s. 2.3.3.

70Act of 2 January 1991 Article 7(3) and Article 470(2) W. Venn. for dematerialised securities, KB no. 62 Article 7(1)(2) for immobilised securities.

71Act of 2 January 1991 Article 5.

72See infra, ss. 2.5.3 and 2.4.3, respectively.

73In contrast to the French system; see Ch. 6.1.3.

74Cf. BODDAERT (2004), 84.

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62 nonetheless applies; Article 17.75 KB no. 62 also allows CSD and intermediaries to hold securities in sub-custody, either physically or by book-entry; Article 4. Furthermore, although the KB no. 62 seems to assume a 3-tier holding structure, with a CSD and one level of intermediaries interposed between CSD and (ultimate) investors, it also caters for a longer chain of custody with multiple levels of intermediaries. In such a situation also, the ultimate accountholder enjoys proprietary protection in the case of his immediate intermediary’s insolvency.76

The anonymity of investors to the CSD is considered to be an important feature of the system.77 Therefore, accountholders can, as a rule, only enforce their rights against their immediate intermediary; Article 12(1), concerning claims of participants against the CSD, and Article 13(1), concerning claims of investors against a participant. But the same Articles list several exceptions to this rule. First, a claim of revendication may be enforced against upper-tier intermediaries in the case of the insolvency of an accountholder’s immediate intermediary,78 and second, investors may enforce their corporate rights (such as voting rights) directly against the issuer.

Securities eligible79

Practically, only Belgian bearer securities were originally eligible for admittance to the KB no. 62 system of custody.80 KB no. 62 Article 2 refers to the Act of 2 August 2002 Article 2(1) to indicate which categories of securities are eligible, and although that provision refers to almost all categories of financial instruments,81 Article 2 excludes Belgian dematerialised securities as subject to the Act of 2 January 1991, the Act of 22 July 1991 and the W. Venn. But as many legal authors stressed the similarity between the legal regimes regarding immobilised and dematerialised securities, separate legislation for Belgian dematerialised securities was considered redundant.82 Since the Act of 14 December 2005, however, KB no. 62 also applies to foreign dematerialised securities and

75Such a situation could arise if the securities (although being eligible for KB no. 62 custody) have been refused for custody by the CSD or if the depositor has not agreed to the securities being held by the CSD. As a result of these securities being held by a participant, book-entry transfers are possible only between the lower-tier accountholders; BODDAERT (2004), 242-

76See infra, s. 2.6.3.

77See SCHRANS & STEENNOT (2003), 263.

78See also infra, s. 2.3.7.

79The articles of association of the CSDs may determine which institutions are eligible for participation. For a discussion on the institutions eligible for participation in the CIK system, see CERFONTAINE (2004), 508.

80Cf. SUNT (1996), 431.

81For an extensive discussion on all the financial instruments listed in the Act of 2 August 2002, see BODDAERT (2004), 92.

82SCHRANS & STEENNOT (2003), 260.

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foreign securities generally.83 Moreover, the said act extends the scope of the KB no. 62 to dematerialised securities that are not subject to the acts mentioned above.84

Since securities are only eligible for the application of KB no. 62 if they can be treated as fungibles, the KB only applies to financially and economically identical securities, i.e. securities of the same category, term, issuer and conferring the same rights.85 Consequently, it was questioned whether the KB would apply to effecten op naam (registered securities), as those securities must be registered in the ultimate investor’s name in the issuer’s register (Belgian law does not recognise beneficial ownership86) and were therefore considered by some not to be fungible by nature. But the Act of 14 December 2005 resolved the controversy as the KB no. 62 now explicitly applies to registered securities also.

Furthermore, securities must be freely transferable by book-entry in order to be eligible. As a consequence, certain derivatives are not eligible if they represent a non-transferable contractual relationship between an investor and an issuer.87 Securities of which the transfer is restricted by the issuer’s articles of association are not eligible for the same reason.

Deposit

As stated previously, KB no. 62 only applies if the accountholder/depositor has agreed to his securities being treated as fungibles. Such consent may have been given implicitly. The Antwerp Court of Appeal has even held that if securities are transferred to a CSD within the KB no. 62 system of custody, the KB applies automatically. The Court ruled that in such instance, no investor must be denied the proprietary protection which the KB provides.88 This decision was based on KB no. 62 Article 4 (now Article 6), which declares that all securities that have been deposited with the CSD are fungible.

83Originally, foreign registered securities had to be admitted to the KB no. 62 system in the following way. Once transferred to a Belgian CSD or other Belgian nominee, the latter issued corresponding bearer certificates called Continental Depository Receipts or International Depositary Receipts, which were subsequently deposited into the KB no. 62 system; SUNT (1996), 435-436 and BODDAERT (2004), 96. Belgian registered securities cannot be swapped by the same technique; Articles 242(1)(7) and 503(1)(6) W. Venn. Cf. SUNT (1996), 454.

84See Explanatory Memorandum to the draft Act of 14 December 2005, Doc 51 1974, 23-24.

85SCHRANS & STEENNOT (2003), 269; BODDAERT (2004), 95 and 138 and SUNT (1996), 430.

86SUNT (1996), 432. Moreover, it is forbidden for non-owners to enjoy corporate rights attached to securities; Articles 349, 389 and 651 W. Venn.; BODDAERT (2004), 97.

87Derivatives may, however, be credited to securities accounts; SCHRANS & STEENNOT (2003), 255.

88Hof van Beroep te Antwerpen, 20 August 1990, T.R.V. 1990, 542.

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The current Article 5 explicitly states that the fungible character of deposited securities does not entail any limitation on the depositor’s original rights. Where a deposit of fungibles causes the depositor to lose his original right of ownership,89 KB no. 62 grants a depositor of fungible securities a right of co-ownership instead.90 Thus, although the delivery of certificates to a custodian classifies as traditio,91 its consequence is a legal ‘conversion’ of a right of ownership into a right of co-ownership that concerns the entire pool of fungible securities which his custodian(s) may hold.92

In order to enhance legal certainty as to the circulation of bearer certificates, the Act of 24 July 1921 protected possessors of bearer securities against competing claims.93 Pursuant to this Act, an owner whose bearer certificates have been lost, stolen, or who has otherwise been involuntarily dispossessed, must make the dispossession public by filing the securities in question. After filing (called verzet), no subsequent acquirer of these securities can claim to have acquired them in good faith.94 Conversely, all bona fide transferees/possessors of bearer securities that have not been filed are protected against competing claims.95

KB no. 62 Articles 9 and 10 apply the verzet procedure to the deposit of fungible securities: when accepting bearer certificates for deposit, the CSD and its participants must check the verzet register in order to be considered a good faith depositee/acquirer; Article 9(1).96 Further, all filing after deposit is without legal consequence; Article 9(2). Moreover, if no dispossession has been filed, a custodian is protected against all competing claims; Article 10. This provision clearly derogates from Article 2279 BW.97 By applying the verzet procedure to the deposit of securities, Articles 9 and 10 together show that the deposit of securities into the KB no. 62 system is a hybrid figure that combines elements of transfer of ownership with deposit as commonly understood in general private law.

89See supra, s. 2.3.1.

90As explicitly stated by the Hof van Beroep te Antwerpen, 20 August 1990, T.R.V. 1990,

91SCHRANS & STEENNOT (2003), 260.

92BODDAERT (2004), 103 and SCHRANS & STEENNOT (2003), 272. On the nature of this coownership right, see infra, s. 2.3.6.

93See extensively VAN NESTE (1990), 483 et seq.

94Cf. BODDAERT (2004), 195.

95Since 14 December 2006, accountholders entitled to KB no. 62 securities are similarly protected under Article 2279; see supra, s. 5.3.2.

96When failing to do so, the custodian concerned is liable to the person who filed the dispossession pursuant to Articles 1382 et seq. BW.

97See also BODDAERT (2004), 205.

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5.3.4 Dematerialised securities

It is for an issuer to decide whether he will issue securities in dematerialised or in a traditional registered or bearer form,98 provided the category of securities in question is eligible for dematerialisation.99 Once issued in a dematerialised form, government bonds and certain types of corporate debt instruments are held in a pyramid-shaped custody structure, with the Banque Nationale de Belgique/Nationale Bank van België (Central Bank of Belgium, ‘NBB’) serving as the CSD.100 For all other dematerialised corporate bonds and shares, the Belgian government has designated the CIK, now Euroclear Belgium, as the CSD.101

Unlike the participants in the KB no. 62 system, who are admitted to participation according to the rules of the CSD concerned,102 participants that administrate dematerialised securities accounts have to be designated as such by the government; Act of 2 January 1991 Article 3 and Article 468(3) W. Venn. By KB of 12 January 2006, the government has fairly liberally designated certain categories of institutions that may maintain securities accounts, including Belgian credit institutions, Belgian corporations, Belgian CSDs, Belgian branches of certain foreign credit institutions and the NBB.103

Also contrary to the KB no. 62 system, the total number of dematerialised securities of a certain issue must be registered in the issuer’s register of effecten op naam (registered securities) in the CSD’s name; Article 468(4) W. Venn. That registration represents the relationship between the issuer and the chain of intermediaries and guarantees the anonymity of the beneficial owners/ultimate investors. But it has been argued that it does not provide accountholders with any proof of ownership and merely involves an administrative registration.104 Moreover, some have argued that it may cause unnecessary confusion with the category of effecten op naam and create the impression of a trust construction, which is unknown in Belgian law.105

98SUNT (1996), 449.

99See supra, s. 2.2.

100KB of 12 January 2006 Article 6. Being both CSD and Central Bank, the NBB can provide in-house Delivery Versus Payment (‘DVP’) settlement on the top-tier level; SUNT (1996), 444.

101See Article 468(3) W. Venn. and KB of 12 January 2006 Article 6.

102KB no. 62 Article 1(2).

103Article 1(1).

104SCHRANS & STEENNOT (2003), 291; TISON (1996), 238.

105SUNT (1996), 450-451.

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5.3.5Accountholder – intermediary relationship

In Belgian legal literature, the classification of the accountholder – intermediary relationship has been a matter of considerable debate106 (as has been the intermediary – sub-custodian or CSD relationship107). Most authors characterise this relationship principally as a contract of bewaargeving (depositum regulare), with an additional contract of lastgeving (mandate).108

The rules that regulate bewaargeving have been codified in Articles 19151948 BW. Of these provisions, Articles 1930 and 1944 are especially appropriate in the context of securities custody. The former Article forbids custodians to dispose of the deposited assets without the depositor’s explicit or implicit consent, while the latter provision imposes upon the custodian the obligation to return the deposited assets at the depositor’s request under all circumstances. The obligation to return the deposited assets in due time is considered to include the obligation of safekeeping as far as the deposited assets are concerned. But these last two obligations differ in one fundamental aspect. The obligation to return the assets must be observed under all circumstances and even force majeure is sometimes not accepted as a ground for justification, should the custodian not comply.109 The obligation of safekeeping on the other hand, is (merely) an obligation that should be performed to the best of the intermediary’s abilities.110

General rules of private law thus regulate the accountholder – intermediary relationship, but specific legislation does derogate from these rules.111 One of the most important derogating provisions in this regard is KB no. 62 Article 6(2), which states that a custodian (or sub-custodian or CSD) is allowed to return equivalent, but nonetheless different securities than originally deposited. This provision explicitly derogates from Articles 1915 and 1932(1) BW that require deposited assets to be returned in specie. Other Civil Code provisions also clearly do not apply to the custody of book-entry securities. Article 1918 BW for instance, requires that deposited assets are movable tangibles and that, as a consequence, any deposit should take place by the physical delivery (traditio) of the assets to the custodian. Not only does this obviously not accord with the custody and ‘deposit’ of

106The service of securities custody offered by financial intermediaries on the other hand, is plainly statutorily qualified as an ‘auxiliary service’; Act of 6 April 1995 Article 46(2)(1).

107Cf. SCHRANS & STEENNOT (2003), 265.

108See, e.g. FREDERICQ (1952), 371; DU LAING (2001), 335 and 355 and CERFONTAINE (2004),

478and 480 et seq. Contra SAGAERT (2003), 400 et seq.

109Article 1929 BW.

110See Article 1927 BW. Cf. CERFONTAINE (2004), 492. But the standard of due care is heightened if the custodian has solicited its clients and demands payment for its services; Article 1928(1) and (2). Moreover, it is a matter of debate whether it includes an obligation to preserve the securities’ value; DU LAING (2001), 341-343.

111See explicitly the Hof van Beroep te Antwerpen (Antwerp Court of Appeal) 20 August 1990, T.R.V. 1990, 540.

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