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

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assignment.172 Second, the decision has met with little approval.173 In addition, it is highly unlikely that a Dutch court would apply the lex contractus rule if it were called upon to determine the law which is applicable to conflicts of laws situations involving participants in the Dutch system. As must be inferred from the purpose of the Wge and its Explanatory Notes,174 Dutch law applies to the proprietary aspects of the first and second-tier relationship, notwithstanding any choice of law, the issuer’s location,175 or the certificates’ location.176

More generally, if called upon to determine a conflict of laws issue regarding book-entry securities, a Dutch court would probably first determine under the lex fori whether the issue would be proprietary or contractual in nature. If it classified the issue as proprietary, it would then determine whether the securities concerned would be certificated and would classify their nature: whether the issue concerned bearer securities, registered securities or bookentry securities. At present, the last-mentioned category is certainly relevant in situations of the insolvency of financial institutions that have collateralised securities.177 Since the implementation of Article 9 FCD, the distinction is supported in conflict of laws situations regarding certain arrangements, but after the enactment of the Draft Act, it will apply to all conflict of laws that concern securities.178

As matter of principle, renvoi is excluded under Dutch private international law. As to contractual matters, Article 15 of the 1980 Rome Convention excludes renvoi, whilst Draft Act Article 1(4), as well as legal literature also excludes renvoi regarding proprietary matters.179

7.6.2 PRIMA

Thus, traditional conflict of laws rules such as lex rei sitae and lex incorporationis do not apply in the instance of the insolvency of a financial

172Rather, it should be classified as novation; GOODE (2003-2), 215, n.40, BENJAMIN (2000), 155, n.38, HAENTJENS (2004-1), 478481. Cf. RANK (2001), 68. Contra VERHAGEN (2000),

122.Cf. supra, s. 7.3.2 and 7.4.2.

173See, e.g. STRUYCKEN (1998), 345 et seq. and STEFFENS (1997), 212-219. Cf. VERHAGEN (2000), 122 and see BERNASCONI (2000), 49, n.154.

174Explanatory Notes to the Draft Wge TK 1975-1976, 13 780, no. 3, 36. The rationale is that the applicability of another law could lead to an impairment of the investors’ proprietary position, a position that the Wge seeks to protect.

175See VAN BEEK & VAN BRUGGEN (2002), 33.

176See VAN BEEK & VAN BRUGGEN (2002), 46-47.

177Article 212(f) Fw, implementation of SFD Article 9(2).

178See HAENTJENS (2006), 62-63, for an examination of the Dutch conflict of laws that are applied to determine whether securities classify as shares, bonds, and bearer or registered securities.

179See RANK & VAN DER LELY (2002), 399.

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institution that has collateralised securities by book-entry and when securities have been collateralised between certain institutions under certain financial collateral arrangements.180 In all these cases, a variation of PRIMA determines the law which is applicable to proprietary conflicts concerning book-entry securities. Draft Act Article 16 also contains a variation of PRIMA, as it copies the implementation provision of Article 9(2) FCD, but extends its scope.181

Although it could be inferred from this provision that PRIMA has found acceptance amongst Dutch lawyers, its application by a Dutch court in all cases concerning book-entry securities is not entirely certain under current law.182 Moreover, the Report of the State Committee on the Preliminary Draft itself indicates that the rule does not apply if securities are certificated ones and located in another jurisdiction, and are not admitted to a foreign settlement system. In such a situation, to apply Dutch law to rights concerning those securities is considered an infringement of a possible foreign lex rei sitae principle.183 It has been objected, however, that the (unacceptable) consequence of this rule would be that in order to determine their rights, investors would have to establish first whether securities are certificated or not and, second, where they are located, information which would be practically impossible to obtain.184

On the other hand, the proposed article applies to all indirectly held securities, i.e. both those admitted to the Wge system and those held on a fungible basis.185 It has even been argued that it applies to directly held (i.e. individually administrated) registered securities and derivatives, since both these financial instruments are transferred by book-entry only.186 This position, however, does not seem to be consistent with the Drafters’ intention, as the Report of the State Committee refers to indirectly held securities, and specifically to the Wge system.187

Further, the connecting factor designated by Draft Act Article 16 is ambiguous. It points to the law of the jurisdiction where the relevant securities account is administrated, but any further guidance on how to determine the securities account’s location is not given. It has been argued188 that a Dutch court would initially look to the account agreement.189 Other

180Articles 212(f) Fw and 7:56 BW, respectively.

181TK 2006-2007, 30 876, no. 3, 13.

182RANK (2001), 67 and RANK & VAN DER LELY (2002), 398 and 405.

183Report of the State Committee for Private International Law (1998), 79. See also UNIKEN VENEMA (2003), 120 and VERHAGEN (2000), 118.

184BLOM (1999), 381.

185See Report of the State Committee for International Private Law (1998), 84.

186BLOM (1999), 379.

187Report of the State Committee for International Private Law (1998), 77 et seq.

188RANK & VAN DER LELY (2002), 408.

189The custodian concerned would have to be regulatory supervised, however; ibid.

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circumstances which a Dutch court could possibly take into consideration are the terms of the contract as a whole and the place mentioned in an account statement.190

In addition, the restrictive nature of the Wge system prevents the application of PRIMA from being wholly satisfactory in two situations.191 In the first situation, a Dutch investor holds a securities account with a Dutch intermediary, to which account both Dutch Wge securities and foreign securities are credited. The account provider holds the foreign securities through a securities account with a foreign participant of a foreign settlement system. Under PRIMA, Dutch law would govern the proprietary rights of the investor with regard to all securities. An (uninformed) investor might therefore expect that the Wge provides proprietary protection with regard to all securities he holds with his Dutch account provider, and that no distinction in legal regime is made between the securities that are admitted to the Wge system and other securities. But since neither the foreign securities nor the immediate intermediary are admitted to the Wge system or act as such, the investor will have a mere contractual claim with respect to the foreign securities.192

In the second situation, the Dutch CSD holds a securities account with a foreign institution. It has been a highly debated matter as to whether Dutch law would apply193 or the law of the foreign institution.194 The text of art. 35(b) Wge seems to support the former position, as it states that the rights resulting from the holding of securities ‘kept by or deposited with foreign institutions in the Central Institution’s name’ are part of the giro pool. It is submitted, however, that the latter view is the better one; art. 35(b) Wge can also be interpreted to mean that the Dutch CSD may have an interest in a securities pool under foreign law, an interest which is nonetheless included in the Dutch giro pool. This view is explicitly supported by the Report of the State Committee.195 Again, the Dutch CSD (and eventually the Dutch investors) would thus lack the proprietary protection of the Wge. However, Dutch investors’ rights would still be sufficiently protected; any link between the Dutch CSD and a foreign institution requires the mandatory approval of the Dutch Minister of Finance.196 He is most likely to approve

190RANK & VAN DER LELY (2002), 409.

191Cf. also VAN DEN HOEK (2004), 152 and VAN DEN HOEK (2003), 432-438.

192Probably against a VABEF II entity; see, extensively, RANK (1996), RANK ET AL. (1997) and RANK (1999), 85-86 and supra, s. 7.3.2. For a discussion of possible solutions to this problem, such as the designation of foreign ICSDs as CSD as meant under the Wge and the designation of the securities concerned as admitted to the Wge system, see VAN BEEK & VAN BRUGGEN (2002), 87-90.

193BLOM (1999), 381, RANK (2005), 250.

194VAN BEEK & VAN BRUGGEN (2002), 21 and VERHAGEN (2000), 118.

195State Committee for International Private Law (1998), 83.

196VAN BEEK & VAN BRUGGEN (2002), 50.

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only links with foreign institutions where their laws provide proprietary protection which is comparable to the Dutch Wge.

7.6.3 Securities transfers and security rights

Under Dutch conflict of laws rules, the proprietary validity of a transfer of directly held securities is determined as follows. First, the securities transferred are classified. Then, to certificated securities, the lex rei sitae applies in order to determine whether the perfection requirements have been met, but to non-certificated registered shares, the law of the issuer (lex incorporationis) applies, while the lex contractus applies to registered debt securities.

On the basis of art. 212(f) Fw and art. 7:56 BW, a Dutch court would probably determine the validity of a transfer of securities by book-entry as well as its effects by the law of the jurisdiction of the transferee’s intermediary. However, under present law, a Dutch court might apply the traditional rules and ‘look through’ to the underlying securities when the case falls outside the scope of either art. 212(f) Fw or art. 7:56 BW. Only in situations in which securities are collateralised and provided that all other requirements for the applicability of the SFD or FCD have been met, is PRIMA currently applied with certainty.197 The classification of the agreement underlying the transfer is made under Dutch law as the lex contractus.

Art. 7:56 BW has implemented Article 9(2) FCD, a provision which applies to the proprietary aspects of securities transfers by book-entry under a collateral agreement that is concluded by at least one financial institution. The Government has stated that a connection was sought with the Hague Securities Convention, but it has made no reference to a choice of law, as is provided for in the Hague Securities Convention.198 Furthermore, it has been announced that art. 7:56 BW would be repealed when the Draft Act would be enacted.199 It has been argued that a Dutch court, applying PRIMA, would determine the proprietary effects of a pledge under the law of the place of the pledgor’s relevant intermediary.200 As a general rule of Dutch private international law, however, the enforcement of a security interest is judged under the law of the place where the enforcement is sought.

197 RANK (2005), 250-251 advocates a wider application of the conflict of laws rules contained in the EU legislation.

198Explanatory Notes to the Implementation Act TK 2002-2003, 28 874, no. 3, 10-11.

199Draft Act Article 19; TK 2006-2007, 30 876, no. 2, 5.

200See, e.g. RANK & VAN DER LELY (2002), 406.

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Thus, although PRIMA has been accepted in Dutch private international law, both as part of European legislation and in its own Draft Act, traditional conflicts rules are still predominant. The Report of the State Committee explicitly stated that the proposed provision leaves primacy to the law of the certificates’ location.201 The same Draft Act, on the other hand, allows a choice of law in the case of registered shares traded on a stock exchange.202 As a result, current Dutch private international law as to non-collateralised book-entry securities is characterised by uncertainty, which becomes apparent in the legal literature as well. Whereas some authors still defend a look-through approach, others have welcomed PRIMA.

7.7 CONCLUSIONS

7.7.1 Questions and answers

1.Which securities are admitted to the national systems of giro transfer and administration?

The eligibility of securities for admittance to the statutory custody system is determined by Dutch CSD; art. 1 Wge. Since the 2000 modification of the Wge, 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. Non-Wge admitted securities can be held outside of that system, but no absolute proprietary protection for securities accountholders is then ensured.

2.What is the nature of investors’ interests in securities?

Three types of intermediated securities custody, and thus of accountholder interests are distinguished. First, accountholders enjoy a mere contractual right against their account provider. That construct is applied in almost all instances that accountholders hold foreign securities through a securities account with a Dutch account provider. Second, investors can retain ownership of their securities when these are held on an individualised basis. This construct is more rarely applied, as it does not facilitate the transfer of securities by book-entry. Third, the statutory custody system of the Wge provides accountholders with a sui generis co-ownership right in securities pools. That system, of which the majority of Dutch securities form part, does not, however, apply to lower than third-tier accountholders, and these accountholders therefore have a mere contractual claim against their intermediary.

201Report of the State Committee for International Private Law (1998), 79.

202Draft Act Article 13(2).

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2.1 Is a credit entry in a securities account merely a proof of ownership or is it a constitutive element of ownership of the securities concerned?

From the Wge’s rationale and the traditio transfer regime, it follows that a credit balance on a securities account constitutes a constitutive element of an accountholder’s entitlement. But such entitlement is not identical with the securities themselves, for a credit entry refers to a right of co-ownership in a securities pool.

2.2Are informal (i.e. not registered by book-entry) dispositions over securities possible?

Generally, informal dispositions over securities have no proprietary effect, i.e. cannot be enforced against third parties under the Wge, since a credit entry in a securities account is a constitutive element for the creation of both a security interest (pledge) and a co-ownership right. If the pledgor is the pledgee’s immediate account provider, however, a pledge agreement between accountholder and account provider suffices to create the security interest, and that interest is therefore not recorded in a securities account. For another instance of entitlements to book-entry securities that are not registered by book-entry, see next item.

2.3Is provisional credit in book-entry securities possible?

In principle, provisional credit entries in a securities account are allowed. When securities are transferred conditionally and the resolutive condition is fulfilled, the transferor again becomes fully entitled to the assets he has conditionally transferred, even if the retransfer has not (yet) been effectuated. Accordingly, the transferee is not entitled to the securities that are (still) credited to his account. Yet can be questioned, whether the initial transferor is in a position to enforce any rights regarding the securities that he is entitled to, but that have not (yet) been (re)credited to his account.

3. How are investors’ rights in respect of securities protected against the account provider and third parties?

Accountholder interests are primarily protected through the property law rules of the Wge, as that statute provides accountholders with co-ownership rights in the pools of Wge securities which an intermediary administers. These pools therefore form no part of an account provider’s estate, and third parties, such as the account provider’s general creditors cannot enforce any rights against the accountholders’ assets. Moreover, intermediaries do not have full power of disposal over the securities pools they administer, and must therefore always be able to meet any request of retrieval by its clients who thus exercise their right of revendication.

In addition, investors’ rights are relatively well protected against their account provider’s insolvency when their securities are held through a

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VABEF II entity, a custody entity that is separated from the institution with which investors hold their securities accounts. Investors enjoy a mere contractual claim against this custody entity, but as its articles of association exclude any form of commercial activity, the insolvency risk of that vehicle is minimised. This construction is currently mainly used to administer (entitlements to) foreign securities held outside the Netherlands.

3.1Should shortfalls occur in accounts, how are they availed?

Should a shortfall occur, i.e. should the total of the accountholders’ entitlements exceed the omnibus account which the account provider holds with the CSD, the deficit is first solved by recourse to the account provider’s own share in the securities pool it administers. The remaining deficit is distributed amongst the accountholders pro rata, i.e. in proportion to their share. These losses are covered up to € 20.000 per investor by the guarantee fund that has been created for that purpose.

3.2How are an investor’s interests in securities separated from the account provider’s property or how can investors’ interests avail the claims of the provider’s general creditors?

Although there exist explicit provisions of regulatory law requiring that accountholder interests be separated from an account provider’s own assets,203 the legislative history of the Wge indicates that such a separation in an intermediary’s account with the CSD is prohibited. But as a consequence of the co-ownership construct, an account provider has no power of disposal over its clients’ assets, other than for the purpose of the execution of its administrative obligations. In addition, an account provider’s general creditors cannot enforce any rights on the Wge pools it administers for its clients.

However, the Kas-Associatie/Drying Corp. case showed that the proprietary protection of the Wge ends with the third tier, and lower than third tier accountholders are left with a mere contractual claim against their intermediary. On the other hand, an investor’s contractual claims regarding his securities may trump the claims of the account provider’s general creditors when his securities are held through a VABEF II entity (see item 3).

4. What are the formal requirements for the transfer of ownership of securities?

Although it is a matter of debate, the better view would be that no formal requirements exist for the transfer of a Wge entitlement (which must be distinguished from the formal requirements for the transfer of the securities

203 Art. 4:87 Wft and art. 6:14 et seq. Nadere Regeling gedragstoezicht financiële ondernemingen Wft.

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themselves), other than a credit entry in the transferee’s securities account; arts. 17 and 41 Wge. Thus, it has been argued that art. 3:84 BW is not applicable to the transfer of Wge entitlements, and that, other than delivery, the requirements of that provision, viz. a valid title, a power of disposal (beschikkingsbevoegdheid) and a proprietary agreement (goederenrechtelijke overeenkomst), need not be satisfied to effectuate an effective transfer.

4.1 Can a bona fide acquirer rely on the crediting of his account (especially when acquiring a non domino)?

Although it is not uncontested, it follows from the view set forth under the previous question that a transferor’s lack of power of disposal has no proprietary consequences for the transfer (abstract transfer regime). But even if Wge entitlements would be governed by a causal transfer regime, then bona fide transferees are protected against competing claims of third parties through general property law rules, as under arts. 3:88 and 3:238 BW, bona fide transferees and pledgees, respectively, take free of a dispossessed owner’s claim of revendication; arts. 19 and 20 Wge.

4.2 Is it possible for a credit in a securities account to be reversed and may transfer orders (or other instructions) be revoked?

From the previous questions answered, it follows that credit entries in securities accounts cannot be reversed on the grounds of contractual deficiencies between transferor and transferee (abstract regime of transfer), nor on the ground that the credit entry does reflect a mere provisional credit. Furthermore, the reversal of credit entries is not allowed prior to an account provider’s bankruptcy declaration, and is not likely to be allowed after that moment. Revocation of transfer orders is always allowed, but only when the financial institution receiving the transfer order is still able to reverse its consequences; art. 23 Fw.204

5. What are the formal requirements for the creation and enforcement of collateral?

Security interests in book-entry securities can be created either by transfer of title or by pledge. Although explicitly forbidden by general private law, fiduciary transfers are allowed under the implementation legislation of the EU Financial Collateral Directive, i.e. when certain defined parties enter into a financial collateral arrangement. More generally, fiduciary transfers are allowed provided the creditor/transferee is provided with ‘more than only an entitlement that protects his interests as a creditor’.205

A pledge on Wge securities can be created either by the transfer of the pledged securities into a special pledge account in the pledgee’s name, or by

204See HR 31 March 1989, NJ 1990, 1 (Vis q.q./NMB).

205See Keerweer/Sogelease and supra, s. 7.5.1.

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marking the pledged securities as such in the pledgor’s account. In addition, a pledge account suffices when the pledgee is the pledgor’s account provider. A pledge must be enforced by a public sale, for which the pledged securities might have been delivered out of the Wge custody system. Under the implementation legislation of the FCD, however, a pledge may also be enforced by appropriation or by private sale, although for the latter means of enforcement, a court order is still required.

5.1 Is upper-tier attachment possible, i.e. is it possible for an account holder’s claimant to exercise his rights against higher-tier accounts?

Art. 44 Wge explicitly prohibits upper-tier attachment.

7.7.2 Coherence

As the integration of corporate law into the civil code might indicate, Dutch private law is set up as a strongly coherent structure, in which functional bodies of law form integrated parts of general private law. Especially with regard to its property law, Dutch law historically represents a system of law that is characterised by its strict dogmatic structure, arguably to provide market participants with a high level of legal certainty.206 Consequently, rules of more specific areas of law must be interpreted as specifications of the more general rules of the civil code, and that position was also expressed by the government when presenting the Draft Wge.207 Thus, securities custody and transfer law is considered by the legislature, the judiciary and the majority of legal literature as a part of private law.

In the previous sections, however, it has been shown that the relationship between general private law and securities custody and transfer law is in many instances either weak, inconsistent, or unclear.208 In the instances where securities custody and transfer law explicitly derogates from general private law principles, the securities law – general private law relationship must be considered to be weakly coherent, as the explicit derogations indicate that securities law and private law share few common principles.209

For instance, the Wge explicitly provides that issuers may prohibit the delivery of securities out of the Wge, which constitutes a derogation from the general principle that (co-)owners may always revendicate their assets, while the Wge also does not provide an alternative method of revendication. Furthermore, under the implementation legislation of the EU Financial

206VAN ERP (2004), 534.

207See, e.g., Explanatory Notes to the Draft Wge TK 1975-1976, 13 780, no. 3, 37.

208Cf. SCHIM (2006), 201.

209See Ch. 2.3.

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Collateral Directive, the general private law prohibition on fiduciary transfers has been explicitly lifted for certain financial collateral arrangements concluded between certain defined institutions. In addition, the said legislation has also liberalised the requirements for the enforcement of security rights, so that under certain circumstances, pledges on securities may now be enforced by appropriation or private sale, which sharply contrasts with long-standing principles of general private law.

Unfortunately, however, the instances in which the securities law – general private law relationship is unclear or inconsistent outnumber, it is submitted, the instances of weak coherence. Especially where central elements of securities custody and transfer law cannot be unambiguously classified in private or commercial law terms, incoherence is established, as these classification difficulties indicate that rules of securities custody and transfer law do not fit logically within the more general areas of law.

First, the deposit of securities with a custodian, so that the investor’s physical possession of certificates is replaced by a credit balance on a securities account, cannot be unambiguously classified in general private law terms. It has been shown above that neither the deposit of securities into the statutory custody system of the Wge, nor the deposit of securities into a nonstatutory system, can be convincingly classified as either bewaargeving (depositum regulare) or transfer of property, primarily because the assets deposited cannot be retrieved in specie, nor are they intended to form part of the custodian’s property. Yet some elements of bewaargeving and transfer of ownership are present in these deposits, notably the intermediary’s obligation to preserve its clients’ assets and the formal requirements for delivery, respectively.

Second, it is doctrinally generally accepted that representation and contractual agency play an important part in the accountholder – intermediary relationship, but, again, classification is not uncontested. Specifically, the contracts of volmacht (procuration) and lastgeving (mandate) do not fully apply, notably because representation by an intermediary is created by statute and because it is exclusive, as accountholders cannot assert their rights against the intermediary’s counterparties, elements that are both not in accordance with the contracts just mentioned. Furthermore, it is a matter of debate whether an intermediary’s representation of its clients classifies as direct or indirect representation (middellijke or onmiddellijke vertegenwoordiging), although it has been argued that the latter classification is the better one.

Third, applying general principles of transfer law to the securities transfers by book-entry poses serious difficulties, and this is where securities law seems to fit worst into the dogmatic structure of private law, especially with regard to the transfer of Wge securities. The classification of securities

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