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

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Sections 4 and 5 of this chapter, the transfer of securities by book-entry, and the creation and enforcement of security interests in securities will subsequently be discussed. Section 6 will deal with Dutch private international law concerning securities custody and transfer. The chapter will conclude with answers to the questions posed in Chapter 1.2.2 and a coherence analysis.

7.2 CATEGORIES OF SECURITIES

Other than between derivatives and primary products,22 Dutch law distinguishes between bearer securities (effecten aan toonder) and registered securities (effecten op naam).23 The distinctive factor in the latter distinction is the form of investor interests; investor interests in bearer securities must be expressed in a certificate, as the certificates themselves constitute investor interests.24 Investor interests in registered securities on the other hand, need not be expressed in a physical certificate, and should such a certificate exist, it merely serves as an evidentiary document. Although the issuer’s articles of association determine whether registered shares may be issued in a physical form, the issuance of shares in a private company with limited liability (Besloten Vennootschap) in a physical form is prohibited by law.25

Bearer securities exist in different forms.26 First, in its most classical form, as certificates that represent a single bond or share (K-stukken or K- certificates, K stands for classic). These certificates, however, have become rare due to immobilisation and dematerialisation. Second, they exist as certificates that are deposited with the Centrum voor Fondsenadministratie (Centre for the administration of securities, ‘CF’). The CF receives interests and dividends paid by issuing companies, and distributes these amounts to its participants, which further distribute to the investors. Finally, bearer securities exist as globals, which represent an entire issue in one single certificate.27 Under Dutch law, both global shares and global bonds are

22If the value of a financial instrument does not derive from fluctuations in other financial instruments’ value, that instrument is considered a primary product; RANK in EISMA ET AL. (2002), 26.

23Order securities also exist, but are rare; RANK in EISMA ET AL. (2002), 26.

24VERJANS (2002), 468 and VAN PAPPELENDAM-HEMMEN (2000), 376 however, argue that identifying the investors by the issuer determines the distinction. But that position does not seem to be in accordance with current law; see, e.g., VAN DEN HOEK’s reaction to VERJANS’ publication.

25Arts. 2:175 and 2:194 BW.

26See RANK in EISMA ET AL. (2003), at 45.

27When separate from the global, smaller denominated securities may also be issued, the global is called a jumbo certificate; UNIKEN VENEMA (2003), 25.

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issued, and these certificates are almost invariably held by either the European ICSDs Euroclear and Cedel, or Euroclear Netherlands.28

With respect to the eligibility of securities for admittance to the Wge custody system, art. 1 Wge refers to the CSD to determine which securities are eligible. Theoretically, all categories of securities are thus eligible, but in practice the Wge does not cater for the custody of derivatives, and Euroclear Netherlands admits only securities that are fungible and freely tradable.29 Since the 2000 modification of the Wge, both registered and bearer securities are eligible for admittance to the Wge system. In addition, the 2000 modification of the Wge made globals eligible for admittance to the Wge system, and, as a measure to encourage immobilisation, it introduced art. 36(4) Wge, which provides that the CSD may replace K-stukken with globals.

7.3 CUSTODY OF BOOK-ENTRY SECURITIES

7.3.1 Three types of custody

As the Wge did not abolish any of the existing types of securities custody, three basic legal types of intermediated securities custody can currently be discerned.30 First, when securities are held on an individualised basis, i.e. when custodians attribute individual securities numbers to individual investors, investors preserve their ownership rights, but no transfer by bookentry is possible between clients of different custodians. This type of custody will therefore not be further discussed. Second, when securities are held in pools on a fungible basis, investors lose their ownership rights and are left with a mere contractual claim against their custodian. That claim includes the delivery of the same quality and quantity of securities deposited. Third, when the Wge applies to the securities and intermediary concerned, securities are also held on a fungible basis, but investors’ property rights are protected by a combination of both contractual and proprietary rights. In the following sections, most attention will be paid to the last form of custody.

28See GRAAF (1991), KLIK & KUIPERS (1992), BOELE (1997), 15 and 18 and BLOM (1998),

29See ZEBREGS (2005), 199-203. The present author has been advised, however, that the government is currently considering making derivatives and other financial products eligible for admittance; HAENTJENS (forthcoming, 2007), comm. at art. 1.

30Direct holding arrangements, including those of mutual funds, will not be discussed. Cf. DE JONG (1998), 53.

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7.3.2 Custody with loss of ownership

The fact that commingling makes it impossible to attribute (rights in) specific assets to specific entitlement holders has as a consequence that investors lose their ownership rights in securities when securities are held on a fungible basis, rather than with individualised registration of securities numbers. The Hoge Raad (Supreme Court, ‘HR’) determined that as early as in 1934,31 and in the Teixeira de Mattos Bank case, it was affirmed that investors cannot enforce any proprietary right in their custodian’s bankruptcy, when their securities are commingled.32

Yet under several custody constructions still employed today, securities are held on a fungible basis, resulting in investors’ loss of their ownership rights, especially when these securities are not eligible for custody in the Wge system.33 First, investors still may chose to have their securities held on a non-individualised basis. But, as the Teixeira de Mattos case showed, those investors are subject to a substantial insolvency risk, and this construction is therefore only very infrequently applied to bearer and registered securities. For derivatives, however, it is the most common form of custody.34

Second, securities can be held in the VABEF system mentioned above, and ownership of securities is then transferred to a depository, a special purpose vehicle that is separated from the institution with which investors hold their securities accounts. The insolvency risk of that vehicle is minimised, as its articles of association exclude any form of commercial activity, while the account provider is liable for its administration. Moreover, these depositories are wholly owned by the Administratiekantoor VABEF, a non-commercial

3120 December 1934, NJ 1935, 708. Loss of property rights due to commingling is now codified in art. 5:15 in conjunction with art. 5:14 BW. These articles provide that either the owner of the larger part of the commingled pool has to be considered as the owner of the whole pool, or all owners have to be considered as co-owners. But these provisions only deal with liquids and gasses on the one hand, and assets that can be determined only by weight, size or number (e.g. grain, coffee or sand) on the other (all tangible movables). Commingling due to the impossibility of attribution, such as in the instance of money notes or bearer securities, is distinguished from those instances. As to the latter type of commingling, prior owners de facto lose their property rights because of the rules of evidence; according to art. 3:109 BW in conjunction with art. 3:119, a custodian of a commingled pool is deemed to be entitled to the securities in its custody. See ASSER-VAN DAM-MIJNSSEN-VAN VELTEN 3-II (2002), nos. 71 and 72, ASSER-MIJNSSEN-DE HAAN 3-I (2001), no. 128 and WICHERS (2002),

150et seq.

32HR 12 January 1968, NJ 1968, 274. In this case, the Hoge Raad held that 2 clients, who tried to enforce their property rights against the bank’s bankruptcy administrator concerning 4

(!) securities held by the bank, could not succeed, because they could not sufficiently prove that they had given the securities into the bank’s custody or that the bank was a mere detentor of the securities. Cf. Rechtbank Amsterdam (Amsterdam District Court), 18 April 1991, NJ 1992, 104.

33See RANK (1997), 18.

34RANK (1997), at 19.

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entity the sole purpose of which is holding the shares in the custody vehicles and the supervision of their functioning.35 As a more recent version of this construction, VABEF II has been introduced in 1993 and 1994, and is currently mainly used for foreign securities held outside the Netherlands.36

Third, when registered securities were not yet eligible for admission to the Wge system, the Nederlands Interprofessioneel EffectenCentrum BV

(‘NIEC’) acted as CSD for that category of securities. Registered securities were then registered in NIEC’s name on the issuer’s register, but seem also to have been registered directly in investors’ names, which thus involved a direct holding system. 37 Yet in both instances, NIEC maintained the issuer’s register and performed the function of registrar.38 Fourth, it has been argued that when globals that are not eligible for admission to the Wge system are held by a financial intermediary, investors cannot obtain a proprietary interest and have a mere contractual claim against their account provider, but, as will be shown below, that position is contested.39

Issues of classification

Although these types of custody are used on a relatively large scale, many legal aspects, and especially their private law classifications, are unclear and doctrinally contested. First, the classification of the act of deposit has been subject to debate, as bewaargeving (depositum regulare), requires a custodian to be able to deliver the assets deposited in specie upon the depositor’s request, which is obviously impossible when fungible securities are held as pooled accounts.40 But a deposit of securities with an intermediary is also not classified as a transfer of ownership. MIJNSSEN, for instance, showed that although a depositor loses his ownership rights the moment his securities commingle with other securities of the same kind, no transfer can be construed, because constitutive elements for the transfer of ownership are absent, most notably the depositor’s intent to transfer.41 As a solution, especially in the case of registered securities that are registered in the intermediary’s name, a transfer of beneficial ownership to the

35See, e.g., RANK (1996), 327-328.

36See MEIJER (1974), and, extensively, RANK (1996), RANK ET AL. (1997) and RANK (1999), 85-86.

37Art. 23 NIEC Regulations. See LE RÛTTE (1992) and LE RÛTTE in RANK ET AL. (1997), 133. See also UMBGROVE (1991), 18, BLOM (1998), 195, RANK (1999), 86 and UNIKEN VENEMA (2003), 180.

38NIEC also offers the possibility of custody with administration of securities numbers (art.

16NIEC Regulations).

39This debate will be commented upon later on in this section.

40Art. 7:600 et seq. BW.

41MIJNSSEN (1975), 200. Although MIJNSSEN referred to general rules of private law that have been changed in 1992, his argument is still valid in this specific instance.

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intermediary could be construed, but under Dutch general private law, such a transfer is forbidden.42

Second, an accountholder’s contractual claim against his account provider refers primarily to his right to the delivery of the same quantity and quality of securities as deposited, and to the proper performance by the account provider of his duties as a custodian.43 But the private law classification of these rights is not unequivocal, since, for the reasons mentioned above, the accountholder – intermediary relationship is not governed by the provisions of art. 7:600 et seq. BW on bewaargeving (depositum regulare). In addition, neither the provisions of art. 7:414 et seq. on contractual agency (lastgeving), nor artt. 7A:1791 et seq. BW on loan for consumption (verbruikleen) seem appropriate.

More specifically, a classification as verbruikleen is not appropriate, because under that contract, the depositary is entitled to use the assets lent for its own purpose, which might to some extent be in accordance with an account provider’s authority to use the securities deposited, but which does not correspond to his obligation to respect an accountholder’s rights and duties attached to the securities, such as voting rights and monetary rights. In addition, under verbruikleen, a depositary does not receive a fee, which is clearly at odds with normal practice of securities custody.

On the other hand, when an account provider performs certain tasks, such as the execution of transfer orders, that performance classifies as lastgeving (contractual agency). Yet to the performance of most other duties and to the use of securities for an intermediary’s own benefit, the provisions on lastgeving do not apply. Especially when an intermediary’s activities do not classify as legal acts (rechtshandelingen), the more general provisions on services agreements (opdracht) are applicable. Application of those provisions, however, implies the inapplicability of the provisions on bewaargeving (depositum regulare).44

In sum, the (contractual) accountholder – intermediary relationship, commonly referred to as custody agreement, cannot easily be classified in general private law terms, and must therefore be considered a sui generis agreement. But because of standard conditions and the non-mandatory character of the statutory provisions on deposit, loan for consumption and contracts in general, that sui generis character does not give rise to many legal issues in practice.45

42Art. 3:84(3) BW. But see infra, s. 7.5.1.

43See the ABV and RANK (1997), 29.

44Art. 7:400(1) BW. Accord ASSER-KORTMANN-DE LEEDE-THUNNISSEN 5-III (1994), no. 43 and DU PERRON (1993), 1045. See also MEIJER (1999), 8 and DU PERRON (1993), 1046, on the relationship between the contracts of contractual agency and services agreement.

45See RANK ET AL. (1997), 40.

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Similarly, when securities are held on a fungible basis and investors lose their property rights, questions of classification arise with regard to the transfer of those securities by book-entry. Practically, transfers take place by a credit entry and a corresponding debit entry in to transferee’s and transferor’s securities account, respectively. But, as these securities are not delivered physically, and no statutory rule gives the book-entries proprietary effect, these transfers have only contractual effects.46

It is even questionable whether the said book-entries classify as transfers (of ownership). When a debit entry of the transferor’s securities account is made, that entry effectuates the cancellation of the transferor’s right against his intermediary, and a corresponding credit entry in the transferee’s account effectuates the creation of a similar, but new claim against the latter’s intermediary. Thus, a transferee does not acquire the same asset a transferor disposed, and strict dogmatically analysed, these debit and credit entries therefore do not classify as transfer of ownership ex art. 3:84(1) BW. The non-transferability of an accountholder’s claim against his intermediary is especially apparent when both transferor and transferee hold their respective securities accounts with different intermediaries. By the same token, a transfer of fungible securities by book-entry does not classify as an assignment of a debt.47

In conclusion, securities custody on a fungible basis that involves investors’ loss of ownership is more similar to the management of money accounts than to the custody of movable tangibles, for as with money accounts, accountholders do not enjoy any property right against their account provider, while transfers take place through debit and credit entries in the accounts of transferor and transferee.

Globals

Globals are almost invariably held in a multi-tiered system, as CSDs or ICSDs hold the physical certificates in custody and register their participants’ entitlements to (parts of) the globals, and these participants, in their turn, register their clients’ entitlements.48 As noted above, it is a matter of debate how the nature of an investor’s entitlement in a global classifies.

46But when parties to a particular securities transaction are clients of different intermediaries, the transferor’s intermediary has to deliver the securities concerned physically to the transferee’s intermediary, for no central depository exists for this form of custody. This particular transaction thus involves the transfer of ownership, but only between intermediaries, not between accountholders.

47Cf. RANK (2001), 68.

48In the case of an international issue, a global will most often be deposited with an ICSD like Euroclear or Cedel. These ICSDs developed the practice of depositing certificates with a mutual or common depository. This common depository deposits the certificate in its turn with a national bank. See BOELE (1997), 17.

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On the one hand, it has been argued that this entitlement classifies as a coownership right in a gemeenschap (community of property), whereas others have claimed that it classifies as a mere contractual claim against an intermediary.49

BOELE, for instance, has argued that investors enjoy co-ownership rights, and that the transfer of these rights is therefore governed by the rules on the transfer of movable tangibles.50 In this view, delivery has to be effected under art. 3:115(c) BW, which prescribes the requirements for delivery when a third party holds a movable tangible for the transferor and holds it for the transferee after the transfer. But this position cannot, it is submitted, withstand closer scrutiny.

First, should art. 3:115(c) BW be applied, it cannot be determined which intermediary must be considered as the holder for the transferor and transferee, especially when the transfer is effected for investors who hold their securities accounts with different intermediaries; must the direct holder (onmiddellijk houder), i.e. the holder of the physical certificate, most likely the CSD, or the first holder, i.e. the transferor’s intermediary, be considered as the holder as meant in art. 3:115 BW? Second, the application of art. 3:115(c) BW implies that ownership of (part of) the global is transferred when either the CSD or the transferor’s intermediary has either acknowledged, or received notice of the transfer. But it cannot be maintained, it is submitted, that the transferor’s intermediary holds anything for the transferee at any point in time, as the former is usually not even aware of the latter’s identity, which also applies to the CSD. Moreover, it is untenable that the transferee would receive a right of ownership before a credit entry has been made in his securities account.51

In addition, the application of the provisions of the civil code on gemeenschap (section 3.7 BW) would lead to insurmountable legal complications. Apart from specific problems that arise when the coownership construct is applied to a multiple tiered structure of custody, its applicability without a statutory basis is questionable. As can be inferred from the aforementioned Teixeira de Mattos Bank case, co-ownership rights cannot be invoked on the grounds of an agreement between an accountholder and intermediary alone. The better view would therefore be that the nature of accountholder interests in globals that are not admitted to the Wge custody system classifies as a contractual claim.

49Gemeenschap is governed by art. 3:166 et seq. BW. If DNB acts as a custodian of a global, a mixed legal form of custody can be discerned; the DNB’s participants are deemed to enjoy a co-property right, whilst investors can only assert a mere contractual claim against these participants; BLOM (1998), 189, n.18 and the further references provided there.

50Art 3:96 BW, and art. 3:93 first sentence in conjunction with 3:90 BW; BOELE (1997), 20.

51Contra BLOM (1998), 188.

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7.3.3 Wge custody

The majority of Dutch securities are admitted to the Wge system of securities custody.52 But the system is restricted in two ways, as only admitted participants may hold omnibus accounts with the CSD, and only admitted securities may be a part thereof. Admittance of both securities and participants is determined by the CSD; art. 1 Wge.53

The Wge created a three-tiered pyramid-shaped securities custody structure. The top of that pyramid is formed by the so-called giro pool (girodepot), which is administered by the CSD.54 The CSD’s participants are co-owners in that pool, in proportion to the securities of the same kind which they administer. Thus, securities of different issues form different pools, and as many (giro) pools exist as there are securities admitted to the system.55 The securities that are administered by the participants form so-called participant pools (verzameldepots), the second tier of the pyramid. Pursuant to art. 12(2) Wge, investors are co-owners of these pools, in proportion to the they securities to which they are entitled. They form the third and last tier of the Wge pyramid.

This pyramid-shaped structure is complicated by the fact that participants may hold securities accounts with each other, and one participant’s pool can therefore contain an entitlement to another participant’s pool, when the former participant holds a securities account with the latter. In addition, securities that are owned by the participant itself form part of the pool it administers.56 Thus, an accountholder’s securities account may refer to securities that are physically present in the participant pool administered by their account provider, in another participant pool, or in the giro pool administered by the CSD. Moreover, at present, almost no physical securities are held by participants, as they are all immobilised with the CSD.

The omnibus accounts which intermediaries hold with the CSD are registered in their own names, and investors can dispose of their securities only via their immediate intermediaries, as art. 10(c) Wge provides that ‘the participant pool also contains its entitlement to the giro pool’. That article

52E.g. VAN DEN BOSCH (2000), 137.

53Specific regulations regarding the admittance of institutions by the CSD can be found in Stc. 1999, no. 110, 11.

54Art. 34 Wge. As a derogation from company law (art. 2:85 BW), art. 50a Wge provides that investors in registered securities no longer need to be individually registered by an issuing company, as registration of the CSD or other account provider suffices.

55Likewise, an intermediary administers as many participant pools as there are categories of securities to which its clients are entitled. In the following, all pools administered by CSD or participants are referred to when giro pool and participant pools are mentioned.

56Arts. 10(b) and 10(a) Wge, respectively.

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thus also establishes a direct (proprietary) link between investors and securities, not only when these securities are held by an intermediary, but also when they are held by the CSD, for the investors enjoy a co-ownership interest in the participant pool, which contains an entitlement to the participant pool’s share in the giro pool. This direct proprietary entitlement of investors to their securities was the expressed intention of the 1976 legislature, as it was felt that investors should retain a direct property right in their securities, even when these are registered by the CSD in the name of a participant and can be disposed of only via the participant concerned.57

Consequently, intermediaries do not have full authority to dispose of the participant pools maintained by them, for they enjoy neither any property right, nor a statutory right of full disposal over their clients’ securities.58 Another consequence is that no separation of an intermediary’s own assets from its clients’ assets is required by statute, and the legislative history of the Wge even explicitly indicates that no such separation should be made.59

7.3.4 Accountholder – intermediary relationship

Classification of the accountholder – intermediary relationship in general private law terms proves to be impossible, or at least highly complicated, especially when the legal act that initiates that relationship is taken into account. In the following section, the deposit of securities into a Wge pool with an intermediary will therefore be discussed in greater detail, but the retrieval of securities and the liquidation of a securities pool, as well as additional contracts that define the accountholder – intermediary relationship will also be examined. It may be reminded that this relationship is primarily governed by the Wge and the Algemene Bankvoorwaarden (General Banking Terms and Conditions, ‘ABV’).

57Explanatory Notes to the Draft Wge TK 1975-1976, 13 780, no. 3, 19-20. Cf. RANK- BERENSCHOT (1998), 157-158 and HAENTJENS (forthcoming, 2007), comm. at art. 10.

58This property law mechanism of investor protection is strengthened by regulatory law; see art. 6:14 Nadere Regeling gedragstoezicht financiële ondernemingen Wft (Further Regulations of Financial Institutions Supervision Wft). Cf. also art. 11(2) Wge, where it is provided that account providers may act as the entitlement holders of their clients’ assets only when that would serve the ‘proper management’ of these assets.

59See Explanatory Notes to the Draft Wge TK 1975-1976, 13 780, no. 3, 21-22 and 44. Contrast art. 4:87 Wet op het financieel toezich (Financial Supervision Act, ‘Wft’) in conjunction with art. 6:15(1) et seq. Nadere Regeling gedragstoezicht financiële ondernemingen Wft. Cf. HAENTJENS (forthcoming, 2007), comm. at art. 10, 35 and 42. But see VAN DER BEEK (2003), 246, SCHIM (2004), 420-422, and SCHIM (2006), 47 et seq., arguing that such separation must be possible.

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Wge deposit

As noted above, the Wge created a custody system of which only admitted securities can become part, and CSD-approved securities therefore have to be deposited into a participant or giro pool.60 While investors may deposit their securities into a participant pool, only participants of the CSD can (re)deposit securities into the giro pool. The deposit of bearer securities into the Wge system is distinguished from the deposit of registered securities, in that the Wge classifies the former as a ‘deposit’, but the latter as ‘delivery’.61 But the distinction raises serious legal issues. It is unclear, for instance, whether the deposit of securities with a custodian classifies as bewaargeving (depositum) or as transfer (of ownership).

The legislature intended the Wge to be in accordance with the civil code of the time, but current private law provisions on bewaargeving (section 7.9 BW) no longer fit the deposit of securities.62 Specifically, under the Wge, the deposit of securities is effectuated when the securities are accepted by a custodian, but under current private law, bewaargeving is established when the deposit agreement is concluded.63 In addition, the civil code provisions on bewaargeving do not apply to the custody of fungible securities, as bewaargeving requires a custodian to be able to deliver the assets deposited in specie upon the depositor’s request.64 On the other hand, bewaargeving also involves the depositor’s obligation to reward a custodian for its services, the custodian’s obligation to handle the depositor’s assets with due care, the prohibition on the custodian using the assets deposited for its own account, and, finally, the custodian’s obligation to preserve the proceeds that might flow from the assets deposited.65 All these aspects of bewaargeving also apply to securities custody.

Moreover, on both practical and dogmatic grounds, a deposit of securities cannot classify as a transfer of ownership.66 Although it was acknowledged that upon deposit/delivery, investors lose their ownership rights, the government did not explicitly intend to give the impression that these

60Art. 12 and 38 Wge. When CSD-approved securities exist outside the Wge system, but are subsequently transferred to an intermediary qua transferee, they become ipso iure part of the participant pool which that intermediary administers, and thereby part of the Wge system; art.

13Wge; cf. UNIKEN VENEMA (2003), 213-219. But other than securities held under the Wge regime, an intermediary may hold securities on an individualised basis.

61Arts. 12 and 13 Wge.

62But cf. the Explanatory Notes to the Draft Wge TK 1975-1976, 13 780, no. 3, 42, which stated that it had been debated in the legal literature to what extent the provisions of the Civil Code on deposit are applicable to the deposit of goods, when these goods are not to be returned in specie.

63Arts. 12 and 38 Wge, and art. 7:400 BW, respectively. But see VAN ARDENNE-STACHIW in RANK ET AL. (1997), 85 and 117-118. Under the previous civil code, a deposit agreement was effectuated when the assets deposited were accepted by a custodian.

64Art. 7:600 et seq. BW. Cf. supra, s. 7.3.2.

65Arts. 7:601, 7:602, 7:603 and 7:604, respectively.

66See, e.g., MIJNSSEN (1975), 202, VAN DIJK (2001-2), 336 and SCHIM (2006), 67 et seq.

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