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

10 National securities laws compared and evaluated

Furthermore, it has been suggested that party autonomy is incompatible with some systems of custody, notably systems whereby a position on a higher tier might change the position of the direct intermediary and the securities in its custody. It has therefore been suggested that the HSC, based on party autonomy, favours the UCC model. However, these incompatibilities appear to be confined to certain specific situations (at least in the jurisdictions investigated).243 Moreover, such incompatibility results – at least in the case of the Netherlands – from the restrictive nature of the Dutch Wge-system rather than from a prejudiced conflicts rule. Furthermore, the HSC is systemneutral in that it does not localise investors’ interests; in contrast to the modern version of the lex rei sitae, it is not based on a substantive law classification.

Thus, only party autonomy would ensure a certain and thereby predictable applicable law. Not only would it avoid the arbitrariness of a connecting factor such as the place where the securities are booked in an account, but it would also allow parties to choose the law which is most appropriate to their needs and knowledge.244 However, neither the national private international laws of the jurisdictions investigated, nor the relevant European directives contain conflict of laws rules that are based on party autonomy. It is submitted therefore, that the EU should either ratify the HSC and amend its directives accordingly, or adopt similar conflict of laws rules in a harmonisation instrument on securities custody and transfer law.

However, although the EU Commission had initially expressed its support for the HSC and proposed that the European Council and Parliament should sign the treaty as the representative of all Member States, so that it could prepare legislative action to bring current EU law into congruity with the HSC,245 no decision to that effect has yet been taken. A cautioning opinion from the European Central Bank has probably contributed to this position.246 It is submitted, however, that the existing rules should be modified, rather than to hold on to unclear and inconsistent ones.

243See Ch. 7.6.2.

244Cf. POS (2001), 400. Furthermore, under the PRIMA rules of the EU Directives and France, the Netherlands and Belgium, parties may already choose the applicable law by choosing the location of their intermediary; POTOK (2004), 220 and ISDA letter of 26 July 2004 to EU Commissioner Frits Bolkestein, 7. Available at www.isda.org.

245Proposal for a Council decision concerning the signing of the Hague Convention, COM(2003) 783 final. See also Communication from the commission to the Council and the European Parliament, COM(2004) 312 final, 24 (28 April 2004) and Legal assessment of certain aspects of the Hague Securities Convention, of 3 July 2006, SEC(2006), 910.

246Opinion of the European Central Bank (‘ECB’) of 17 March 2005, CON/2005/7, OJ C 81/10.

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10.3 CONCLUSION

In this chapter, it has been investigated to what extent the laws of Belgium, France and the Netherlands should be modernised in the context of a possible future European harmonisation instrument for securities custody and transfer law. For that purpose, the laws of these jurisdictions have been evaluated in detail and tested against the standards that can be distilled from the recommendations summarised in the previous chapter. Thus, a new regime of securities custody and transfer law has been proposed, rather than a regime that draws on the solutions of a particular member state or on the compositum of all member states’ laws investigated.247

Furthermore, it has been shown to what extent this new regime matches the proposed UNIDROIT convention and the advice of the Legal Certainty Group. On the basis of certain policy considerations, viz. the maximisation of investor or account holder protection and the enhancement of market stability by the minimisation of legal risk, normative positions have been taken as to whether or not these proposals should be followed.

1.More in particular, it has been argued that the costs of harmonising the laws of the jurisdictions investigated would probably outweigh its benefits and would probably not serve the realisation of the policy goals just mentioned when a harmonisation instrument would seek to achieve complete dematerialisation or the abolition of all securities certificates, a harmonisation of the characterisation of accountholder interests, the abolition of all tracing mechanisms and the introduction of a general non-possessory security interest.

2.Furthermore, a modernisation of the laws investigated has been shown to be better left to other (harmonisation) initiatives with regard to the eligibility of intermediaries to maintain and to provide securities accounts, the prohibition on intermediaries from using their clients’ assets for their own businesses (tirage sur la masse) and the obligation of intermediaries to segregate their own from those of their clients. Priority rules of claims in intermediary insolvencies, on the other hand, have been shown to be already sufficiently harmonised.

3.With regard to other specific issues, however, a modernisation of the securities custody and transfer laws of the jurisdictions investigated has been advised. Particularly clarification or an explicit statement

in the relevant legislation should be realised where it concerns: an accountholder’s right to dispose of his securities by means of instructions to his account provider, an accountholder’s right to

247 Cf. HOMMELHOF (1992), 73.

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change the form through which his securities are held, an intermediary’s obligation to pass on essential issuer information, an intermediary’s obligation to facilitate the accountholders’ exercise of the rights attached to their securities, the circumstances under which credit entries in mala fide transferees’ accounts are subject to challenges, and the impossibility of upper-tier attachment. Moreover, it has been submitted that the jurisdictions investigated should be modified so as to allow for uncovered credit entries, while requiring intermediaries to replace the missing assets and adopting clear rules that protect the accountholders in whose names these credit entries are made.

4.But perhaps even more importantly, measures of modernisation are needed that protect accountholder interests in intermediary insolvencies against the intermediary(‘s liquidator) and its creditors, regardless of the number of intermediaries interposed between the issuer and accountholder, while a better rule for allocating shortfalls in such insolvencies should also be implemented. Furthermore, the importance of the finality of securities transfers has been referred to, and it has been submitted that such finality can only be ensured if an abstract and non-consensual securities transfer regime has been realised. Finally, it has been argued that the conflict of laws rules of all jurisdictions investigated should be modernised so as to comply with the rules laid down in the Hague Securities Convention.

These conclusions diverge most strongly from the Legal Certainty Group Advice and the UNIDROIT draft convention where it concerns the possibility of uncovered credit entries, the allocation of shortfalls and the abolition of all causal and consensualist elements in book-entry securities transfer regimes. Yet it must be noted that a modernisation as proposed here will not force market participants to change their practices, but rather follows the market while providing a modern legal foundation to support it.248 On the other hand, the modernisation proposed will require that the European jurisdictions investigated amend their laws to a certain extent, especially with regard to the issues just listed, but also with regard to the other issues where it was concluded that modernisation would be needed. Whether the systemisation of Belgian, French and Dutch law would permit such a modernisation will be examined in the next chapter.

248 Cf. SPINK & PARÉ (2004), 344.

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11.1 INTRODUCTION

In the preceding chapters, it has been argued that the current legal diversity of securities custody and transfer laws requires harmonisation, and that any harmonisation initiative should be used as an opportunity to effectuate a modernisation of inadequate elements in those laws. Subsequently, measures of modification have been proposed for Belgian, French and Dutch law, while it has been indicated that these measures may deviate from more general principles of law, especially where it concerns the legal regime of securities transfers by book-entry .

However, almost all studies on the subject of securities custody and transfer law stress that the law that governs property, contract and commercial law, traditionally the prerogative of national laws, must be taken into account as ‘rooted legal traditions’ when drafting a harmonisation instrument.1 More in particular, they argue that the creation of a harmonisation instrument in this field of securities custody and transfer law will be highly complicated because of its intimate relationship with these other areas of law.2 Moreover, some have contended that considerations of doctrine or coherence prevent a (comprehensive) harmonisation and modernisation of securities custody and transfer law, at least at the doctrinal level,3 while others claim that the modernisation that has already been effected involves unacceptable exceptions to the more general principles.4

1Cf. 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 7 February 2005, 2, on the UNIDROIT project and THAN in GUYNN ET AL. (1996), 75. And see 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.’

2E.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.

3Cf. MICHELER (2006), 53 and see, e.g., CPSS/IOSCO Recommendations 2001, 5: ‘The various components of the legal framework (eg securities law, contract law, commercial law, bankruptcy law, etc.) should not be inconsistent with or override the rules or procedures of the SSS [Securities Settlement System, MH] or its ability to meet these recommendations.’ See also SEN (2005), 6, on the UNIDROIT project. But cf. MOONEY (1990), 413, arguing that a departure from traditional property law constructs (in the context of the drafting of the US UCC) would be an advantage in view of future harmonisation initiatives.

4E.g. JOHANSSON (2005).

11 Harmonisation and coherence of national laws

Indeed, it has been shown in Chapter 2 that the coherence of national laws is to be taken seriously when drafting a harmonisation instrument, especially because supranational legislation in a specific field may affect the more general areas of national law in which that specific field is embedded. However, it was submitted that these coherence considerations should only prevent (the drafting of) a supranational harmonisation instrument if such legislation would result in a system of strong coherence becoming incoherent or weakly coherent, while the coherence of that system could not be preserved to some extent and coherence would be (felt to be) diminished disproportionately.

Thus, in order to ascertain whether the measures of modernisation as proposed in the preceding chapter interfere unacceptably with the more general areas of the laws investigated, a preliminary, two-pronged investigation must be carried out. First, it must be investigated whether a system has strong coherence in the area of securities custody and transfer law, which has been done extensively in the chapters of Part II and will be summarised and generalised here. Second, it must be examined to what extent the proposed rules of modernisation differ from the current ones, or, to put it differently, to what extent the proposed modernisation will affect present securities custody and transfer law. This has been the main subject of the preceding chapter and will be further elaborated upon in the following sections.

The main focus of the present chapter, however, will be the weighing of (the preservation of) national coherence against the modification or replacement5 of present securities custody and transfer law. More specifically, it will be separately ascertained for all subjects of securities custody and transfer law whether the laws of Belgium, France and the Netherlands show logical consistency and monism, i.e. whether the relationship of the separate subjects of securities law with the more general areas of law is logically valid and absent of inconsistencies, while sharing common principles. Then, it will be ascertained how the modification of these separate subjects will affect the logical consistency and monism of these jurisdictions.6 It will be shown that in most instances the present securities laws are either incoherent, i.e. show no logical consistency, or are weakly coherent, i.e. share few common principles, with the more general areas of law in which these national securities laws are embedded. In other words, the relationship between securities custody and transfer law and more general areas of law is not as intimate as supposed by some, so that most measures that would bring about an urgently needed harmonisation of securities law cannot be convincingly made subject to doctrinal considerations of coherence.

5See SONO in GUYNN ET AL. (1996), 66.

6As the modernisation proposed in the previous chapter does not concern US law, the following analysis will not involve that system’s coherence. For a discussion of some coherence considerations with regard to US law, see Ch. 8.7.2.

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11.2 MODERNISATION AND COHERENCE PERSPECTIVES

11.2.1 accountholder – intermediary relationship

In the chapters of Part II, it has been shown that under the laws of all European jurisdictions investigated, the classification of the contractual relationship between accountholder and his immediate intermediary or account provider is important, as it entails the application of general private or commercial law provisions of a specific contract to the accountholder – intermediary relationship. In all European jurisdictions investigated, however, the classification proved to be problematical.

First, the accountholder – intermediary relationship shows core elements of the mutually exclusive statutory contract of dépôt régulier or bewaargeving (depositum) and the non-statutory contract of depositum irregulare.7 More specifically, under the laws of all jurisdictions investigated, a classification as depositum is appropriate since it involves an intermediary’s obligation to preserve the assets it holds for its clients. But under French law, for instance, the intermediary’s obligation to preserve its clients’ securities is also explicitly codified in a separate statute on securities law.8

Moreover, under the laws of all European jurisdictions investigated, depositum implies a depositor’s right to retrieve his assets in specie, while under depositum irregulare, all the depositor’s property rights are transferred to the custodian. Clearly, both characteristics do not correspond with the contractual relationship that a securities accountholder commonly has with his intermediary/account provider. Furthermore, under Dutch law, the classification of the legal act of depositing securities with an intermediary so that these securities are credited to a securities account in the depositor’s name is highly controversial, as it shows elements of both the statutorily sanctioned act of deposit and transfer of property, while both clearly do not match the intended result.

Second, under the laws of all European jurisdictions investigated, an additional contract of mandate or mandat must be construed to cover the additional duties of an intermediary, such as the processing of corporate information and the facilitating of the exercise of the rights attached to the securities in its custody. The precise scope of this additional contract, however, is unclear under Belgian law,9 while under Dutch law, the

7See Chapters 5.3.5 and 6.3.4, respectively.

8Article L. 533-7 C. mon. fin. See Ch. 6.3.4.

9See supra, Ch. 5.3.5.

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application of the statutorily sanctioned contract of lastgeving (mandate) is contrary to certain aspects of securities custody law.10 Under French law, on the other hand, most of the intermediary’s actions regarding the securities in its custody can be classified so that they are considered to result from a contract of mandate.11

In sum, general private law concepts cannot adequately classify the securities accountholder – intermediary relationship. Perhaps more importantly, the most appropriate general private law concepts show characteristics that are contrary to certain aspects of securities custody law. Thus, as the concepts of depositum, depositum irregulare and mandate are used differently in general private law and securities custody law, no logically valid connection can be established between those areas of the law, especially because with regard to most aspects of the accountholder – intermediary relationship, the jurisdictions investigated do not explicitly clarify the sui generis nature of this relationship.

In other words, the European jurisdictions investigated show incoherence with regard to the contractual aspects of the accountholder – intermediary relationship and a modernisation that would result in clearly stated duties and rights of both accountholders and intermediaries or would explicitly characterise this relationship as sui generis, would not diminish the coherence of these jurisdictions. On the contrary, provisions that would explicitly clarify the sui generis nature of the securities accountholder – intermediary relationship would render these jurisdictions weakly coherent in lieu of incoherent; although specific and general areas of the law would thus share less common principles, the current inconsistencies resulting from a mismatch between the use of concepts and compartmentalisation are barred by the isolation of the specific area of law.12

Moreover, such isolation would allow for explicit provisions that are in accordance with current market practices, but derogate from the norms which traditional concepts prescribe. An accountholder’s right to change the form through which his securities are held, other than by physical delivery of the certificates, for example, currently runs contrary to the depositum concept, but has been shown to be a principle with which all modern jurisdictions should comply.13

10See Ch. 7.3.4.

11For instance, if securities are transferred by the intermediary concerned but replaced with securities of the same quantity and quality, this act is considered an acte de gestion (and thus an acte d’administration) and not an acte de disposition; Cass. 1re civ., 2 June 1993, D. 1993, p. 613.

12See THÉVENOZ (2005), 307, in the context of the recent Swiss reform of securities custody and transfer law, which introduced a specific statute for an area of law that was formerly governed by the Swiss civil code.

13See Ch. 10.2.5.

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11.2.2 Accountholder interests

Although the situation under French law is not entirely clear, it can be argued that under the laws of all European jurisdictions investigated, the property law classification of the interests which an accountholder enjoys is fairly certain.14 Under Belgian and Dutch law, for instance, accountholders enjoy a right of co-ownership in, respectively, a notional and an actual pool of fungible securities. While French securities custody law is not based on a co-ownership construct, the combination of rights which French accountholders enjoy show more similarity to a property right of ownership than to a purely contractual claim.15

As can be inferred from the chapters of Part II, however, some general principles that are traditionally associated with property law do not apply to accountholders’ property rights. In other words, the European jurisdictions investigated show no monism or unity with regard to this aspect of securities custody and transfer law. Moreover, the characteristics of accountholder interests do not always accord with all traditional elements of ownership, which may therefore lead to inconsistencies.16 These two issues, as well as the effect of a possible modernisation measure, will be subsequently discussed in the following sections.

Principles of property law

It is little contested that as a general principle of property law of the (civil law) jurisdictions investigated, an entitlement holder can successfully assert his property rights against all third parties holding the assets to which he is entitled.17 However, this principle, which is commonly referred to as droit de suite or absolutism, is not always applied in securities custody and transfer law.

14But see Ch. 10.2.3.

15Cf. MOUY & DE VAUPLANE (1995), 58 and MAFFEI (2005), 242 et seq.

16It could also be argued that these inconsistencies do not so much result from a discrepancy between securities law and traditional property law principles, but rather demonstrate that in general, modern legal practice can draw little benefit from a (sharp) dogmatic boundary between property law and contract law as VON SAVIGNY had advocated; cf., e.g., SMITS (1996), esp. 50 et seq. and see supra, s. 10.2.3. The following sections, however, are based on the assumption that the Savignian contrast between property and contract law is still generally accepted.

17SALOMONS (2006), 13. See also HANSMANN & KRAAKMAN (2002), 374 and 378-379, who argue that the droit de suite principle represents the distinctive characteristic of property rights, rather than the enforceability of those rights erga omnes. Contra, e.g., SCHWARCZ (2001).

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First, in securities custody law, droit de suite involves the tracing of an (ultimate) investor’s rights, through the custody chain, up to the securities to which he is entitled and the person holding them.18 But, although both Belgian and Dutch law represent ‘tracing’ systems, i.e. they recognise accountholders’ direct rights in the securities to which they are entitled, neither system allows accountholders to assert their property interests against persons other than their immediate intermediary. Under Belgian law, it is only in their immediate intermediary’s insolvency that accountholders can enforce their property rights against upper-tier intermediaries. Under Dutch law, however, accountholders are always barred from enforcing their rights against persons other than their immediate intermediary or its liquidator. French law on the other hand, recognises no direct right in (dematerialised) securities that accountholders can enforce against third parties, but in an intermediary’s insolvency, the creditors of that intermediary cannot interfere with the accountholders’ right to revendicate the assets to which they are entitled.

Conversely, droit de suite would, when applied to securities custody, allow the creditors of an accountholder to trace their debtor’s assets and attach those assets at a higher tier. As has been shown in the previous chapter, however, so-called upper-tier attachment is explicitly forbidden under both Belgian and Dutch law.19 Under French law, (property) rights to securities are normally not traced on other tiers, but upper-tier attachment is not explicitly forbidden by statutory law.

Second, under all jurisdictions investigated, droit de suite is usually not applied in securities transfer law. As a general rule, droit de suite permits dispossessed entitlement holders to assert their property rights against third party transferees that have acquired the illegally transferred assets. ‘Dispossessed’ accountholders on the other hand, cannot successfully challenge third party transferees under the securities transfer laws of all jurisdictions investigated, except in extremely rare instances. Both practical and doctrinal considerations prevent such a successful challenge20 and the droit de suite principle is therefore not (fully) upheld in the present securities transfer law of the jurisdictions investigated.21

Finally, it has been argued in the preceding chapter that a modernisation of securities custody law should abolish all so-called double bookkeeping requirements, insofar as they withhold credit entries in securities accounts from having proprietary effect when no corresponding credits are made at a

18Cf. Ch. 10.2.4.

19Ch. 10.2.10.

20See Ch. 10.2.8, where the corollary of the droit de suite principle, the nemo dat quod non habet rule is discussed.

21This exception to the droit de suite rule is in accordance with the general protection of bona fide acquirers of movable tangibles.

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