Current Developments in Monetary and Financial Law, Vol. 5
Chapter

Chapter 21 The Draft Unidroit Convention on Intermediated Securities: Transactional Certainty and Market Stability

Author(s):
International Monetary Fund
Published Date:
November 2008
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Author(s)
HERBERT KRONKE

This chapter describes the efforts of the International Institute for the Unification of Private Law (UNIDROIT) to deal with a major change in capital markets that has occurred over the past thirty years, specifically the intermediated holding of securities. The product of the organization’s work is the draft UNIDROIT Convention on Intermediated Securities (Convention). The chapter first describes this change in the pattern of securities markets, then describes the status of work on the Convention, including a conceptual analysis of today’s market in intermediated securities. It then summarizes the overarching objectives of the Convention: internal soundness and cross-border compatibility. Finally, the chapter presents a summary of the provisions and structure of the Convention.

Only a few decades ago, and in virtually all legal systems around the world, investment securities, in particular shares and bonds, were certificated. In everyday bilateral transactions a sale and purchase of securities could be carried out in a manner similar to the sale and purchase of any other movable: the seller delivered the certificate representing the underlying security against payment of the purchase price. The delivery transferred, subject to qualifications flowing from the type of security and varying according to the relevant national law, title in the securities, thus constituting settlement; the payment occurred contemporaneously unless the parties to the transaction agreed, at the seller’s risk, to defer payment of the price. The fact that owners of securities kept the certificates either under their direct control or under a simple custody agreement with their bank contributed equally to the straightforwardness of the situation and the absence of risks—other than the risk of bad judgment—serious legal problems. So long as all investors had physical possession of their securities in form of certificates and notes and trade occurred within the territorial boundaries of one country, the law hardly paid any attention. The reality of today’s capital markets, however, is different.

The last thirty years have witnessed dramatic changes in the holding patterns as well as the structure and organization of securities markets. The need to reduce administrative burdens, risk, and expense by curbing the volume and movement of paper (the huge increases of the amount of capital sought to be raised on the market, as well as increases in both domestic and trans-border investment and trading, had led to the proverbial “paper crunch”) induced a growing number of countries to move from direct holdings of certificated investment securities to indirect holdings of uncertificated and/or immobilized securities through one or more tiers of custodians (banks or specialized financial institutions).1

In 2005 the estimated value of securities held in custody with intermediaries was US$ 50 trillion. The volume of trades and collateral transactions in corporate and government securities issued by OECD member governments per day amount to US$ 2 trillion—that is, it exceeds the world’s total GDP (greater than US$ 40 trillion) approximately every 20 trading days.

Holding patterns being multi-tier—i.e., each of the intermediaries holding its clients’ securities in accounts maintained with other intermediaries—and stretching across national boundaries, the legal risks known from purely domestic situations (such as the principal risk, which is that one party to a transaction may perform without reciprocal performance by the other; the replacement cost risk, which is the potential failure to realize an anticipated gain and a potential liability to others in case of nonperformance by one party; or the general custody risk, that the intermediary may act improperly) have become exacerbated. Moreover, the legal frameworks within which the intermediaries operate are often not compatible. Measures to address these uncertainties in the course of each transaction produce unnecessarily high transaction costs.

The objectives of the draft UNIDROIT Convention on Intermediated Securities, therefore, are:

  • The protection of market participants (both investors and intermediaries);
  • The protection of the financial system; and
  • Gains in economic efficiency.

History and Current Status

Following UNIDROIT practice, in 2002 a group of experts (the Study Group), made up of 16 experts from 12 countries and three international organizations set out to explore possible directions and the scope of its work,2 and in 2004 produced a first draft. On-site consultations in 20 countries and four sessions of the Committee of Governmental Experts (CGE), held in May 2005, March 2006, November 2006, and May 2007 at which 39 delegations and 17 observer organizations substantially developed the underlying analysis and the legal concepts, produced a remarkably mature preliminary draft Convention.3 At the end of the fourth session, which was particularly devoted to issues arising from the desired inclusion of so-called transparent systems, the Committee concluded that the text of the draft was mature for transmission to a diplomatic conference. The UNIDROIT Governing Council examined the draft and authorized transmission to a diplomatic conference, for adoption of the final text as a convention, i.e., a treaty binding those states that will ratify or accede to it. At the invitation of the Government of Switzerland the Conference will be held in Geneva, September 1–13, 2008.

Conceptual Analysis of Intermediate Holding of Securities

Put simply, there are four ways to conceptualize the legal position of the various actors in indirect holding patterns and, in particular, that of the investor/account holder. Example 2 below graphically depicts these legal positions.

In all four systems, at the top level one finds the issuer and a central securities depositary (CSD) where either dematerialized (uncertificated) securities and/or immobilized securities (issued in the form of global notes) are deposited and held. As seen in Example 2, the account holder/investor is shown at the bottom. One or more intermediaries stand between an account holder and the issuer. In other words, the investor holds his securities in an account with an intermediary who in turn may hold the securities of that investor, other clients’ securities, as well as its own securities in an account with one or more upper-tier intermediaries. Ultimately, all investors’ and all intermediaries’ securities holdings up the chain are reflected in the CSD’s omnibus account (and/or individual investors’ accounts).

In the first group of legal systems, even though one or more intermediaries stand between the account holder/investor and the issuer, the intermediary has no legal significance, and the investor’s rights are the functional equivalent of those of a direct owner. In terms of property law analysis, all account holders and investors in the securities of an issuer are co-owners of a fraction of a pool of securities. The law, moreover, imputes that the intermediary has some kind of possession or control for the account holder/investor.

In a second group of systems, the property analysis is the same but the law permits or imposes—and at least in a number of jurisdictions assures—that each investor’s holdings and dispositions of securities be traceable. In other words, at the level of the CSD there are individual accounts of identified account holders who are owners of the securities credited to their accounts. Intermediaries merely act as book-keepers, pass on instructions and information or transfer dividends in a capacity of agent or similar. China, which may soon be the most important market, is based on this model.

A third group of jurisdictions uses the concepts of the law of trusts, where ownership is split into legal ownership and beneficial ownership. In those systems the top-tier intermediary is the legal owner bound by fiduciary duties (trustee), whereas the ultimate investor (and, as the case may be, other intermediaries in the chain) is the beneficial owner.

In a fourth group, the analysis is that there is legal ownership at the top level, i.e., vested in the CSD, whereas the investor’s legal position (and that of other intermediaries) is defined as entitlement, a bundle of contractual and other rights defined by statute.4 This is the model for the recent evolution in two exceedingly important markets, the United States and, in the not too distant future, Canada.

At one end of this spectrum, the account holder’s rights may include the right to enforce the securities against the issuer and he is generally treated as the direct owner of the securities or may be permitted or required to be recorded as the registered owner on the issuer’s books. Elsewhere within that spectrum, either the intermediary breaks the ownership chain between the account holder/investor, and the issuer or the intermediary is treated as the registered, legal, or nominal owner of the securities and the account holders are limited to enforcing the securities indirectly against the issuers through their intermediaries.

Overarching Objectives: Internal Soundness and Cross-Border Compatibility

Internal Soundness

In light of the specific risks created by the lack of physical control of certificates, the question is whether investors can be confident that their interests are robust and can be dealt with under simple, clear rules and procedures for acquisition, holding, transfer (including both outright transfer and provision of securities as collateral), and realization. Furthermore, it is clearly essential that the investor’s interest should not be exposed to risks such as the insolvency of any intermediary or interference by unrelated parties.

The Study Group termed these issues of internal soundness. Domestic legislation or judge-made law either already addresses them or should address them. The draft Convention’s objective is to contribute to modernization and harmonization of the solutions.

Even without any complexity added by any internationality of the situation, rules incapable of solving the problems arising in the following two examples would clearly be unsound.

In example 1, the account holder holds 100 securities with his intermediary. Under the account agreement the intermediary is allowed to use securities credited to the account maintained with that intermediary. The account holder has pledged 30 to pledgee 1. What happens if the intermediary pledges 100, and not just 70, to pledgee 2? An internally sound system must provide plausible answers to the questions as to what the position of the pledgees is vis-à-vis each other and the intermediary, what action the intermediary is required to take to remedy the situation, and what safeguards are provided to protect the integrity of the system and prevent a virtual “inflation” of the issue.

Example 1

Example 2

In example 2, the account holder/investor has provided securities held with his intermediary as collateral to a lender (secured creditor). Now the account holder becomes insolvent. The general creditor tries to attach the investor’s securities, not at the level of his immediate intermediary (where they are still identifiable) but somewhere further up the chain, e.g., at the level of the CSD, where that intermediary has an account to which its own securities, the insolvent investor’s securities, and other clients’ securities are credited (but where those securities are not identifiable as “belonging” to any of them). An internally sound system prohibits upper-tier attachment. First, because securities of investors who have nothing to do with the subject matter of the attachment must not be blocked. Second, because both the account holder and a person dealing with an account holder at a lower level (e.g., a pledgee) must be able to rely on the position as it is stated for the account at that level).

Cross-Border Compatibility

Arguably, all intermediated securities holdings are or may potentially be turned into cross-border fact patterns. Therefore the draft Convention must address issues affecting the ability of different legal systems to connect successfully where securities are actually or potentially held or transferred across national frontiers. If the rules of two systems, though each achieving internal soundness, produce an unclear or unsatisfactory result in combination, this raises questions that the UNIDROIT Study Group termed, and the draft addresses, as issues of compatibility.

This problem goes beyond the question of which law governs a cross-border transaction, a question answered by the relevant conflict of laws rules and, it is hoped, in the future by the Hague Securities Convention (see discussion below). And we do not need to think of complex fact patterns where rules of company law, contract law, property law, insolvency law, and regulatory law have to work together. It is sufficient to recall that the very concept of securities varies from country to country. And it is clear that, in case of an investor in country A who provides securities issued and held by a CSD in country B and accredited to his account with his intermediary in country C to his creditor in any of A, B or C, let alone country D, legal certainty suffers significantly if what constitutes a security in country A and B were not to be characterized as a security in C (or D). This situation, however, reflects today’s legal situation, even in countries with legal systems belonging to the same family.

Law and Practice: Potential Benefits of Modernization and Harmonization

Although the same commercial developments have taken place to one degree or another in most markets, domestic legal systems have maintained their insularity. The systems may be exceedingly refined and, in this respect, typical “lawyers’ law” (or, even worse, “students’ law”). But they produce, in the best case, problems of comprehension leading to unnecessarily high transaction costs (e.g., legal opinions) and, in worst-case scenarios, problems of actual incompatibility in a crisis and, following from that, systemic risks of market failures.

By realigning the law (where such law exists) with today’s practice of holding and trading securities, many systems—even analytically sophisticated systems in developed securities markets—stand to gain in terms of economic efficiency. Some may well improve their position as regards international competition of legal systems and the markets for which they provide the framework. Individual investors and individual intermediaries, as well as lenders who take securities as collateral, stand to gain from improved legal certainty. This, in turn, may lower the cost of credit. And most importantly from the perspective of domestic legislatures and national and international regulators, systemic risk will be reduced and overall financial markets’ stability will be improved. The more these improvements occur in an internationally harmonized fashion, the better and the more incisive they will be.

What Has Been Achieved and What Remains To Be Done?

At the worldwide level, the Hague Convention on the Law Applicable to Certain Rights in Respect of Securities held with an Intermediary, adopted in 2002 but signed by Switzerland and the United States of America on 5 July 2006 and therefore bearing the title Hague Securities Convention of 2006 (Hague Convention), now provides legal certainty as regards the conflict-of-laws issues, i.e., in determining which domestic law is applicable to the holding and dispositions of securities held in the form of book entries with an intermediary. The Hague Convention is unique for a number of reasons:

  • The unsatisfactory state of the lex lata and the basic features of the solution to the problems arising out of technical and operational changes in the securities industry were identified by practitioners,5 legal scholars,6 and legislators in Belgium and Luxembourg, homes to two major international central securities depositories (ICSDs), before work on the draft got under way. Moreover, a highly visible case in the English courts arising out of the collapse of Robert Maxwell’s empire had given exposure to how unsatisfactory the state of the conflict of laws was in many jurisdictions and how much judicial instinct and caliber it took to get it right.7
  • The delegates in The Hague were fortunate to start their discussions on the basis of a superb preparatory document, the so-called Bernasconi Report.8
  • The financial industry was deeply involved in the consultations.
  • This was the first time that the world negotiated with the European Commission, the executive arm of a regional economic integration organization to which its member states had transferred the law making power over the issues to be covered by the future instrument.
  • A supra-national regulator, the European Central Bank, participated—no doubt to some extent with an agenda of its own.
  • Those who will be called upon to implement, interpret, and apply the Convention will have at their disposal an official explanatory report9 of the highest quality. The degree of predictability achieved through the new uniform conflict rules is remarkable.

However, there are deliberately accepted weaknesses in the Hague Convention deriving from the limitation of its scope. Most importantly, Article 2(1) issues, in particular the creation and perfection of security interests, are governed by the law applicable under the Convention if the relevant “event” has occurred before the opening of the insolvency proceeding (Article 8(1)). At the same time, the applicable insolvency law (lex concursus) designated by the autonomous conflict rules of the forum is preserved because the Convention does not contain any rule on determining the lex concursus. Thus in cases where the relevant intermediary is a financial institution that operates globally, it is impossible both for the account holder and any collateral taker to anticipate which law will govern the effects or the use of their—recognized, Article 8(1)—rights vis-à-vis the intermediary’s insolvency administrator or the collateral provider (account holder) respectively. Will the lex concursus contain appropriate rules regarding any shortfalls in the intermediary’s holdings? Will the lex concursus uphold or, on the contrary, defeat the collateral provider’s default? These uncertainties highlight the need for harmonization of the basic substantive law regarding indirectly held securities.

At the regional level, the EC Finality Directive10 and the Financial Collateral Directive11 have addressed discrete areas and are applicable to distinct market participants and/or specific types of transaction.

The future UNIDROIT Convention is designed to provide a general legal mold in the form of substantive rules for indirect holding patterns as well as transparent systems. The greater the success of the Hague Convention, the stronger the incentive for domestic legislators to bring their domestic substantive law up to the benchmark provided by the UNIDROIT Convention because, under the Hague Convention’s rule of party autonomy, investors and intermediaries will choose only national laws to govern their transactions that meet the most advanced standards for investor protection and operational soundness.

Overview of the Draft Convention

Scope and Approach: The Policy Choices

Governments and their intergovernmental organizations in charge of formulating private and commercial law instruments must make a number of policy choices each time they embark on the process of developing and negotiating a new instrument. They must respond to real needs, fix a real problem, not be overly ambitious as regards the prospective scope, and where necessary be coordinated with other instruments in adjacent areas of the law.12

Apart from the targeted objectives of improving internal soundness and compatibility of national legal frameworks, the Study Group made five policy decisions at the outset.

First, it was considered inappropriate to distinguish between domestic and cross-border transactions and draft an instrument only for the latter. While the definition of internationality and the limitation of the scope based on that criterion do make sense in instruments governing simple, bilateral relationships that may well be and remain domestic (such as a contract for the sale of goods—see Article 1 of the 1980 UN Convention on Contracts for the International Sale of Goods), it loses its raison d’être in all instances that are potentially international even if originally purely domestic. The classic example is the 2001 Cape Town Convention on International Interests in Mobile Equipment and its equipment-specific protocols.13 Where assets that by their very nature cross, or potentially cross, international frontiers in their daily operations or that are located outside any national territory—such as aircraft, railway rolling stock, or space assets—are used as collateral, it would not make sense to envisage a purely domestic situation and distinguish it from fact patterns that are international from the outset. In the same vein, it would have appeared artificial and unrealistic to conceptualize, in today’s global environment of financial instruments and connected markets, a distinction between international and domestic holdings of securities with intermediaries.

Second, conceptual neutrality was of the essence. On the basis of the so-called functional approach, it was important not to transplant solutions—or, for that matter, even use terminology—that were clearly associated with a certain legal family and analysis (e.g., the law of trusts, or concepts of ownership rooted in a specific tradition). Article 7 of the current draft14 is the most striking example. It accommodates effortlessly both the average civil law and common law approaches, as well as hybrids, just by describing in neutral, everyday language an investor’s rights where that investor holds securities in the form of credits to a securities account with an intermediary.

Third, the drafters opted for a minimalist approach: no comprehensive uniform “custody, clearing and settlement act” is planned; consideration is given only to what is strictly needed to establish or enhance internal soundness and efficiency and cross-border compatibility. The objective is to produce as unintrusive an instrument as possible by employing fact-based rules. The instances where the draft leaves details or even basics to the non-convention law (see Article 1 (m) of the draft Convention) are numerous.

There are, however, limits to both the functional approach and the minimalist approach. As to the latter, Articles 9–16 (on the transfer of intermediated securities) are in all likelihood more detailed than their counterparts in a number of countries participating in the negotiations. As regards the functional approach, it is clear that the neutral, nonconnoted language of the instrument will have to be “retranslated” into domestically meaningful conceptual language.

Undoubtedly, a significant challenge lies here. The implementing legislation in contracting states must give full effect to the Convention’s provisions, weigh carefully how far it may go beyond minimum requirements so as to not disrupt trans-border compatibility, and ensure that any conceptually diverging but functionally equal retranslation by other contracting states will be recognized as such in a domestic forum and, where applicable, applied on an equal footing. Legislatures in countries that at the time of implementation have no or very few and conceptually noncommitted rules on intermediated securities will have a much easier job than, say, France, Germany, or Japan.

Fourth, the unifying element—acceptable from early on in the consultation process to all key legal systems independently of their historic roots—is the recognition of book-entry accounts and the constitutive nature of credits to an account for any right or obligation.

Fifth, the future UNIDROIT Convention must be compatible with existing relevant international instruments both at the global and the regional level, such as the Hague Convention and, probably amended, EC Directives (see discussion below).

Guidelines for the Solution of Core Issues

The needs of market participants, both investors and intermediaries, as well as the need for governments, regulators, and central banks to assure the soundness and stability of financial markets, required that the future instrument encapsulated the following solutions of core issues.

  • Book entries in the investor’s account must be effective both against the intermediary—in particular, in case of the intermediary’s insolvency—and third parties.
  • An investor/account holder’s rights attached to the securities, including in particular dividends and other distributions and voting rights, must be protected.
  • The Convention must contain clear and simple rules for the acquisition and disposition of securities, including the creation of security interests, i.e., their use as collateral.
  • To the extent that there are matching debits and credits to accounts maintained by the intermediary for different account holders (whether or not in respect of deliveries between those account holders), the intermediary must be able to effect a net settlement of those debits and credits. In other words, it need not make precisely matching entries in accounts which it holds with an upper-tier intermediary, but can make such entries (if any) as required to reflect the net overall change in the aggregate balances of its account holders together.
  • So-called upper-tier attachment (see Example 2 above) must be prohibited. In other words, creditors of an account holder must not be allowed to attach their debtor’s intermediated securities at the level of higher tier intermediaries or the issuer.
  • There must be clear rules on priority in case of competing interests.
  • Good-faith acquisition or, as the draft puts it, “acquisition by an innocent person,” must be protected.
  • The rights of an account holder and an interest that has been effective against third parties must be effective against the insolvency administrator and creditors in any insolvency proceeding in respect of the relevant intermediary.
  • Measures for the protection of the integrity of the issue (against inflation by book entries) must be taken.
  • Loss sharing in case of an insufficient aggregate number and amount of securities of the same description credited to securities accounts maintained by an intermediary must be regulated, including in case of insolvency of the intermediary.

Structure of the Draft Convention

In the course of the Study Group’s deliberations and, thereafter, the consultations at the sessions of the Committee of Governmental Experts, the structure of the draft instruments has undergone quite substantial changes. The current version would appear to be mature and capable of being transformed into the final text of the future Convention with relatively few amendments and changes.

As is common in transnational commercial law, Chapter I (Articles 1–6) is devoted to definitions, scope of application, and principles of interpretation. The reader’s attention is particularly drawn to the definitions of securities (Article 1 (a)), intermediated securities (Article 1 (b)), intermediary and relevant intermediary (Article 1 (d) and (g)), account holder (Article 1 (e)), securities settlement system and securities clearing system (Article 1 (n) and (o)). Article 6, the provision guiding legislators and courts, as well as investors and intermediaries, in the processes of implementing, applying, and interpreting the Convention, is current standard. Article 3 defines the sphere of application once the conflict-of-laws analysis—be it under the Hague Convention or under the forum’s autonomous conflicts rules—has identified which country’s law governs. Article 4 establishes that of the two branches of activities carried out by central securities depositaries (CSDs)—to wit, the notarial functions of creating, recording, or reconciling securities in their relationship with the issuers and, on the other hand, their activities as intermediaries—only the latter are within the instrument’s scope. The most important addition to the draft formulated during the last session of the CGE in May 2007 is Article 5, a provision designed to accommodate the so-called transparent systems. It addresses the phenomenon that the CSD and other entities in the chain share functions, and the declaration mechanism set forth in paragraphs 2 and 3 serves the purpose of enabling parties to a transaction involving a transparent system to precisely evaluate the relevant legal implications ex ante.

Chapter II (Articles 7 and 8) spell out the rights of the account holders where securities are credited to their accounts.

Chapter III (Articles 9–16) lays out the ways of acquiring and deposing of securities by credit and debit to the account holder’s securities account, including good-faith acquisition by an innocent person (Article 14). Other key provisions of this chapter are Article 13 (on invalidity of debits and reversal, which is important both for the protection of account holders and the stability of the system) and Article 15 (on priority among competing interests).

Chapter IV (Articles 17–25) deals with insolvency issues, prohibition of upper-tier attachment, instructions to the intermediary, the requirement that an intermediary hold sufficient securities of any description equal to the aggregate number and amount of that description credited to accounts which it maintains, limitations on obligations and liabilities of intermediaries, allocation of securities to account holder’s rights, loss sharing in case of insolvency of the intermediary and, finally, the effect of debits and credits and instructions on the insolvency of operators of or participants in securities settlement systems.

Chapter V (Articles 26 and 27) deals with the relationship with the issuer of securities.

Chapter VI (Articles 28–34) contains special provisions with respect to collateral transactions, obviously an exceedingly important aspect both for the account holder/borrower and the collateral taker/lender.15 Here the reader’s attention is drawn in particular to Article 31 (on the collateral taker’s right to use collateral securities as if it were the owner of them) and Article 33 (the practice of topping-up and substituting of collateral). Article 34 provides that a contracting state may opt out of this chapter by declaration. Providing for opt-out declarations, once considered to be a sin committed by unfaithful uniform-law drafters, is today looked at with greater sympathy. The negotiations of other recent transnational commercial law instruments have shown that accommodating strong feelings rooted in participating states’ traditions facilitates both the intergovernmental negotiation process and domestic implementation without closing the door to making the right (i.e., the most radical and innovative) choices in the end.16

Chapter VII will contain general and subject-matter specific final clauses.

Conclusions

1. In its final monitoring report on global clearing and settlement, the Group of Thirty states:

Consequently, harmonisation in both areas, conflict-of-laws and substantive law, must be pursued. As to the scope of the harmonization of substantive law, both the UNIDROIT project and the measures taken by the EU go well beyond the steps required by recommendation 15. Their successful completion and implementation will contribute significantly to the stability and efficiency of clearing and settlement. This report therefore encourages competent national authorities and market participants to support these processes. Despite the overlap in their scope, the work of UNIDROIT and the work of the recent EU Legal Certainty Group are not to be understood as substitutes for each other but as complementary. This is because, on the one hand, more countries participate in the UNIDROIT project (notably including the United States, Japan, Switzerland, Australia and Canada) and, on the other hand, because the EU Legal Certainty Group might target a higher level of harmonization and even prepare the way for a global work on additional issues, such as corporate action processing. It is, however, most important that both projects proceed in a coordinated manner. Uncoordinated results would jeopardize global harmonization in the field of substantive law regarding securities settlement for years. As far as possible, therefore, both projects must go forward at the same pace. It is therefore necessary that sufficient resources are made available to both of them. With a view of achieving full coverage of the 15 target countries, measures should also be examined that would allow the countries that are not yet involved to participate in the work on the UNIDROIT Convention.17

2. Governments that have not yet participated in the intergovernmental consultation process are warmly invited to consider participation in the finalization of the text, i.e., the diplomatic Conference which will be held September 1–13, 2008, in Geneva.

3. Interested governments and other interested parties such as intergovernmental organizations and international NGOs representing the financial and legal communities may contact the Secretariat (Thomas Keijser) at t.keijser@unidroit.org.

1See Roy Goode, “The Nature and Transfer of Rights in Dematerialised and Immobilised Securities,” in Fidelis Oditah, ed., The Future for the Global Securities Market (Oxford: Clarendon Press, 1996), at 107; Madeleine Yates, Joanna Benjamin and Gerald Montagu, The Law of Global Custody, 2nd ed. (London: Butterworths, 2002). See Uniform Law Review/Revue de droit uniforme (2005), at 1–442, for national reports on Canada, China, France, Germany, Japan, the Nordic countries, Poland, Switzerland, United Kingdom, and the United States, as well as related work at the Hague Conference, UNCITRAL, the European Communities, and the first UNIDROIT draft, with articles by B. Sen, Christophe Bernasconi and Harry C. Sigman, Spiros V. Bazinas, Klaus M. Löber, Michel Deschamps, Dong Ansheng and Han Liyu, Antoine Maffei, Dorothée Einsele, Jürgen Than, Hideki Kanda, Lars Afrell and Karin Wallin-Norman, Michal Romanowski, Luc Thévenoz, and Curtis Reitz, and the FMLC Report.
2The UNIDROIT Study Group on Harmonised Substantive Rules Regarding Indirectly Held Securities, Position Paper, August 2003, Study LXXVIII, Doc. 8. All documents cited are also available at www.unidroit.org.
3UNIDROIT 2006, Study LXXVIII—Document 94, Original in English/French, July 2007.
4On the revision of Article 8 of the U.S. Uniform Commercial Code, see Mooney, “Beyond Negotiability: A New Model for Transfer and Pledge of Interests in Securities Controlled by Intermediaries,” 12 Cardozo Law Review 305 (1990); Rogers, “Policy Perspectives on Revised U.C.C. Article 8,” 43 UCLA Law Review 1431 (1996); Reitz, supra note 1.
5To name but a few, Randall Guynn, “Modernizing Legal Rules to Reduce Settlement Risk,” IBA Capital Markets Forum Yearbook (1993), at 172; Euroclear, Cross-Border Clearance, Settlement and Custody: Beyond the G 30 Recommendations (Brussels, 1993), at 62; Jean-Pierre Mouy and Hubert de Vauplane, “La réforme du nantissement des titres dématerialisés,” Banque&Droit (Juillet-Aout 1996), at 3.
6Ulrich Drobnig, “Vergleichende und kollisionsrechtliche Probleme der Girosammelverwahrung von Wertpapieren im Verhältnis Deutschland-Frankreich,” in H. Bernstein, U. Drobnig, and H. Kötz, eds., Festschrift für Konrad Zweigert (Tübingen: Mohr Siebeck, 1981), at 73; Dorothée Einsele,Wertpapierrecht als Schuldrecht (Tübingen: Mohr Siebeck, 1995); Goode, “The Nature and Transfer of Rights in Dematerialised and Immobilised Securities,” supra note 1 at 107; Herbert Kronke, “Capital Markets and Conflict of Laws,” Recueil des Cours, Vol. 286 (2000), at 247.
7Macmillan Inc. v. Bishopsgate Investment Trust plc and Others (No. 3), [1995] 1 WLR 978 (Ch. D.); on appeal, the Court of Appeal reverted to the classical lex situs rule, [1996] 1 WLR 387. For an insightful comment by Lord Millet (as he now is), see his foreword in R. Potok, ed., Cross Border Collateral: Legal Risk and the Conflict of Laws (London: Butterworths, 2002) at v et seq.
8Christophe Bernasconi, “The Law Applicable to Dispositions of Securities Held Through Indirect Holding Systems,” Preliminary Document No. 1, November 2000, for the attention of the Working Group of January 2001.
9Roy Goode, Hideki Kanda, and Karl Kreuzer with the assistance of Christophe Bernasconi, Hague Securities Convention—Explanatory Report (The Hague: Hague Conference on Private International Law/Martinus Nijhoff Publishers, 2005).
10Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on Settlement Finality in Payment and Securities Settlement Systems.
11Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on Financial Collateral Arrangements.
12See Roy Goode, Herbert Kronke, and Ewan McKendrick, Transnational Commercial Law—Text, Cases and Materials (Oxford: Oxford University Press, 2007), chapters 6, 18–20.
13Texts available at www.unidroit.org. The Convention and the Aircraft Protocol are also reproduced in Roy Goode, Herbert Kronke, Ewan McKendrick and Jeffrey Wool, Transnational Commercial Law, International Instruments and Commentary (Oxford: Oxford University Press, 2004), at 550–595, with commentary, at 433–453. In the meantime, the second industry-specific protocol to the Cape Town Convention was adopted, i.e., the 2007 Luxembourg Protocol on secured financing of railway rolling stock. Its text is reproduced in Uniform Law Review/Revue de droit uniforme (2007), at 417-678, with comments by Howard Rosen, Fabien Owono Essono, Rafael Castillo-Triana, John Wilson, Tatjana Josipović, Bruno Poulain, Steven Harris, Gustav Kafka, Hans-Georg Bollweg and Katharina Schnell, and Benjamin von Bodungen and Konrad Schott.
14See note 3 supra.
15On this topic, see Thomas Keijser, Financial Collateral Arrangements (Deventer: Kluwer, 2006).
16With respect to secured transactions, see Roy Goode, Convention on International Interests in Mobile Equipment and Protocol thereto on Matters Specific to Aircraft Equipment—Official Commentary (Rome: UNIDROIT, 2002), at 28, 40.
17Group of Thirty, Global Clearing and Settlement, Final Monitoring Report (Washington, D.C.: Group of Thirty, 2006), at 41–42.

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