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

ABBREVIATIONS

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PART I

INTRODUCTORY CHAPTERS

because a man’s entire life requires the graces of rhythm and harmony

PLATO1

1 PLATO, Protagoras, 326b.

1 INTRODUCTION

1.1 GLOBAL CONVERGENCE, LEGAL RESPONSES

As securities markets gradually merge and expand both in the European Union and world-wide, the volume of securities transactions increases enormously every year.1 Yet the settlement of these transactions, i.e. the payment of funds and the delivery of the securities, proves to be significantly costlier in the case of cross-border settlements than in the case of domestic transactions being settled.2 It is generally believed that this discrepancy has its cause for a large part in the legal diversity that currently exists, both with regard to the conflict of laws rules and the substantive laws that concern securities transfer and custody.

In addition to the said diversity of laws, the mismatch between a reality in which dramatic innovations have revolutionised the techniques of securities custody and transfer, and the relevant, yet inflexible legal underpinnings on the other hand, contributes to an extremely undesirable situation of legal uncertainty. Fortunately, various institutions have acknowledged that as a vital element in the functioning of modern economies of scale, the securities settlements infrastructure does not allow for such legal uncertainty, and initiatives have accordingly been undertaken, so as to harmonise and modernise current securities custody and transfer laws.

On the global level, the Hague Conference on International Private Law facilitated the recent adoption of a conflict of laws treaty, which aims at a harmonisation of the different conflict of laws rules regarding securities that are held and transferred through a securities account (‘book-entry securities’).3 As an important global initiative that targets the current diversity and inadequacy of substantive securities laws, the UNIDROIT harmonisation project must be mentioned.4 Also on the level of the European Union (‘EU’), it has been acknowledged that the current market-led

1See, e.g. G30 2003 Plan of Action, 1.

2Although the exact figures differ, all economic research concludes that cross-border settlement is substantially more expensive than domestic settlement. See G30 2003 Plan of Action, 4-5; SCOTT (2006), Ch. 10, 26; EC Economic Impact Study (2006), 18. The additional costs incurred when securities transactions are settled cross-border consist of direct costs due to higher fees, indirect costs due to extra back-office facilities and opportunity costs due to inefficient use of collateral, a higher incidence of failed trades and a higher incidence of foregone trades; Giovannini Group 2001 Report, ii.

3The ‘Convention on the Law Applicable to Certain Rights in Respect of Securities Held With an Intermediary’ was adopted on 13 December 2002 and is available at www.hcch.net.

4UNIDROIT (International Institute for the Harmonisation of Private Law), Study 78 Harmonised Substantive Rules Regarding Securities Held with an Intermediary, available at www.UNIDROIT.org.

1 Introduction

consolidation requires a harmonised legal framework, as it was recognised that a truly cost-effective, integrated clearing and settlement environment within the EU cannot be accomplished without a seamless set of legal rules. But in order to attain a fully integrated internal market, legal harmonisation will probably have to go further than global principles or treaties drafted by non-governmental organisations.

Accordingly, the so-called Giovannini Group explicitly advised the elimination of the most prominent legal barrier to smooth cross-border settlement through a harmonisation of the substantive rules concerning custody, transfer and ownership of securities.5 The Group’s Report in 2003 states: ‘The absence of an EU-wide framework for the treatment of interests in securities (including procedures for the creation, perfection and enforcement of security) has been identified as the most important source of legal risk in cross-border transactions.’6 Consequently, the European Commission established a research group to further investigate the desirability of such a harmonisation instrument and this group essentially confirmed the Giovannini Group’s findings.7

However, practically all studies on the subject of harmonisation of securities custody and transfer law stress that the law that governs property, contract and commercial law, traditionally the prerogatives of national laws, must be taken into account as ‘rooted legal traditions’ when drafting a harmonisation instrument.8 More particularly, they argue that the creation of a harmonisation instrument in the field of securities custody and transfer law is highly complicated because of its intimate relationship with the other areas of law just mentioned.9

5The Giovannini Group, set up by the European Commission, issued two reports on the subject of securities custody and transfer law. In its first report of 2001, the Group discerned legal barriers, barriers due to the variation in technical requirements and barriers due to the variation in tax procedures. The Group further concluded that the legal barriers are formed by the absence of a harmonised framework for the substantive rules that concern custody, transfer and ownership of securities (barrier 13), national differences in the legal treatment of bilateral netting (barrier 14) and uneven application of national conflict of laws rules (barrier 15). See Ch. 9.3.4.

6Giovannini Group 2003 Report, 13 and 56.

7The Legal Certainty Group’s advice to the European Commission was published in 2006 and is available at http://ec.europa.eu/internal_market/. See Ch. 9.3.4. See also, e.g. Press Release, European Securities Forum, Integration of Clearing & Settlement, ESF’s Call for Action (7 May 2003), available at www.eurosf.com and the EFMLG 2003 Report, all advocating a rapid modernisation and harmonisation of securities law at the EU level.

8Cf. LÖBER (2005), 156 and Giovannini Group 2001 Report, 54. Cf. letter by G. Morton, Ph. Dupont and A. Maffei to the Legal Certainty Group of February 7 2005, 2 on the UNIDROIT project and THAN in GUYNN ET AL. (1996), 75. Cf. also DE VAUPLANE & BORNET (2001), no. 1245: ‘L’approche factuelle du droit des marchés financiers est simplement le reflet de la complexité des pratiques qu’il est indispensable d’appréhender, de comprendre, et d’encadrer au sein d’un système juridique.’

9E.g. Giovannini Group 2001 Report, 54 and 60; EFMLG 2003 Report, 22; BNP Paribas Report, 2 and LÖBER (2006), 62. Cf. also CPSS/IOSCO Recommendations 2001, 5.

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1 Introduction

These considerations are in accordance with the analysis recently made by MICHELER, who argued that whereas practices may converge on the functional level, doctrinal path dependence prevents, or at least shapes a corresponding convergence at the formal, i.e. legal level.10 Indeed, as shall be shown in the following chapters, it was the – albeit not always successful

– adaptation of national private and commercial laws to modern, uniform practices of securities custody that has predominantly determined the current form of the infrastructure for securities custody and settlement. It is submitted therefore that other, socio-cultural considerations have not played, nor will they play a directly discernable role in that regard, but that future formal convergence will be mainly determined by doctrinal considerations.11

The present book starts from that premise, but principally questions in what way the modernisation and harmonisation of securities custody and transfer laws within the EU can best be achieved.12 For that purpose, the current legal infrastructure concerning book-entry securities will be analysed regarding some typical European jurisdictions, viz. Belgium, France and the Netherlands. The findings of that analysis will subsequently be tested against generally accepted standards of modern securities custody and transfer practice, and compared with the harmonisation brought about in the US through the Uniform Commercial Code (‘UCC’). Then, it will be ascertained whether the modifications proposed would unacceptably undermine the current systemisation of the European jurisdictions investigated. Thus, on both normative and coherence grounds, conclusions will be drawn regarding the desirability and form of a future European harmonisation instrument.

10MICHELER (2006). Cf. also CANIVET (2003), 50-51. The functional – formal distinction has been taken from GILSON (2001).

11Cf. WATSON (2000), VI. But see, e.g., LEGRAND (1997) and TEUBNER (1998), both arguing that social considerations, or ‘world-views’ are, and should be the prime determinants for the shaping of converging laws. They principally point at supposedly insurmountable differences between common law and civil law systems. In the case of securities laws, that position is falsified by US legislation and the recent Canadian proposal, both jurisdictions that comprise both common and civil law systems. Moreover, civil law Switzerland has recently published a draft Federal Act on the Custody and Transfer of Securities Held with an Intermediary, based on common law concepts; THÉVENOZ (2005).

12‘Harmonisation’ is used here and throughout the present book so as to refer to the approximation of laws. Cf. EC Treaty Article 95 and see VAN GERVEN (2004), 502. As opposed to ‘unification’, which refers to the absolute minimisation of legal diversity, harmonisation usually leaves room for (national) legal differences. Convergence, on the other hand, is used here and elsewhere as a synonym for approximation in a general, i.e. not necessarily legal sense.

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1 Introduction

1.2 METHODOLOGY

1.2.1 Theoretical framework

The analysis of the said jurisdictions will thus be conducted in view of the relevance of coherence or, more generally, of the systemisation of law to harmonisation processes. The research presented in this dissertation therefore concerns two different levels, both requiring a different approach. The comparative investigation into the securities laws of the selected jurisdictions demands specific legal questions, which will be discussed in the next section, while the examination of the interaction between different areas of law, on the other hand, demands a more general and theoretical method.

In that respect, the intrastate relationship between securities law and general private or commercial law must be distinguished from the relationship between state law and suprastate law. It is submitted that the relationship between securities law and the more general body of law in which it is embedded determines in what way changes in the former body of law affect the latter.13 If, for example, a harmonisation instrument would require that national securities laws introduce a new concept that denotes the package of an accountholder’s rights in his securities, the relationship between a particular state’s securities law and its general private law would determine whether the introduction of that new concept would encroach on the general private law of that state.14

As it is assumed that the possibilities of proposals leading to (possibly farreaching) changes in general bodies of law are slimmer than those for proposals that have less ramifications, it follows that the level of coherence between a functional or specific body of law and the more general body of law in which it is embedded determines the feasibility of a harmonisation initiative directed at a functional body of law.15 Moreover, it might also determine its success, as it has been argued that the success of a European

13DE VAUPLANE & BORNET (2001), no. 1244 have even argued that on coherence grounds, a harmonisation of securities laws would – and should – also result in a harmonisation of general private law principles: ‘C’est pourquoi après l’étape de l’harmonisation des droits des marchés financiers, l’on se dirige, à notre avis rapidement, vers l’unification des composantes essentielles de ces droits, seule réponse cohérente [emphasis MH] et satisfaisante aux divers processus d’intégration développés. À défaut, des zones d’incertitudes juridiques génératrices d’insécurité financière naîtraient ce qui ne peut pas être accepté.’

14Cf. PAECH (2002), 1160: ‘If the work [of UNIDROIT, MH] aims at enhancing economic efficiency in cross-border trading and at eliminating legal risk at the same time, it will require the development of a completely new concept which might touch fundamental principles of national legal systems.’ And see MOONEY (1990), 413, arguing from the converse perspective, but the same premise: ‘A new model, divorced from common law and U.C.C. property law constructs, also could form a more plausible base for unification of law on the international level. An approach not rooted in longstanding domestic doctrine might provide a more likely basis for harmonizing widely varying doctrine in other nations.’

15See MICHELER (2006), 53 and cf. GOODE (2003-1), 14-16.

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