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The Hague Securities Convention: A Modern Conflict of Laws Regime for the Holding, Transferring and Pledging of Intermediated Securities. AMEDA 15 th Meeting – Palais Jamai Hotel Fez, MOROCCO 25 April 2011 Christophe Bernasconi Deputy Secretary General

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The Hague Securities Convention: A Modern Conflict of Laws Regime for the Holding, Transferring and Pledging of Interm


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slide1

The Hague Securities Convention:

A Modern Conflict of Laws Regime for the Holding, Transferring and Pledging of Intermediated Securities

AMEDA 15th Meeting – Palais Jamai Hotel Fez, MOROCCO25 April 2011

Christophe Bernasconi

Deputy Secretary General

Hague Conference on Private International Law

the hague conference on private international law
The Hague Conference on Private International Law
  • Intergovernmental Organisation (origin goes back to 1893)
    • purpose: “progressive unification of the rules of private international law”
    • legislator, not a court or tribunal
  • It achieves this purpose by developing and servicingmultilateral treaties: the Hague Conventions
  • 38 Conventions in various fields of the law:
    • family law & child protection
    • legal cooperation & litigation
    • commercial & finance law
  • 72 Members (71 States plus the European Union) and growing; moreover, …
140 states are in fact connected to the hague conference
… 140 States are in fact “connected” to the Hague Conference

Member of the Hague Conference

Non-Member Contracting State to at least one Hague Convention

Non-Member State signatory to at least one Hague Convention

the traditional conflict of laws rule applicable to proprietary rights
The traditional conflict of laws rule applicable to proprietary rights…

lex rei sitae (lex cartae sitae)

slide5

Bankruptcy Trustee

Transfer to Bank Account

Mohamed Abd El Salam

Security interest (Swiss Law)

Beach Housein Morocco

Christophe Bernasconi

slide6

Bankruptcy Trustee

Transfer to Bank Account

Mohamed Abd El Salam

Security interest (Swiss Law)

Painting in the Netherlands

Christophe Bernasconi

slide7

Christophe Bernasconi

100

Shares

BioTeX Inc. (Delaware)

Bankruptcy Trustee

Collateral Agreement (Swiss Law)

Mohamed Abd El Salam

Certificates in Hong Kong

Transfer to Bank Account

slide8

BioTeX Inc.

Christophe

Bernasconi

100 Shares

Christophe Bernasconi

Bankruptcy Trustee

Mohamed Abd El Salam

Register in New Jersey

BioTeX Inc. (Delaware)

Transfer to Bank Account

Collateral Agreement (Swiss Law)

the traditional conflict of laws rule applicable to proprietary rights9
The traditional conflict of laws rule applicable to proprietary rights…

…is not suitable for securities held with an intermediary!

slide10

BioTeX Inc.

(Ruritania)

Gotham Bank A/c

950,000

Moroccan Bank Customers A/c

5,000,000

Shares

45,000

Moroccan Inv. Pledgeto Swiss Bank A/c

Moroccan Investor A/c

Bankruptcy Trustee

Transfer to Bank Account

Pledge (Swiss Law)

Ruritanian CSD Vault (Metropolis)

Ruritanian CSD

  • Gotham Bank

100

100

0

Moroccan Bank

Swiss Bank

Moroccan Investor

slide11

India

France

SARHK

Switzerland

Euroclear France

CCASS

SIS SegaInterSettle

NSDL

Local sub-custodian

Local sub-custodian

Local sub-custodian

Local sub-custodian

Egypt

MCDR

DTC

USA

Local sub-custodian

Local sub-custodian

South Africa

Local sub-custodian

STRATE

Morocco

Local sub-custodian

Local Bank

MAROCLEAR

Transfer

Pledge (Swiss Law)

Moroccan Investor

Swiss Bank

slide12

NSDL

MAROCLEAR

SIS

JASDEC

CCASS

STRATE

CDS

DTC

Local sub-custodian

Local sub-custodian

Local sub-custodian

Local sub-custodian

Local sub-custodian

Local sub-custodian

Local sub-custodian

Local sub-custodian

  • Intermediary A

Intermediary Y

Intermediary B

Account holder 2(Transferee / Pledgee)

Account holder 1(Transferor / Pledgor)

slide14

Important to keep in mind: The Hague Securities Convention only addresses the conflict of laws question (which law applies?), not substantive law matters (content of the applicable law)

scope of the applicable law designated by the convention art 2 1
Scope of the applicable law designated by the Convention - Art 2(1)
  • Nature of rights resulting from credit of securities to account (proprietary, contractual, or other)
  • Nature and effects of disposition (no risk of “recharacterisation”)
  • Perfection
  • Priorities
  • Duties of intermediary where third party asserts competing interest in securities
  • Realization
  • Entitlement to dividends, etc.
  • List is exhaustive – the “Art 2(1) issues”
the primary rule for determining the applicable law art 4
The primary rule for determining the applicable law – Art 4
  • Early consensus on “no look-through” (PRIMA)
  • BUT: How to put “anti-look-through” into operation?
  • Agreement between parties to a/c agreement (not to disposition!) vs lex rei sitae (i.e. search for actual location of the securities account)
  • Final solution reached by consensus: choice of law (agreement on law governing a/c agreement) + proviso (i.e. rel interm must have an office engaged in the business of maintaining securities accounts in the selected State – Qualifying Office requirement)
  • Focus is on relationship between account holder and its intermediary – not about “place” of account or intermediary
  • Convention goes beyond PRIMA
the primary rule for determining the applicable law art 4 cont
The primary rule for determining the applicable law – Art 4 (cont.)
  • Applicable law:
  • express agreement on law governing account agreement; or
  • express agreement on law governing all Article 2(1) issues
  • subject to Qualifying Office proviso:
  • Relevant intermediary, at the time of the agreement, must have a “Qualifying Office” in selected State
art 4 does not disempower supervisory authorities
Art 4 does not disempowersupervisory authorities
  • Convention is a PRIVATE (international) law instrument
  • Has no impact on existing or future regulatory regime controlling private conduct, whether towards the goal of preventing money laundering or preventing tax evasion, or assuring safe and sound business practices or minimising systemic risk
  • Thus, choice under Art 4 is subject to any regulatory regime that may apply
slide19

Arts 4 and 5 apply independently with respect to each securities account

NSDL

MAROCLEAR

SIS

JASDEC

CCASS

STRATE

CDS

DTC

Local sub-custodian

Local sub-custodian

Local sub-custodian

Local sub-custodian

Local sub-custodian

Local sub-custodian

Local sub-custodian

Local sub-custodian

  • Intermediary A

Intermediary Y

Intermediary B

Account holder 2(Transferee / Pledgee)

Account holder 1(Transferor / Pledgor)

slide20

Who benefits from the Convention?

NSDL

MAROCLEAR

SIS

JASDEC

CCASS

STRATE

CDS

DTC

Local sub-custodian

Local sub-custodian

Local sub-custodian

Local sub-custodian

Local sub-custodian

Local sub-custodian

Local sub-custodian

Local sub-custodian

  • Intermediary A

Intermediary Y

Intermediary B

Account holder 2(Transferee / Pledgee)

Account holder 1(Transferor / Pledgor)

early endorsements of the hague convention
Early Endorsements of the Hague Convention
  • G30
    • Recommendation 15 of 2003 Plan of Action on Global Clearing and Settlement
    • Final Monitoring Report of 2006
  • Board of Indeval (CSD Mexico) formally recommends signing of the Convention (21 Sept 2006)
  • Securities Commission and Central Bank of Brazil
  • ISDA
  • ACSDA (Exec. Com.) adopts Recommendation (14 May 07)
  • Switzerland and US signed Conv on 5 July 2006 – on same day, release of EC Commission’s “[l]egal assessment of certain aspects” of the Convention: concludes that signing of Conv would be in the “best interest” of the EC – current position in the EC
  • Mauritius signed on 28 April 2008
other developments
Other developments
  • On 14 September 2009, Switzerland deposited its instrument of ratification – first ratification
  • Mauritius ratified the Convention on 15 October 2009
  • One more ratification is needed to bring the Convention into force on the international plane
  • USA likely to be the third ratifying State
slide23

Questions?

Christophe Bernasconicb@hcch.nl