Internal Market and Services Commissioner Charlie McCreevy said: “More and more securities are held and transferred internationally. This benefits investors, businesses, and markets. We want the EU legal framework to keep pace with this. Giving Europe a strong voice in drawing up this Convention will contribute to making sure the rules for holding securities develop coherently worldwide and in a way that is compatible with the high level of sophistication currently attained in the EU. These rules should also fit the practice of the markets, both as they are and as we hope they will develop."
UNIDROIT is the International Institute for the Unification of Private Law, aiming at modernising, harmonising and co-ordinating private and in particular commercial law internationally. 59 countries are member states of UNIDROIT, including all EU member states except Latvia and Lithuania.
In modern securities markets, securities are mostly held for others by intermediaries, for which purpose they operate securities accounts. These accounts are treated commercially and economically as being the focus of ownership. However, legally their status differs across nations. There is a lack of clarity about who has what rights and of what kind when securities are held for investors by means of an intermediary’s accounting records (‘book-entries’). In 2004, UNIDROIT released a “Preliminary draft Convention on harmonised substantive rules regarding securities held with an intermediary”, intended to solve this issue.
This issue has also been discussed extensively at the EU level. It was identified, for example, as being of pivotal importance to the fulfilment of the single market in financial services in the Giovannini reports on clearing and settlement[1], in the Commission’s Communication of April 2004, “Clearing and Settlement in the European Union - The way forward” (April 2004, COM/2004/0312 final), and in the establishment by the Commission of its Legal Certainty Group.
The safety of any securities clearing and settlement system ultimately depends on the soundness of the legal system on which it is built. The Commission hopes that the work of UNIDROIT will contribute to a greater understanding and to a greater coherence worldwide of this esoteric but vital area of law.
The UNIDROIT Preliminary draft Convention will address some issues which are the subject of existing Community law and some which are not. The Commission is accordingly authorised to negotiate, on behalf of the Community, the parts of the draft UNIDROIT convention that affect existing EU law, with particular emphasis on issues covered by the Settlement Finality and the Financial Collateral Directives.
[1] eports of the
Giovannini Group on “Cross Border Clearing and Settlement Arrangements in
the European Union” (November 2001) and (April 2003)
http://europa.eu.int/comm/economy_finance/giovannini/clearing_settlement_en.htm
