Legal Task Force Session In ACG15. November 4th, 2011 Seoul, Korea. Legal Task Force Session in the 15 th ACG. Presentation by SD&C Presentation by Jasdec Discussion among the members Summary. Presentation by SD&C. Legal Protection of CSD/CCP in Case of Participants’ Insolvency
November 4th, 2011
Does InsolvencyCSD/CCPhas the right to refuse to deliver securities/ cash to its defaulting participants?
Yes, 9 members
No, 1 member
And what is the legal nature of the above right?
Lien: 1 member
Pledge: 2 members
Other: 5 membersFacts and feedbacks (8)
The legal framework for securities depository and clearing/settlement varies from jurisdiction to jurisdiction and reflects different legal traditions
Key aspects of CSD/CCP’s legal framework should include: enforceability of transactions, protection of customer assets (particularly against loss upon the insolvency of a participant), finality of settlement, arrangements for achieving delivery versus payment, default rules, and liquidation of assets pledged or transferred as collateral.Comments and Suggestions
Clarify which principles apply to CSDs with SSSs, and which apply to CSDS without SSSs
Due to the complexity and the difficulties for FMIs to identify and analyze all potential conflict-of-law issues, certain flexibility should be allowed in adopting principle 1
The costs and effectiveness resulting from the building of risk management systems should be evaluated and balanced thoroughly. (principle 3)
To contain credit risks, CCPs should take into account the characteristic of the market, not merely the participant with largest exposures. (principle 4)Suggestions (2)
If a CSD wants to engage in CCP business, a more sound and resourceful risk management system should be in place.
And if a CSD does have the advantages of efficiencies and cost effectiveness the CSD should engage in CCP business in derivative products and spot markets through its subsidiaries or other forms of separate legal entity.(principle 11)
How much equity capital does a FMI should hold to cover potential general business risks?
Decided by each FMI/9 months of expenses/12months of expenses.Suggestions (3)
To contain operational risks some members suggest that the following words should be noted in principle 17:
“ any single system should have the capacity of acting as back-up for systems that FMIs set up in other locations”
Also simultaneous disasters should be taken into account in working out the BCP (principle 17)
I、Wrap up of the topic “Legal Protection of CSD/CCP in case of Participants’ Insolvency ”
II、Continue the topic “Legal Application in cross-border securities transactions”
III、New Research Program Outlines (to be discussed)