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

1 Introduction

harmonisation measure must be determined by an assessment of whether its policy objective has been accomplished, but also whether the coherence in national jurisdictions is afflicted.16

Thus, it is on the basis of an analysis of the coherence of securities law with the more general body of law in which it is embedded, that it will be assessed what type of instrument would be most appropriate for the harmonisation of European securities custody and transfer law.17 That analysis will be made on the basis of a generally accepted view of coherence as a principle of systemisation of law. The jurisprudential notions of system and coherence will be discussed at greater length in the following chapter, where those concepts will also be made operational for the use of the coherence analysis carried out in the chapters that follow.

However, it should already be noted here that legal theorists differ greatly in their use of the concepts system, integrity, coherence and unity (mostly because these concepts are more or less pivotal elements of their theories of law),18 and that this study will apply a conception of system and coherence which is believed to be the most suitable for the said analysis. The conception of coherence applied here is therefore non-foundationalist, i.e. it is assumed that not only coherence considerations determine what the law is, and allows for value-pluralism, i.e. it is assumed that not only coherence considerations determine what the law should be.

1.2.2 Comparative law

The coherence analysis regarding the relationship of securities law with the general body of law in which it is embedded, will be made for some selected jurisdictions that represent typical systems of securities law and are commercially important, viz. Belgium, France, the Netherlands and the US.19

16SMITS (2006), 71.

17Cf. the proposal of the European Financial Markets Lawyers Group (‘EFMLG’), which identified a specific area of commercial activity, viz. the collateralisation of securities, and proposed uniform legislation for this specific area, thus ring-fencing it from the rest of the law. On the other side of the spectrum, the European Commission proposed a ‘European Uniform Securities Code’. See EFMLG 2000 Proposal; EFMLG 2003 report, 5-6 and 22; Giovannini Group 2001 Report, 59, and the Communication from the Commission to the Council and the European Parliament, Clearing and settlement in the European Union (28 May 2002), COM(2002)257, 13. Cf. also the UNIDROIT project, which was originally only concerned with collateralised securities in book-entry accounts; PAECH (2002), 1142. See also Ch. 12.3.

18Whether the conception of integrity as used by DWORKIN amounts to the usual conception of coherence, for example, is a matter of debate. See RAZ (1994), 303-309, DICKSON (2001) §

3and the further references provided there.

19Here, as in the remainder of this dissertation, countries are listed and discussed in alphabetical order.

5

1 Introduction

Furthermore, harmonisation instruments of the EU, the Hague Conference and UNIDROIT, will be involved in the analysis.

Belgium’s securities custody law has been famous since 1967, when the Arrêt Royal/Koninklijk Besluit (Royal Decree, ‘KB’) no. 62 was enacted. That Decree has modernised legal thinking about securities custody law, was one of the first statutes to accommodate the transfer of certificates by bookentry20 and has been a central element of Belgian securities custody law, which is generally considered to be one of the most modern in the world. Moreover, because the Brussels-based Euroclear Bank is the world’s largest international central securities depository, Belgian law applies to an enormous number of interests in securities and is therefore commercially extremely relevant.21

French securities law has been selected as a typical system, because it abolished, already in 1981, all physical certificates, which is still a distinct feature of most legal regimes. Moreover, the abolition or dematerialisation involved a technical improvement, but also sparked an enormous flow of important legal publications on almost all central notions of securities law. German securities law, on the other hand, represents a system that is still based on the traditional concept of securities as tangible movables, and its rules on the custody and transfer of securities reflect that. But because Dutch law is quite similar to German law in this respect and because of the natural preference to investigate the law of the home country, Dutch law rather than German law has been selected as a typical system of securities law to be analysed. Moreover, although Dutch general private law was originally based on the Code Napoléon, it has some characteristics that are quite distinct from Belgian and French private or commercial law.22

US securities law has been selected because of its common law heritage, which contrasts with the civil law tradition of the European jurisdictions selected. Furthermore, the Uniform Commercial Code (‘UCC’) has established a modern, harmonised legal infrastructure for the custody and transfer of book-entry securities within the US,23 which may be considered exemplary to some extent for a prospective European modernisation and

20The German Depotgesetz was already enacted in 1937 and had a similar effect; see, e.g., MICHELER (2006), 47 and the references provided there.

21This position assumes the application of a conflict of laws rule that refers to Belgian law. Both under the traditional lex rei sitae, and under the more modern PRIMA rule, this is the case; see infra, Ch. 3.2.

22Cf. WATSON (2000), II: ‘(…) the value of comparative law lies fundamentally in its capacity to explain legal developments, the relationship of law to society (…) the simplest way to exploit comparative law is by examining, and accounting for, similarities and differences in systems that have a historical relationship.’

23All states, as well as the District of Columbia, have adopted Revised UCC Article 8 (1994).

6

1 Introduction

harmonisation. For that reason, US law rather than English law will be investigated.24

Thus, the examination of the jurisdictions selected is principally directed at the legal framework for the custody and transfer of securities and its relationship with the more general body or bodies of law in which it is embedded. For that purpose, various specific questions have been phrased, which will be answered for each of the jurisdictions investigated.25 Those questions principally take a functional approach, i.e. they investigate which legal rules are employed by the jurisdictions selected to deal with certain specific issues, while refraining from using the concepts of one specific jurisdiction.26

First, it will have to be established which categories of securities are eligible for being credited to a securities account. Second, as one of the main issues of the comparative analysis, it is asked what is the nature of the interests that an accountholder enjoys with regard to the securities he is entitled to? That issue encompasses the following questions: how are an accountholder’s interests characterised? How are they evidenced? For example, is a credit entry in a securities account (merely) a proof of ownership or is it a constitutive element for the existence of securities?27 Are informal dispositions over securities, i.e. dispositions that are not registered by a book-entry in a securities account, at all possible?28 Are provisional credit entries in securities accounts possible?29

Third, as another important question related to the nature of accountholder interests, it is questioned how an accountholder’s interests in his securities are protected against the account provider and third parties.30 This question becomes particularly acute when the account provider becomes insolvent, and the most pertinent questions then become: how are shortfalls availed that occur as to the securities held by the account provider?31 How are an accountholder’s interests in securities separated from the account provider’s property, and, more generally, how are accountholder interests protected against the claims of the account provider’s general creditors?32

24Moreover, several recent and comprehensive publications are already available on English securities custody and transfer law; see, e.g., AUSTEN-PETERS (2000) and BENJAMIN (2000).

25The investigation will therefore involve both macroand microcomparison; ZWEIGERT & KÖTZ (1998), 4-5 and ODERKERK (1999), 33-39.

26ZWEIGERT & KÖTZ (1998), 36. The questions take both a functional-institutional, and a problem-solving approach; cf. ODERKERK (1999), 67-88 and 236-239.

27Cf. Giovannini Group 2003 Report, 13.

28Cf. UNIDROIT 2003 Position Paper, 20.

29Cf. id., 24-26.

30Cf. EFMLG 2003 Report, 23-24.

31Cf. id, 26-27.

32See BENJAMIN (2003), 225.

7

1 Introduction

Regarding the transfer of securities by book-entry, the specific questions to which an answer is sought are: what are the requirements for a transfer of securities by book-entry?33 When is a transfer of securities by book-entry effective, i.e. when can the transferee assert his interests in the transferred securities against third parties? Under what circumstances can bona fide transferees rely on the crediting of their securities account, especially when having acquired a non domino,34 and, more generally, under what circumstances may credit entries in a securities account be reversed?35

Besides the risk which an accountholder runs in its account provider’s insolvency, the nature of the security interest(s) which a collateral taker can vest in securities appears to be the most relevant issues for market participants.36 Consequently, the creation, perfection and enforcement of security rights that can be vested in securities will be examined in the comparative research presented in this dissertation. More specifically, it will be questioned what the requirements are for the creation of a security right in book-entry securities and how such a security interest may be enforced.37 Moreover, it is asked whether upper-tier attachment is possible, i.e. whether it is possible for an accountholder’s creditor to exercise his rights against higher-tier account providers.38

Finally, the conflict of laws rules of the selected jurisdictions will be analysed and compared, insofar as they concern the custody and transfer of securities, both as title transfer and by way of security. No attention is therefore paid to other issues of private international law, such as issues of jurisdiction and execution of judgments.39

The findings of the analyses as described, are subsequently compared and evaluated. More in particular, the securities laws of the European jurisdictions investigated will be compared with each other, with US law, with the UNIDROIT draft convention and with the advice of the EU Legal Certainty Group. For the evaluation, the national securities laws investigated will be tested to the standards of modern securities custody practice, which are expressed in various (international) recommendations and reports, and have proven to be generally accepted by lawyers and practitioners alike. Moreover, it will be evaluated whether the national laws investigated

33Cf. id., 19-20 and EFMLG 2003 Report, 24-25.

34Cf. Giovannini Group 2003 Report, 15; UNIDROIT 2003 Position Paper, 21-22 and EFMLG 2003 Report, 26-27.

35Cf. UNIDROIT 2003 Position Paper, 22-24.

36Cf. BENJAMIN & YATES (2002), 62.

37Cf. EFMLG 2003 Report, 25-26.

38Cf. Giovannini Group 2003 Report, 14; UNIDROIT 2003 Position Paper, 18-19 and EFMLG 2003 Report, 25.

39For a summary of these issues, see BENJAMIN & YATES (2002), 63 et seq.

8

1 Introduction

achieve financial stability and investor protection to the maximum degree possible.

On the basis of this comparison and evaluation, it will be ascertained to what extent current securities laws of Belgium, France and the Netherlands should be modified. Tested to the overarching policy goals of financial stability and investor protection, proposals for modernisation and harmonisation will thus be made, and it will be consequently assessed whether these proposals would unacceptably undermine the current systemisation of the European jurisdictions investigated. Conclusions regarding a future harmonisation of the jurisdictions investigated are therefore drawn on both normative and coherence grounds. These conclusions could be generalised so as to regard the desirability and form of a future European harmonisation instrument, especially because they are drawn on the basis of a comparison of some typical EU jurisdictions and a general theory of coherence and systemisation of law. But verification of such a generalisation would, of course, require further research into the other jurisdictions of the EU.

1.2.3 Additional method issues

From the discussion of the methodological approach taken, it can be inferred that the present study focuses primarily on issues that traditionally classify as issues of commercial or property law, and it is therefore not concerned with the specifics of custody agreements or transfer agreements.40 Neither will substantive or conflict of laws rules that concern typical issues of corporate or insolvency law be addressed in detail. Operational or technical issues of clearing and settlement systems, prudential requirements for participants in clearing and settlement systems, and, more generally, regulatory law is also considered to lie outside the scope of the present work.

The qualitative research described above has been conducted mainly by following the traditional legal method, i.e. by an analysis of available literature and case law. In addition, courses and seminars on the subject of study have been followed, notably at Université de Paris II (PanthéonAssas), Harvard Law School and New York University School of Law. Furthermore, conversations with eminent experts in the field have significantly contributed to the research presented in this dissertation.41

The results of research on the conflict of laws rules that concern securities custody and transfer has been previously published as part of the Allen &

40For instance, specific problems that occur when book-entry securities are donated are not addressed, since those are generally considered to be of a non-commercial nature; see, e.g. In re Ferguson, 18 UCC Rep. Serv. 1284 (NY Sur. 1967).

41See Preface.

9

1 Introduction

Overy Research Series.42 Preliminary findings have also been presented in the context of the Ius Commune Research School, in which the law faculties of the Universities of Amsterdam, Edinburgh, Leuven, Maastricht and Utrecht participate, as well as to individual experts.43

The present dissertation forms part of a larger research project of the Amsterdam Institute of Private Law and its successor, the Centre for the Study of European Contract Law (‘CSECL’), on ‘System and Coherence’. That research project is directed at the consequences of Europeanisation on the systemisation of private law and is characterised by a comparative approach. In general, the CSECL’s research is directed at the Europeanisation of private law, and it focuses on the consequences of Europeanisation for private law from political and doctrinal perspectives.44

This study applies the terminology that is common to international publications in this field.45

1.3 OUTLINE

In the remainder of Part I (introductory chapters), the jurisprudential notions of system and coherence, as well as their relevance to European harmonisation processes are discussed (chapter 2). In the chapter that follows, the interplay between the reality of securities custody and transfer on the one hand, and the relevant substantive and conflict of laws rules, on the other hand, are examined from a historical perspective (chapter 3). In chapter 4, some general remarks are made on the risks and current practice of clearance and settlement in global securities markets.

In Part II (securities laws of selected jurisdictions), the substantive and private international securities custody and transfer laws of Belgium (chapter 5), France (chapter 6), the Netherlands (chapter 7) and the United States (chapter 8) are analysed on the basis of the questions listed above and against the background of the coherence concept developed in chapter 2.

42HAENTJENS (2006).

43See Preface.

44See the Centre for the Study of European Contract Law’s Research Programme 2006-2009, 3, available at www.jur.uva.nl/csecl/.

45See BERNASCONI (2000), 6 et seq. and the BIS Glossary. The BIS Glossary consists of a list of definitions used in the 16 reports regarding payment and processing in the international capital markets and is published by the Bank of International Settlements (‘BIS’). For a list of commonly used concepts in EU law, see the Legal Certainty Group’s Compendium of definitions in Community law, MARKT/G2/MNCT D(2005), available at http://ec.europa.eu/internal_market/. The Legal Certainty Group also released a memorandum that specifically addresses the use of ‘intermediary’, ‘account provider’ and ‘custodian’; see MARKT/G2/MNCT D(2005), available at http://ec.europa.eu/internal_market/.

10

1 Introduction

Part III (harmonisation and modernisation) starts with an overview of current global and regional harmonisation and modernisation initiatives (chapter 9). In the chapter that follows, it is discussed to what extent the European jurisdictions investigated should be modernised so as to meet the generally accepted standards of modern securities custody and transfer practice that are distilled from the various recommendations and reports discussed in the previous chapter. In chapter 11, it is examined whether the advocated modernisation measures would unacceptably infringe on the systemisation of the European jurisdictions investigated. The final chapter of this part discusses the institutional context, the preferred scope and the most appropriate form of a EU harmonisation instrument in the field of securities custody and transfer law (chapter 12).

Subsequently, the conclusions reached are summarised and it is determined whether a European harmonisation instrument that would foster financial stability and investor protection would be prohibitively complicated by the current relationship between securities custody and transfer law with property, contract and commercial law under Belgian, French and Dutch law.

In sum, the present study aims to satisfy HOMMELHOF’s admonition, which concerned only the implementation of European harmonisation instruments in German law, but which, it is submitted, applies to any harmonisation instrument and any jurisdiction’s legal system: ‘Bei jedem Angleichungsprojekt in Brüssel muß von Anbeginn sorgfältig überlegt werden, wie seine Elemente in das in Deutschland vorhandene Recht eingebaut und mit seinen Prinzipien in Übereinstimmung gebracht werden können. Systemstimmigkeit sollte bereits vor und während der Verhandlungen in Brüssel vorgedacht werden und nicht erst nach Erlaß der EG-Richtlinie (…).’46

46 HOMMELHOF (1992), 106.

11

2 SYSTEM AND COHERENCE

2.1 INTRODUCTION

It has been hypothesised above that the coherence of national systems plays an important role in harmonisation processes, as it has been argued that (the current systemisation of) national legal systems are likely to affect the future form of a harmonisation measure to which it will subject, and vice versa. In the chapters of Part II, some selected jurisdictions will therefore be analysed to determine the current coherence of securities law with the more general body of law in which it is embedded in view of a future harmonisation instrument of securities custody and transfer law.

In order to do so, as well as to assess to what extent (national) systems of law should influence future supra-national legislation, i.e. what the role of coherence should be in such a legislation project, the jurisprudential notions of system and coherence must be made operational. The following sections will therefore make some introductory remarks on those notions and it will be shown how a generally accepted view of coherence as a principle of systemisation of law will be applied.1

However, unlike some legal theorists who have developed coherence accounts, a non-foundationalist notion of coherence will be applied here, for it is assumed that not only coherence considerations determine what the law is.2 Moreover, it is believed that such a notion would not be the most appropriate one in view of the analysis to be made in the current book, which involves a coherence test of positive law, rather than the development of a general theory of law. Furthermore, it will be shown that the most appropriate notion of coherence for the purposes of the present dissertation involves a notion of coherence that allows for value-pluralism, as it is assumed that coherence is only one of the sometimes conflicting principles of the systemisation of law. In other words, it is assumed that not only coherence considerations determine what the law should be.

In the following sections, the systemisation of law and its principles will therefore be discussed first, after which the concept of coherence will be further made operational. Subsequently, some general remarks will be made about the interplay of coherence and supra-national legislation, in particular of the European legislature.

1Thus, a systematic approach to law is chosen here, rather than an approach that is based on the constitutional creation of law by authority and its pre-emptive character; cf. e.g. JOERGES (1997), 379, RAZ (1994), 309 and see KRESS (1996), 547-548. It is submitted, however, that for the present purposes of assessing the coherence of law, a systematic approach to law is more appropriate.

2Cf. SORIANO (2003), 298 and 300 and BERTEA (2005), 157.

2 System and coherence

2.2 SYSTEMISATION OF LAW

2.2.1 Relevance and principles of systemisation

Most jurists agree that organised bodies of law can be looked upon as systems (of law), and that very few bodies of law are imaginable that are so badly organised that they do not qualify as a system at all.3 A system of law, as it is understood here, arranges legal material, i.e. court decisions and legislation. Legal material so understood, in its turn, is based on, and formulates rules and norms, as a consequence of which those rules and norms, as well as the individual legal decisions (adjudication and legislation), together form the elements of a system of law. In addition, the principles underlying the said rules and norms are elements of a legal system.4 In sum, a system of law consists of individual legal decisions, rules, norms, and their underlying principles.

A neatly systemised system is arguably preferable over a body of law that is not or is badly organised, since fairness in general, and equality and legal certainty in particular are enhanced by a well organised set of rules, norms and principles.5 Systemisation enhances equality, because it requires the formulation (implicitly or explicitly) of rules, norms and principles as well as of the relationships between them. It is therefore clear in a well organised system, which values apply to which situations and what the relevant elements of a particular situation are. Thus, systemisation will probably lead to the treatment of like cases alike – provided that the relevant elements are identical.6 In badly organised systems on the other hand, it is unclear which values (should) apply in which situations, and similar cases are therefore more likely to be treated differently. As another result of the clarity established by systemisation, legal certainty is enhanced, for a well organised system arguably provides its subjects with certainty as to when rules and norms are applied to specific situations.

3See, e.g., WILHELMSSON (2002), 80: ‘All phenomena of life can be systemised’ and ‘Legal science creates the system of the legal order.’ See also e.g. BLOEMBERGEN (1992-1), at 564. On the role of codification for systematisation, see, e.g., HESSELINK (2001), 9-11 and THOMAS (2005), 41 et seq., from a historical perspective.

4Because systemisation thus implies the formulation of principles, systems of law also represent expressions of an interpretation of law; see e.g. BROUWER (1999), 223 and BLOEMBERGEN (1992-2), 310 and the further references provided there. On the intricate relation between ‘principles’ and ‘values’ in this context, see MACCORMICK (1984b), 40-41.

5Cf. HESSELINK (2001), 76-78, LOOS (2006), 8 and BLOEMBERGEN (1992-1), 559, listing simplicity as another advantage of the unity of law, a concept which amounts to system as employed here; cf. BLOEMBERGEN (1992-1), 564 and BLOEMBERGEN (1992-2), 309.

6Thus, a formal conception of equality is used here; cf. BROUWER (1992), 187.

14