New legal concepts regarding the holding of investment securities for a civil law jurisdiction : the Swiss Draft Act

Article

Reference

New legal concepts regarding the holding of investment securities for a civil law jurisdiction : the Swiss Draft Act

THÉVENOZ, Luc

THÉVENOZ, Luc. New legal concepts regarding the holding of investment securities for a civil law jurisdiction : the Swiss Draft Act. Uniform Law Review , 2005, vol. NS 10, no. 1/2, p.

301-337

DOI : 10.1093/ulr/10.1-2.301

New Legal Concepts regarding the Holding of Investment Securities for a Civil Law Jurisdiction – The Swiss Draft Act

Luc Thévenoz

In December

, the Swiss Ministry of Finance opened an informal consultation on a draft Federal Act on the Custody and Transfer of Securities Held with an

The consultation also includes a proposal to sign and ratify the Hague Convention on the Law Applicable to Certain Rights in

Merely from the title of the draft Act, the reader may perceive some similarity with the preliminary draft U

which is the subject of this issue of Uniform Law Review. A closer look at the draft Act fully bears out this intuition. Though the structure and style of the two drafts differ substantially, a detailed analysis of the Swiss provisions reveals that most of them are intended to have the same legal effects as the corresponding provisions in the preliminary draft U

Convention.

The timing of the Swiss project is no coincidence. There is a strong connection between the first international attempt at harmonising the most fundamental rules governing the custody and transfer of intermediated securities and the strong desire of the Swiss financial community, supported by the Federal Government, to reform this area of the law.

This article will look into the need for a reform of the Swiss law, its objectives and constraints. It will then go on to describe the concept of intermediated securities, which is the cornerstone of the draft Act. Without any pretence at exhaustiveness, it will conclude by discussing some of the major features of the draft Act and comparing them with the preliminary draft U

Convention.

* Professor in the Faculty of Law, University of Geneva (Switzerland); Director of the Centre for Banking and Financial Law; member of the Swiss Federal Banking Commission. The author was a member of the UNIDROIT Study Group on Harmonised Substantive Securities Held with an Intermediary at the same time as he was sitting on the committee appointed by the Swiss Ministry of Finance to prepare the draft act which is the subject-matter of this article.

1 Loi fédérale sur le dépôt et le transfert des titres intermédiés – Bundesgesetz über die Verwahrung und Übertragung von Bucheffekten. See text of the Act, reproduced as an annex to this article, 312.

2 The report was published on the Ministry website (<www.dff.admin.ch>), under Doc | Rapports d’experts (15.12.2004). See text of the Hague Convention reproduced in this issue, 368.

3 See text of the preliminary draft UNIDROIT Convention reproduced in this issue, 10, and the Explanatory Notes thereto, 36.

Enhancing Legal Certainty over Investment Securities Held with an Intermediary

I. – THE CURRENT LAW AND THE NEED FOR REFORM

Swiss law recognises securities in three different forms: individual certificates, global certificates, and uncertificated securities. It is generally accepted that the law does not require issuers to use any particular form.

In practice, global certificates represent by far the most common type of security as a proportion of total amounts.

Individual certificates are negotiable instruments (papiers-valeurs,

transferable by delivery, with an endorsement when necessary. Most individual certificates issued to the public are physically under the custody of

SegaInteresettle

acting as a central depository. While they are so immobilised, they are transferred between investors by crediting or debiting securities accounts with their respective banks or brokers.

Global certificates (certificats globaux, Globalurkuden) represent all or part of a rights issue. They too are usually negotiable instruments, though they are unlikely to be sold en bloc during the lifetime of the issue. Global certificates are typically deposited with a central depository (

, Euroclear, Clearstream); investors can trade their rights through their securities accounts in the same way as for immobilised individual certificates.

Uncertificated securities (droits-valeurs, Wertrechte) are completely dematerialised.

They are “registered” with an intermediary, often a large investment bank. Investors can trade their rights via securities accounts in the same way as described above. In most cases, an investor will not know, or need to know, in what form the securities credited to his accounts are issued or where they are deposited or registered.

The relevant Swiss law codes (Civil Code and Code of Obligations) specifically govern the physical transfer of certificated securities. They require the delivery and, when necessary, written endorsement of the certificate.

Uncertificated securities can only be transferred by means of a written and signed assignment.

No legal provision specifically provides for the transfer of investors’ rights by means of book-entries in securities accounts. The industry set up a network of contracts (between customers and their banks, between banks and the central depository) which remains to this day the only legal foundation of the entire book-entry system. Analytically, the interest evidenced by a credit in a securities account is deemed to be a co-ownership share in every security of the same description held by the central depository as a fungible pool. This particular type of co-ownership differs from the one assumed in the Civil

4 This remains a disputed point as far as shares are concerned: it has traditionally been assumed that each shareholder has a statutory right to an actual, individual certificate. Many large Swiss companies have nonetheless excluded that right in their articles of association without giving rise to litigation. For an overview and further references, see M. OERTLE / S. DU PASQUIER, Cmt. 4 to Art. 684, in Basler Kommentar zum Schweizerischen Obligationenrecht: Obligationenrecht II, 2^nd ed., Helbing & Lichtenhahn, Basel (2002).

5 Code of Obligations, Arts. 967–969 (transfer of negotiable instruments in general), Arts. 684–685g (transfer of registered shares may be restricted by the issuer’s by-laws); Civil Code, Art. 901 (pledge). Federal statutes and regulations may be consulted at <www.admin.ch> under Recueil systématique | Systematische Rechtssammlung.

6 Code of Obligations, Art. 165.

Code

in that an investor cannot force the dissolution of the co-ownership, but he may require the delivery of (physical) securities (if any) without the assistance or consent of other co-owners in the same pool. Central to this construction is the notion that the owners of the securities are the investors, not the intermediaries, unless the latter are holding such securities on their own account (as investors themselves). By causing his account to be debited and the account of a buyer to be credited, an investor transfers all or part of his co-ownership share in the actual securities deposited (or registered) with the uppermost intermediary in the chain.

While this construction is fundamentally based on the concept of and the rules applying to movable tangible property, the movable and tangible aspects are completely set aside by the immobilisation of the certificates or the complete dematerialisation of the securities. When making book entries in securities accounts, investors are only interested in acquiring, charging or selling the intangible rights (payment of interest or dividend, voting rights, etc.) against the issuers represented by the securities. Many centuries ago, negotiable instruments were created by the merchant community; this eventually led to the formation of a lex mercatoria to facilitate the transfer of intangible rights by packaging them into certificates that can be bought, pledged and sold just as easily and conveniently as moveable property.

When the certificates are permanently immobilised or when the securities are completely dematerialised, applying the rules of tangible property to the transfer of intangible rights was tantamount to overlaying one fiction (movable tangible property represents intangible rights) with another fiction (book entries represent delivery of movable property).

Based on contractual rather than statutory provisions, the legal construction for immobilised and dematerialised securities has received the attention of many legal writers, although unfortunately not in the English language.

It must be convincing, since it has never really been challenged in court. The only published court decision enforcing a similar arrangement relates to certificated shares of common stock in a

7 Civil Code, Art. 646.

8 L. DALLEVES, “La dématérialisation des papiers-valeurs”, Société anonyme suisse (1987), 43;

B. FOËX, “Transfert et engagement des valeurs mobilières ‘intermédiées’ en droit suisse”, in Journée 2003 de droit bancaire et financier, Schulthess, Zurich (2004), 55-75; C. BRUNNER, Wertrechte – nicht verurkundete Rechte mit gleicher Funktion wie Wertpapiere: Ein Beitrag zur rechtlichen Erfassung des Effektengiroverkehrs, Stämpfli, Bern (1996); O. FAVRE, Die Berechtigung von Depotkunden an auslandsverwahrten Effekten, Schulthess, Zurich (2003); P. FORSTMOSER / T. LÖRTSCHER, “Namenaktien mit aufgeschobenem Titeldruck: Ein Konzept zur Rationalisierung der Verwahrung und des Handels von Schweizer Namenaktien”, Société anonyme suisse (1987), 50; A. MEIER-HAYOZ, “Abschied vom Wertpapier?”, Revue de la Société des juristes bernois (1986), 385; A. MEIER-HAYOZ / H.C. VON DER CRONE, Wertpapierrecht, 2^nd ed., Stämpfli, Bern (2002),

§ 25; R. RICKENBACHER, Globalurkunden und Bucheffekten im schweizerischen Recht: Ein Beitrag zur Rationalisierung des Wertpapiergeschäfts, Schulthess, Zurich (1981); D. ZOBL, “Internationale Übertragung und Verwahrung von Wertpapieren (aus schweizerischer Sicht)”, Revue suisse de droit des affaires (2001), 105;

D. ZOBL / S. KRAMER, Schweizerisches Kapitalmarktrecht, Schulthess, Zurich (2004), § 5; D. ZOBL / C. LAMBERT,

“Zur Entmaterialisierung der Wertpapiere”, Revue suisse de droit des affaires (1991), 117.

Enhancing Legal Certainty over Investment Securities Held with an Intermediary

private company which were deposited with another company that was not a financial intermediary.

So why would the Swiss financial community – traditionally more concerned with containing the tide of new regulations than with promoting new legislation – suddenly feel the need for a statutory instrument in this area of law? I believe that it is responding to strong demands from some of its customers, mostly large institutional investors and global investment banks. In the absence of specific statutory provisions, the legal construction on which the whole custody activity relies is perceived as lacking transparency and legal certainty. No case law can be cited to confirm that the Swiss link in an international chain of holding securities will withstand legal challenges. Given the ever-increasing sensitivity of major international players, national regulators and central banks to legal, operational and systemic risk, it is no wonder that Swiss custodians are being challenged by their customers to prove the robustness of the legal foundations of their business. A series of reports from the Committee on Payment and Settlement Systems (

), the International Organization of Securities Commissions (

), the Giovannini Group, the Group of Thirty, the European Central Bank and the Committee of European Securities Regulators (

), as well as the European Financial Market Lawyers Group, has certainly played a significant role in generating these demands. The completion in record time of the Hague

laws in this area, only confirms the global need for demonstrable legal certainty.

While Belgium and Luxembourg, home to two prominent international central securities depositories, cleaned up their act long ago,

Switzerland still needs to provide a statutory anchor for the rules governing the operational infrastructure of securities markets.

II. – OBJECTIVES AND CONSTRAINTS

As mentioned above, the need to promote legal certainty is a central concern in the whole process. But legal certainty needs to be demonstrable; legal principles and rules must be accessible to national and foreign investors and intermediaries. In the opinion of the Swiss drafters, the easiest way to achieve this would be by creating a statute to comprehensively regulate the custody and transfer of immobilised and dematerialised securities rather than by patching up the existing codes.

9 Arrêts du Tribunal Fédéral Suisse | Entscheidungen des Schweizerischen Bundesgerichts 112 II, 406, Ems-Chemie Holding AG v. Schmid AG Gattikon, French summary in Journal des Tribunaux (Lausanne) (1987), I 487.

10 Belgium, home to Euroclear, enacted an Arrêté royal n° 62 du 10 novembre 1967 favorisant la circulation des instruments financiers on 10 November 1967, amended on 15 July 1998 by means of a Loi modifiant diverses dispositions légales en matière d’instruments financiers et de systèmes de compensation de titres. Luxembourg, home to Cedel (now merged with Clearstream), passed the Loi du 1^er août 2001 concernant la circulation de titres et d’autres instruments fongibles.

In a world where financial markets are becoming ever more inter-related and institutional and retail investors are looking to diversify their portfolios, cross-border holding of securities is a major feature that any national law must take into account.

As the U

Study Group pointed out early in its work, domestic laws need to be not just internally sound, but also compatible with one another. While it is always difficult to co-ordinate two projects in parallel progress, the ideas of the U

Study Group became one of the major inputs into the Swiss drafting process, influencing everything from principles down to terminological choices.

Substantively, the starting point was the need to guarantee investors’ property rights in securities held with an intermediary. The term “investor” is not confined to absolute owners; it includes collateral takers as well as beneficiaries of certain other interests such as usufructs. The draft Act therefore refers explicitly to Article

of the Swiss Federal Constitution, which guarantees the fundamental right to property.

Investors’ property interest in securities held with an intermediary can be construed in many different ways. According to Article

of the

Uniform Commercial Code, every intermediary in the indirect holding chain creates a distinct securities entitlement by crediting securities to the account of an account holder. Only the uppermost intermediary is recognised by the issuer as the bondholder or shareholder,

benefits of securities ownership down to the investor, who is the last account holder in the chain. Current English law achieves much the same effect by using the institution of trusts. Each account holder on each rung of the ladder is the beneficiary and equitable owner of the property legally owned by his own intermediary.

At the opposite side of the spectrum, Swiss law and other civil law systems consider that the ultimate account holder is the only legal owner of securities deposited with the uppermost intermediary. All intermediaries along the chain are mere holders and book-keepers of the investor’s property. Because the owner of the securities is the ultimate account holder, he is – or ought to be – recognised by the issuer as the bond or shareholder, who is entitled to vote in his own right, not as the proxy of any intermediary.

The repeated and sustained discussions within the U

Study Group throughout the project have convinced the author that both models have significant advantages and drawbacks. There is no strong reason to believe that a reform of Swiss law needs to discard the “direct ownership” approach in favour of an “indirect holding”

approach. Discussions within the financial community strongly suggested that maintain- ing a direct legal relationship between the investor and the issuer was considered a priority, although in practice and from an operational point of view, the investor needs the help of his and all subsequent intermediaries in order to exercise his rights.

11 Of the total volume of securities held by Swiss banks for their customers in 2003, 57% were held for non-Swiss residents. Of the total volume of securities held by Swiss banks on their own account (trading book and participations), 67.5% were issued by non-Swiss issuers. See BANQUE NATIONALE SUISSE, Les banques suisses 2003, 88^th ed., Zurich (2004), (pp.) A49, A152.

Enhancing Legal Certainty over Investment Securities Held with an Intermediary

Accordingly, the reform is intended to safeguard the property of investors, consisting essentially in claims and rights directly vis-à-vis the issuer, although their exercise would be mostly channelled along the chain of intermediaries. This would be achieved with particular attention to the integrity of the issue, which means that the total number or value of rights exercisable at any given moment by all account holders must not exceed the total number or value of rights that were issued by and are binding upon the issuer. Moreover, the reform needs to be neutral from a technology point of view. Whether securities are issued in the shape of individual or global certificates or completely dematerialised should remain the choice of the issuers and investors (as stated in the conditions of issue), and not of the lawmaker.

III. – INTERMEDIATED SECURITIES

–

The draft Act is based on the Copernican idea that once the physical certificates (if any) are deposited with an intermediary,

intermediaries and investors deal only with the rights which the paper represents and which were introduced into the interme- diary system through the immobilisation of the certificate with an intermediary. The container (the certificate) retreats into the wings while the content (the rights against the issuers) comes to centre stage; it can be transferred or charged to another party without the container being moved or affected in the least. Therefore, a credit to a securities account represents pecuniary and possibly voting rights against the issuer which are effective against the world (erga omnes) and can be generally enforced through the relevant intermediary. Under Article

of the draft Act,

these rights and the credit representing them together constitute an “intermediated security” (titre inter-

Obviously, credits to a securities account also give rise to contractual rights and duties between the account holder and the intermediary. The draft Act mostly leaves these to contractual freedom. The most significant mandatory rule in this respect defines the extent of the intermediary’s liability for losses caused to the account holder.

The deposit of individual or global certificates with an intermediary,

or the registration of a dematerialised issue along with the corresponding credits to securities accounts, create new intermediated securities under the Act.

The withdrawal of such certificates, if still possible, and their debiting from securities accounts extinguish

12 The Act does not distinguish between central depositories and other intermediaries. Whether the physical custody of certificates or the registration of dematerialised issues should be restricted to a certain class of intermediaries is a matter for regulation, on which the Act does not infringe.

13 Article 4(1): “Intermediated securities within the meaning of this Act are fungible pecuniary and voting rights against an issuer (a) which are credited to a securities account and of which the account holder may dispose pursuant to the provisions of this Act; and (b) which are effective against the depository and any third parties; in particular such rights are beyond the reach of the depository’s creditors.” Translation of the original German and French drafts of 15 July 2004.

14 The Swiss draft uses the word “depository” where the preliminary draft UNIDROIT Convention speaks of an “intermediary”.

15 Draft Act, Art. 7.

them.

As long as intermediated securities exist, they are almost exclusively

governed by the draft Act. But what happens to the certificates, of which there is no further statutory mention although they still exist in the (hopefully) careful hands of an intermediary? Two new articles to be added to the Code of Obligations, dealing with the collective deposit of physical securities, confirm that every depositor has a co- ownership right in the fungible pool of deposited securities. Implicitly, transferring or pledging intermediated securities also transfers or pledges that co-ownership right.

This physical side of the transaction is not, however, very relevant to the investor, and it is not dealt with specifically by the draft Act. The only relevant question considered is whether an investor has a right to withdraw physical certificates from the intermediary system, possibly by requiring the issuer to have them issued or re-issued.

Default rules are to be found in Articles

and

, subject to the conditions of issue.

The bold but necessary move here is to suggest that a new type of property be recognised and regulated by Swiss law. Intermediated securities are a new type of essentially intangible property, subject to its own rules regarding their creation, transfer and extinction. From a conservative viewpoint, one may wonder why it is advantageous to create this new type of property. Actually, immobilised and dematerialised securities already exist in Switzerland, and they are governed either by the rules on tangible movable property (immobilised securities) or by the rules on assignment of claims (dematerialised securities). Is it not possible to patch up those rules so as to make them more consonant with the operational reality and more transparent to domestic and foreign investors and intermediaries?

The answer is not far to seek. Whether securities were issued in the form of certificates or by mere registration with an intermediary, they should be subject to exactly the same rules as soon as they are introduced into the intermediary system.

Account holders do not care about the form – why should they? Dematerialised securities can hardly be transferred outside the intermediary system. Certificates can, when they are not immobilised. But immobilisation is more than an incidental feature of certificates. It radically changes the way they can be transferred. Once they are immobilised, they can no longer be delivered to a buyer, or pledged, except as a fiction (credit to a securities account is deemed delivery). Such a radical change cannot be legislated for by merely tinkering with the rules on negotiable instruments.

New rules are necessary, which take full account of the changed operational environment. The preliminary draft U

Convention gives a good example of the most fundamental rules necessary for the proper functioning of securities held with an intermediary. Such rules are far removed from the ones typically applying to negotiable instruments, even though their objective is similar (protection of investors, facilitation of transfer, protection of innocent acquirers, etc.). If physical securities and

16 Idem, Art. 10.

17 Although Article 27 (3) envisages the possibility of transferring intermediated securities by way of a written assignment. However, this “outside-of-the-system” disposition ranks below any other disposition according to the Act (see below), whenever it was performed.

Enhancing Legal Certainty over Investment Securities Held with an Intermediary

intermediated securities call for such different rules, it is safe to assume that they are different in essence. They are not variants on a single type of property, but two different types.

Recognising that intermediated securities are a new type of property avoids many difficult legal constructions and fictions. It also allows for collecting all rules dealing with intermediated securities into one Act, thus enhancing their consistency as well as their accessibility.

IV. – MAJOR FEATURES OF THE DRAFT ACT

This article discusses the concept of intermediated securities on which the draft Swiss Act is based. It is not the place for a detailed description of all the rules which flesh out that concept. The reader may nonetheless be interested in the major features of the draft Act. Although its structure is very different from that of the preliminary draft U

Convention, and without suggesting that the Act agrees with it on all points, it is possible to give an overview by referring to a number of principles stated in the U

text.

Chapter

of the draft Act deals with the creation and extinction of intermediated securities as well as the conversion of physical into dematerialised securities and vice versa. Together with Article

,

it really defines what intermediated securities are (see above, section

).

Chapter

regulates the duty of every intermediary to maintain enough securities to match the sum of the credits it has given to its account holders. Without imposing on any intermediary the duty to keep its own securities segregated from the securities of its customers, Article

of the Draft states the effects of such segregation.

Segregation is one way of appropriating securities to account holders’ rights in compliance with Article

of the preliminary draft U

Convention. Whether or not segregation is compulsory is decided either by the account agreement or by the applicable regulation. The draft Act also prescribes that all securities necessary to settle the balance of customers’ securities accounts should be set aside if the intermediary is liquidated, becomes insolvent or is subjected to composition proceedings. If, however, the intermediary does not hold enough securities of a certain description, the shortfall will be shared among the account holders credited with securities of that description, in proportion to their respective holdings.

Article

of the draft Act contains a clear prohibition of upper-tier seizures and attachments to the same effect as Article

of the preliminary draft U

Convention.

Chapter

of the draft Act deals with the disposition of intermediated securities.

Property can be transferred, or a security or any other interest created and perfected, by means of an instruction from the account holder to the relevant intermediary to make a credit to a securities account held by the acquirer. A notable difference,

18 See supra, note 13.

however, is that a debit is not per se a disposition.

Consistent with the principle that both parties to the disposition and all intermediaries concerned must deal directly with the same securities (and not with a securities entitlement or any other derivative property), the transfer of securities from

to

occurs only when they are credited to

’s account. This difference of approach may be of concern to the delegates of more than one civil law system in the inter-governmental work on the future U

Convention.

Similar to Article

of the preliminary draft U

Convention, the draft Act also provides for an alternative way to confer a security interest on the relevant intermediary or a third party. Its creation and perfection need a written agreement between the account holder and the intermediary. However, while the future U

Convention requires the “designation” of the securities or of the securities account, the draft Act does not require any formality or activity from the intermediary beyond the agreement. The draft Act extends this type of disposition to the creation of a usufruct, an idea that might be considered for the future Convention. Unlike under the Convention, an agreement between the collateral giver and his intermediary cannot create a security interest by way of an outright transfer of property.

Priorities among concurrent dispositions are regulated in almost the same way.

However, the draft Act seems to go beyond what the preliminary draft Convention allows by giving any security interest obtained by the intermediary priority over any other interest transferred to third parties.

The draft Act goes further by extending this priority to any pledge by the account holder in favour of the intermediary. This super- priority is mitigated by the principle that transferring securities to the securities account of another account holder extinguishes the intermediary’s security interest in them.

Wisely, the preliminary draft Convention refrains from defining when a disposition fails for lack of proper authority from the account holder.

This is best left to national laws. Articles

and

of the draft Act provide for a limitative list of situations where debits or credits may be reversed for lack of a valid instruction.

Articles

,

and

of the Swiss draft Act effectively implement Chapter

of the preliminary draft U

Convention on collateral transactions.

The Swiss provisions are not restricted to “persons other than a natural person”.

For this reason no doubt, the right to use securities held on behalf of an account holder (right of use)

19 Compare Art. 21(1)(b) of the draft Act with Arts. 3(2), 3(4) and 6 of the preliminary draft UNIDROIT Convention.

20 Compare Art. 27(1) of the draft Act with Art. 9(2) of the preliminary draft UNIDROIT Convention.

21 See Arts. 13(2) and 22(2) of the draft Act.

22 Preliminary draft UNIDROIT Convention, Art. 5(1).

23 In the current draft of the UNIDROIT Convention, Contracting States may opt out of this chapter:

see Art. 23.

24 Compare Art. 20 of the preliminary draft UNIDROIT Convention. This restriction does not apply to other provisions of Chapter VII.

Enhancing Legal Certainty over Investment Securities Held with an Intermediary

and the right to re-pledge require a written agreement. Agreement to the right of use may not be included in the general terms and conditions of the intermediary.

Protection of an innocent purchaser for value is a common feature of both projects. Consistently with the applicable bona fides doctrine, the draft Act implicitly refers to the relevant provision of the Civil Code.

It also regulates claims against acquirers who are not protected under this rule. Interestingly, the design of this claim reflects the peculiar nature of intermediated securities. While Swiss law generally defines such a claim as being in rem and subject to no time-bar, the draft Act provides for a claim in personam subject to a limitation period.

The reason for this distinction lies in the fungible nature of intermediated securities, which cannot be traced under the traditional civil law approach (ubi rem meam invenio, ibi eam vindico – “where I find my property, there I claim it”.

V. – CONCLUSION

It is a traditional, though not unchallenged, maxim of Swiss folk wisdom that unhurried thinking is a virtue. While Switzerland was slow in reacting to law reforms initiated in Belgium and Luxembourg to attract and retain the two most significant international central securities depositories, it now has the chance to reform its law in a way that fully reflects the emerging international standards on this matter. As a small country with an oversized and truly internationalised financial industry, Switzerland is probably the first among civil law jurisdictions to check whether its fundamental principles and traditional theories can be reconciled with tentative uniform substantive rules that have also been designed to fit jurisdictions of the common law tradition.

This test of the validity and flexibility of major civil law tenets is also a test for the functional approach adopted by the U

Study Group. Noting the (as yet?) irreconcilable difference between the “direct ownership – book-entry intermediation”

approach of most civil law systems and the “layered or derivative property” approach of common law systems, the Group attempted to draft functional rules, setting out certain legal features of securities held with an intermediary without prejudice to the fundamental characterisation of the interests which account holders derive from credits to their securities accounts.

At this stage, any report can only be provisional, neither process having yet reached its conclusion. My conclusions in the present report are clearly positive. Most of the few differences sketched out above are questions of policy, not the result of a fundamental incompatibility of legal doctrines. There is one possible exception: the draft Swiss Act requires a credit to the securities account of the acquirer as condition

25 Civil Code, Art. 3: “¹ Bona fides [bonne foi] is presumed whenever the existence of a right has been expressly made to depend on the observance of good faith. No person can plead bona fides in any case where he has failed to exercise the degree of care required by the circumstances.“

26 One year after claimant becomes aware of his right to claim and the identity of the defendant, but no more than ten years after the debit date: see Art. 26(4) of the draft Act.

for the perfection of transfers and all relevant debits.

If this turns out to be the only issue on which more complex and possibly emotional discussions are to be expected during the inter-governmental work on the Convention, it can be taken as a very early pointer to its success.

= = =

27 See supra, note 19 and corresponding text.

Enhancing Legal Certainty over Investment Securities Held with an Intermediary

A

OF SECURITIES HELD WITH AN INTERMEDIARY ∗ (Intermediated Securities Act)

The Federal Assembly of the Swiss Confederation,

Considering Articles 26, 98 Sect. 1 and 122 Sect. 1 of the Federal Constitution, Considering the Federal Council’s message of __ ______ 200_

decrees as follows:

CHAPTER 1 : PURPOSE, SCOPE AND DEFINITIONS Article 1 – Purpose

1 This Act creates a uniform legal basis for the custody of certificated and uncerti- ficated securities by financial intermediaries as well as for the transfer of such securities. The Act guarantees the property rights of investors and contributes to the efficient settlement of securities transactions and to the stability of the financial system.

2 By taking into account internationally recognized standards, this Act ensures legal predictability in the settlement of cross-border securities transactions.

Article 2 – Scope of application

1 The Act shall apply to intermediated securities that are credited or debited to a securities account by a depository.

2 In particular, the Act shall not apply to:

a. The custody of certificated securities held under a separate and identifiable description for each investor (individual custody);

b. The custody of certificated securities or global certificates of which the investor has direct possession (private deposits);

c. The custody of certificated securities, global certificates or dematerialized securities by their issuer, unless the latter is a depository (within the meaning of the Act).

Article 3 – Subject Matter The Act shall govern:

a. The creation and extinction of intermediated securities and changes from one form of holding to another (Chapter 2);

b. The custody of intermediated securities by a depository within the meaning of this Act (Chapter 3); however, the Act shall not apply to the relationship between the account holder and the issuer, nor to the registration of holders of registered shares in the shareholders’ register;

∗ This is an unofficial translation of the German and French drafts from the report published on the website of the Swiss Ministry of Finance (<www.dff.admin.ch>), under Doc | Rapports d'experts (15.12.2004).

A

ET LE TRANSFERT DES TITRES INTERMEDIES

(Loi sur les titres intermédiés, LTI)

L'Assemblée fédérale de la Confédération suisse,

vu les articles 26, 98 alinéa 1 et 122 alinéa 1 de la Constitution fédérale, vu le message du Conseil fédéral du __ ______ 200_,

arrête:

CHAPITRE 1 : BUT, CHAMP D'APPLICATION ET DEFINITIONS Article 1 – But

1^. Cette loi crée des bases juridiques uniformes pour la conservation des papiers- valeurs et des droits-valeurs par les intermédiaires financiers ainsi que pour leur transfert. Elle garantit les droits de propriété des investisseurs et contribue à l'efficience du règlement des opérations sur titres ainsi qu'à la stabilité du système financier.

2 En prenant en compte les standards internationaux reconnus, elle contribue à la sécurité juridique du règlement transfrontalier des opérations sur titres.

Article 2 – Champ d'application

1 Cette loi s'applique aux titres intermédiés qu'un dépositaire porte au crédit ou au débit d'un compte de titres.

2 Elle ne s'applique notamment pas à:

a. la conservation de papiers-valeurs d'une manière séparée et identifiable pour chaque investisseur;

b. la conservation de papiers-valeurs ou de certificats globaux sur lesquels l'investisseur exerce une possession immédiate;

c. la conservation de papiers-valeurs, de certificats globaux ou de droits-valeurs par leur émetteur, sauf lorsque celui-ci est un dépositaire au sens de la présente loi.

Article 3 – Objet La présente loi règle:

a. la création et l'extinction des titres intermédiés et le changement d'une forme en une autre (chapitre 2);

b. la conservation des titres intermédiés par un dépositaire au sens de cette loi (chapitre 3); elle ne règle cependant pas la relation entre le titulaire du compte et l'émetteur ni l'inscription des propriétaires d'actions nominatives dans le registre des actionnaires;

Enhancing Legal Certainty over Investment Securities Held with an Intermediary

c. The sale or other disposal of intermediated securities (Chapter 4); and

d. The depository’s liability resulting from the custody and transfer of intermediated securities (Chapter 5).

Article 4 – Securities held with an Intermediary

1 Intermediated securities within the meaning of this Act shall include monetary and voting rights of a fungible nature against an issuer:

a. Which are credited to a securities account and of which the account holder may dispose pursuant to the provisions of this Act; and

b. Which are effective against the depository and any third parties; in particular, such rights are beyond the reach of the depository’s creditors.

2 Intermediated securities within the meaning of the Act shall also include any financial instrument or right pertaining to such financial instrument, the custody of which is governed by a foreign law and to which such law confers a comparable function.

Article 5 – Depositories

1 The following are depositories within the meaning of this Act:

a. Banks within the meaning of the Banking Act of 8 November 1943; b. Brokers within the meaning of the Stock Exchange Act of 24 March 1995; c. Fund managers within the meaning of the Investment Fund Act of 18 March 1994, insofar as they manage unit accounts;

d. Operators of securities clearing and settlement systems within the meaning of Article 20.2 of the National Bank Act of 3 October 2003, provided such systems are of significance to the stability of the financial system;

e. The Swiss National Bank within the meaning of the National Bank Act of 3 October 2003; and

f. The Swiss Post within the meaning of the Postal Organization Act of 30 April 1997. 2 Foreign banks, brokers, central depositories and other financial intermediaries who hold securities accounts in the course of their business activity shall also be deemed depositories.

Article 6 – Other Definitions In the Act, the following terms shall have the following meanings:

a. Securities account: an account maintained by a depository to which intermediated securities can be credited or debited;

b. Account holder: a person or group of persons in whose name a depository maintains a securities account; in respect of the intermediated securities belonging to the depository, the latter is itself the account holder;

c. Client: an account holder other than the depository who keeps the account;

d. Certificated securities in collective deposit: certificated securities in custody pursuant to Article 973a of the Code of Obligations;

e. Global certificate: a certificated security within the meaning of Article 973b of the Code of Obligations;

f. Uncertificated securities: rights within the meaning of Article 973c of the Code of Obligations.

c. les actes de disposition portant sur les titres intermédiés (chapitre 4); et

d. la responsabilité du dépositaire résultant de la conservation et du transfert des titres intermédiés (chapitre 5).

Article 4 – Titres intermédiés

1 Sont des titres intermédiés au sens de cette loi les créances et les droits sociaux fongibles à l'encontre d'un émetteur:

a. qui sont portés au crédit d'un compte de titres et dont le titulaire du compte peut disposer selon les dispositions de la présente loi; et

b. qui sont opposables au dépositaire ainsi qu'à tout tiers; en particulier, ils sont soustraits à la mainmise des autres créanciers du dépositaire.

2 Sont également des titres intermédiés au sens de cette loi tout instrument financier et tout droit sur un instrument financier dont la conservation est soumise à un droit étranger qui lui reconnaît une fonction comparable.

Article 5 – Dépositaire 1 Sont dépositaires au sens de cette loi:

a. les banques au sens de la loi sur les banques du 8 novembre 1934; b. les négociants au sens de la loi sur les bourses du 24 mars 1995;

c. les directions de fonds au sens de la loi sur les fonds de placement du 18 mars 1994, dans la mesure où elles gèrent des comptes de parts;

d. les exploitants de systèmes de paiement et de règlement des opérations sur titres au sens de l'art. 20 al. 2 de la loi sur la Banque nationale du 3 octobre 2003;

e. la Banque nationale suisse au sens de la loi sur la Banque nationale du 3 octobre 2003; et

f. la Poste Suisse au sens de la loi sur l'organisation de la Poste du 30 avril 1997. 2 Sont également considérés comme dépositaires les banques, négociants, dépositaires centraux et autres intermédiaires financiers étrangers qui tiennent des comptes de titres dans le cadre de leur activité professionnelle.

Article 6 – Autres définitions Dans la présente loi, on entend par:

a. compte de titres: un compte tenu par un dépositaire auquel des titres intermédiés peuvent être crédités ou débités;

b. titulaire de compte: une personne ou une communauté au nom de qui un dépositaire tient un compte de titres; pour les titres intermédiés lui appartenant, le dépositaire est lui-même titulaire de compte;

c. client: le titulaire de compte qui n’est pas le dépositaire qui tient le compte;

d. papiers-valeurs en dépôt collectif: des papiers-valeurs conservés conformément à l'article 973a du Code des obligations;

e. certificat global: un papier-valeur au sens de l'article 973b du Code des obligations;

f. droits-valeurs: des droits au sens de l'article 973c du Code des obligations.

Enhancing Legal Certainty over Investment Securities Held with an Intermediary

CHAPTER 2 : CREATION, EXTINCTION AND CONVERSION OF INTERMEDIATED SECURITIES

Article 7 – Creation 1 Intermediated securities are created:

a. When a depository accepts certificated securities for collective custody and credits them to a securities account;

b. When a depository accepts global certificates for custody and credits the corresponding rights to a securities account;

c. When a depository registers uncertificated securities in the main register and credits the corresponding rights to a securities account.

2 The creation of an indirectly held security does not alter the investor’s rights against the issuer.

3 For each issue of uncertificated securities, a single depository shall maintain the main register. This register shall provide details of the issue, the quantity, and the par value of the rights issued. The register shall be available for public consultation.

Article 8 – Authorization to place in custody with other depositories

1 Even without the account holder’s consent, any depository is authorized to place intermediated securities, certificated securities and uncertificated securities in custody with another depository in Switzerland or abroad.

2 The account holder’s express consent is required:

a. Where the foreign depository is not subject to adequate regulatory supervision;

or

b. Where the account holder has expressly required certificated securities to be held in the custody of the account holder’s depository.

Article 9 – Conversion

1 Save where otherwise provided in the conditions of issue or the issuer’s articles of association, the issuer may, at any time and without the account holder’s consent, convert the securities on deposit with a depository in the form of certificated securities in collective custody, a global certificate or uncertificated securities, into another form. The issuer shall bear the conversion cost.

2 Insofar as provided by the conditions of issue or the issuer’s articles of association, the account holder may at any time require the issuer to deliver certificated securities in the quantity and of the kind corresponding to the intermediated securities registered in the account holder’s account based on a global certificate or uncertificated securities. The account holder shall bear the cost of this conversion unless the conditions of issue or the issuer’s articles of association provide otherwise.

3 The depository shall ensure through appropriate procedures and effective controls that the conversion of the securities does not alter the total amount of the pecuniary and voting rights issued.

CHAPITRE 2 : CREATION, EXTINCTION ET CONVERSION DES TITRES INTERMEDIES

Article 7 – Création 1 Des titres intermédiés sont créés:

a. lorsqu'un dépositaire reçoit des papiers-valeurs en dépôt collectif et les inscrits au crédit d'un compte de titres;

b. lorsqu'un dépositaire reçoit en dépôt un certificat global et inscrit les droits correspondants au crédit d'un compte de titres; ou

c. lorsqu'un dépositaire inscrit des droits-valeurs au registre principal et porte les droits correspondants au crédit de comptes de titres.

2 La création d'un titre intermédié ne modifie pas les droits de l’investisseur à l'égard de l'émetteur.

3 Pour chaque émission de droits valeurs, un seul dépositaire tient le registre central.

Celui-ci comporte des indications sur l'émission, le nombre et la valeur nominale des droits émis. Il est public.

Article 8 – Autorisation de conserver auprès d'autres dépositaires

1 Même sans le consentement du titulaire du compte, tout dépositaire est autorisé à faire conserver des titres intermédiés, des papiers-valeurs ou des droits-valeurs par un autre dépositaire en Suisse ou à l'étranger.

2 Le consentement exprès du titulaire de compte est requis:

a. lorsque le dépositaire à l'étranger n'est pas soumis à une surveillance prudentielle adéquate; ou

b. lorsque le titulaire du compte a expressément exigé que des papiers-valeurs soient conservés par son dépositaire.

Article 9 – Conversion

1 À moins que les conditions d'émission ou les statuts de l'émetteur n'en disposent autrement, l'émetteur peut, en tout temps et sans le consentement du titulaire du compte, convertir les titres déposés auprès d'un intermédiaire sous la forme de papiers-valeurs en dépôt collectif, d'un certificat global ou de droits-valeurs en une autre forme. Il supporte les frais.

2 Dans la mesure où cela et prévu par les conditions de l'émission ou par les statuts de l'émetteur, le titulaire d'un compte peut en tout temps exiger de l'émetteur qu'il lui remette des papiers-valeurs dont le nombre et le genre correspondent aux titres intermédiés inscrits à son compte fondés sur un certificat global ou sur des droits-valeurs. Il supporte les frais de cette conversion à moins que les conditions de l'émission ou les statuts de l'émetteur n'en disposent autrement.

3 Le dépositaire s'assure par des procédures appropriées et des contrôles efficaces que la conversion des titres ne modifie pas le total des créances et droits sociaux émis.

Enhancing Legal Certainty over Investment Securities Held with an Intermediary

Article 10 – Extinction and Delivery

1 The account holder may at any time require the depository to deliver certificated securities in quantity and kind corresponding to the intermediated securities registered in the account holder’s account where:

a. The corresponding certificated securities are held in custody by a depository; or b. The account holder is entitled to delivery of the certificated securities pursuant to Article 9.2.

2 The account holder shall bear the cost of this delivery unless the conditions of issue or the issuer’s articles of association provide otherwise. The account holder shall be entitled to the delivery of certificated securities in accordance with the custom and usage of the market on which the securities are traded.

3 The depository shall ensure that the delivery to the account holder occurs only after the corresponding securities have been debited to the latter’s securities account.

CHAPTER 3 : CUSTODY OF THE SECURITIES Article 11 – Available securities

1 Each depository shall hold in its own custody, or with another depository, securities (available securities) in the quantity and kind corresponding at minimum to the total of the securities credited to the securities accounts that the depository maintains for its clients.

2 The following are deemed to be available securities within the meaning of the foregoing paragraph:

a. Intermediated securities credited to a securities account that the depository maintains with another depository;

b. Securities that the depository itself holds in its own custody in the form of certificated securities, a global certificate or uncertificated securities entered in the main register; and

c. Readily available rights to delivery of securities from other depositories during the regulatory or customary settlement period for the corresponding market, provided that the period shall not exceed eight days.

3 If the total quantity of securities available for delivery amounts to less than the total quantity of securities credited to the depository’s client accounts, the depository shall forthwith acquire the missing securities.

Article 12 – Segregation of own securities and client securities

1 If the depository holds securities of its own and securities belonging to clients in separate securities accounts with another depository, the securities and rights to delivery of securities of any account holder whose security account is held by the first depository shall not be affected by:

a. A set-off agreement between the account holder’s depository and the other depository, to which the account holder is not a party;

b. Any security interest, right of pledge, retention, or foreclosure of the other depository or of a third party to which the account holder has not consented.

Article 10 – Extinction et livraison

1 Le titulaire d'un compte peut en tout temps exiger que son dépositaire lui remette des papiers-valeurs dont le nombre et le genre correspondent aux titres inscrits au crédit de son compte si:

a. les papiers-valeurs correspondant sont conservés par un dépositaire; ou b. le titulaire du compte a droit à la remise de papiers-valeurs conformément à l'article 9 alinéa 2.

2 Le titulaire du compte supporte les frais de cette livraison à moins que les conditions de l'émission ou les statuts de l'émetteur n'en disposent autrement. Il a droit à la livraison de papiers-valeurs conformes aux usances d'un marché sur lequel ces titres sont négociés.

3 Le dépositaire s'assure que la livraison au titulaire du compte n'intervient que lorsque les titres correspondants ont été débités de son compte de titres.

CHAPITRE 3 : CONSERVATION DES TITRES Article 11 – Titres disponibles

1 Chaque dépositaire détient lui-même ou auprès d'un autre dépositaire des titres (titres disponibles) dont le nombre et le genre correspondent au minimum à la somme des titres inscrits au crédit des comptes de titres qu'il tient pour ses clients.

2 Sont des titres disponibles au sens du précédent alinéa:

a. les titres intermédiés inscrits au crédit d'un compte de titres que le dépositaire détient auprès d'un autre dépositaire;

b. les titres que le dépositaire conserve lui-même sous la forme de papiers- valeurs, de certificat global ou de droits-valeurs inscrits à son registre principal; et

c. ses prétentions disponibles à des livraisons de titres à l'encontre d'autres dépositaires pendant la durée réglementaire ou usuelle du règlement régulier sur le marché correspondant, mais au plus pendant huit jours.

3 Si la somme des titres disponibles est inférieure à la somme des titres inscrits au crédit des comptes de ses clients, le dépositaire acquiert sans délai les titres manquants.

Article 12 – Ségrégation entre titres propres et titres détenus pour le compte de tiers 1 Si le dépositaire détient ses propres titres et les titres de ses clients sur des comptes de titres distincts auprès d'un autre dépositaire, les titres et les droits à la livraison de titres de tout titulaire de compte tenu par le premier dépositaire ne sont pas affectés par:

a. une convention de compensation conclue entre son dépositaire et l'autre dépositaire à laquelle le titulaire de compte n'est pas partie;

b. tout droit de gage, de rétention ou de réalisation de l'autre dépositaire ou d'un tiers auquel le titulaire de compte n'a pas consenti.

Enhancing Legal Certainty over Investment Securities Held with an Intermediary

2 The depository may not dispose of an account holder’s securities prior to transferring them from the account holder’s account to its own account by exercising its right of use or sub- pledge pursuant to Article 14 or Article 15.

3 Any agreement to the contrary shall be invalid.

Article 13 – Right of Retention and Foreclosure

1 In accordance with Article 25, the depository shall be entitled to foreclose on securities credited to a securities account to recover any due debt owed by the account holder arising out of the custody of the intermediated securities or the financing of their acquisition.

2 The depository’s right of retention and foreclosure shall cease when the latter credits the securities to the account of another account holder or transfers them to another depository.

Article 14 – Right of use

1 An account holder may authorize its depository to dispose in its own name and on its own behalf of the securities credited to the holder’s account.

2 The authorization must be granted in writing; it cannot be included in the general terms and conditions.

Article 15 – Sub-pledge

1 An account holder may authorize a depository, in writing, to pledge or dispose of the securities that the account holder has pledged or transferred as collateral to the depository.

2 By exercising this right, the depository undertakes to hold the same quantity and kind of securities at the account holder’s disposal at the latest when the secured debt has matured. If so provided in the agreement creating the collateral, the depository may foreclose on the securities in accordance with Article 25.

3 Securities within the meaning of Article 15.2, first sentence, shall be subject to the same collateral constraints as those they replace and shall be treated as though no replacement had occurred.

Article 16 – Statements

An account holder may at any time require its depository to draw up a statement of the securities credited to the account. This statement is an evidentiary document, not a certificated security.

Article 17 – Exclusion from insolvency

1 If the depository becomes the object of proceedings for liquidation, insolvency or composition, the competent authority shall exclude from the depository’s estate, to the extent of the securities credited to the latter’s client accounts:

a. Intermediated securities credited to a securities account held by the depository with another depository;

b. Securities that the depository itself holds in the form of certificated securities, a global certificate or uncertificated securities registered in its main register;

c. The depository’s readily available rights to receive delivery of securities from third parties resulting from spot transactions, expired futures transactions, hedging transactions or issues on behalf of account holders.

2 Le dépositaire ne peut pas disposer des titres d'un titulaire de compte avant de les avoir transférés de ce compte à son propre compte dans l’exercice de son droit d’utilisation ou de sous-nantissement selon les articles 14 ou 15.

3 Toute convention contraire est nulle.

Article 13 – Droit de rétention et de réalisation

1 Le dépositaire peut réaliser conformément à l'article 25 les titres inscrits au crédit d'un compte de titres pour se désintéresser de toute dette exigible du titulaire du compte résultant de la conservation de ses titres intermédiés ou du financement de leur acquisition.

2 Le droit de rétention ou de réalisation du dépositaire s'éteint lorsque celui-ci bonifie les titres au crédit du compte d’un autre titulaire ou les transfère à un autre dépositaire.

Article 14 – Droit d'utilisation

1 Un titulaire de compte peut autoriser son dépositaire à disposer en son propre nom et pour son propre compte des titres inscrits au crédit de son compte.

2 L'autorisation doit être donnée par écrit; elle ne peut être incluse dans des conditions générales.

Article 15 – Sous-nantissement

1 Un titulaire de compte peut autoriser par écrit un dépositaire à engager ou à aliéner les titres qu'il lui a remis en gage ou transférés à fin de sûreté.

2 En exerçant ce droit, le dépositaire assume l'obligation de tenir des titres en même nombre et du même genre à la disposition du titulaire du compte au plus tard à l'échéance de la dette garantie. Si cela a été stipulé dans le contrat constitutif de la sûreté, le dépositaire peut réaliser les titres conformément à l’article 25.

3 Les titres au sens de l'alinéa 2, 1^ère phrase, sont grevés de la même sûreté que ceux qu'ils remplacent et sont traités comme si ce remplacement n'avait jamais eu lieu.

Article 16 – Attestation

Le titulaire du compte peut en tout temps exiger de son dépositaire qu'il établisse une attestation relative aux titres inscrits dans ce compte. Cette attestation est un titre de preuve et non un papier-valeur.

Article 17 – Distraction

1 Lorsque le dépositaire fait l'objet d'une procédure de liquidation, de faillite ou de concordat, l'autorité compétente distrait d'office de la masse, à concurrence des titres inscrits au crédit des comptes de titres de ses clients:

a. les titres intermédiés inscrits au crédit d'un compte de titres que le dépositaire détient auprès d'un autre dépositaire;

b. les titres que le dépositaire conserve lui-même sous la forme de papiers- valeurs, de certificat global ou de droits-valeurs inscrits à son registre principal; et

c. les prétentions disponibles du dépositaire à des livraisons de titres à l'encontre de tiers résultant d'opérations au comptant, d'opération à terme échues, d'opérations de couverture ou d'émissions pour le compte de titulaires de comptes.

Enhancing Legal Certainty over Investment Securities Held with an Intermediary

2 If the depository does not hold its own securities and those of its clients in separate securities accounts with another depository, the securities credited to those accounts shall be presumed to belong to the depository’s clients.

3 For each account holder, the exclusion shall be carried out by transferring the intermediated securities and rights to receive delivery of securities to the depository appointed by the account holder or by delivering the certificated securities to the account holder. The foregoing is without prejudice to the depository’s claims pursuant to Article 13.

4 If another depository within the meaning of Article 8 becomes the object of insolvency proceedings, composition, or other compulsory liquidation proceedings, the depository shall invoke the exclusion in favor of its account holders.

5 This Article shall not affect the validity or effectiveness of any prior agreement under which, in the event of inability to pay, bankruptcy, liquidation or similar circumstances, a depository or an account holder is not entitled to receive or is not bound to pay more than the difference between the unrealized gains and losses on the transactions covered by the agreement (Closeout-Netting).

Article 18 – Shortfall

1 If the securities to be excluded from insolvency pursuant to Article 17 are not sufficient to satisfy the account holders in full, securities of the same kind held by the depository for its own account shall also be excluded insofar as necessary, even where such securities have been held separately from the clients’ securities.

2 If the account holders are still not fully satisfied, they shall bear the shortfall in proportion to the shortfall balance of the securities of the missing kind credited to their account.

They shall obtain a corresponding claim against the depository for compensation of their loss.

Article 19 – Seizure and attachment

1 Where intermediated securities are seized, attached, or subjected to another interim measure against an account holder, such measure shall be executed exclusively in the hands of the depository maintaining the securities account to which the account holder’s securities are credited.

2 Any seizure, attachment, or other interim measure executed against an account holder in the hands of a depository other than that referred to in paragraph 1 above shall be invalid.

CHAPTER 4 : DISPOSITION OF INTERMEDIATED SECURITIES AND EFFECTS ON THIRD PARTIES

Section 1 : Disposition

Article 20 – Instructions

1 The depository is bound to carry out the account holder’s instructions disposing of the latter’s securities pursuant to the contract binding both parties.

2 The depository shall not be obliged or entitled to verify the legal grounds for the instructions.

2 Si le dépositaire ne détient pas ses propres titres et les titres de ses clients sur des comptes de titres distincts auprès d'un autre dépositaire, les titres inscrits au crédit de ces comptes sont présumés être ceux de ses clients.

3 Pour chaque titulaire de compte, la distraction s'opère par le transfert des titres intermédiés et des prétentions en livraison de titres au dépositaire désigné par le titulaire de compte ou par la livraison des papiers-valeurs au titulaire de compte. Les prétentions du dépositaire conformément à l'article 13 sont réservées.

4 Lorsqu'un autre dépositaire au sens de l’article 8 fait l'objet d'une procédure de faillite, de concordat ou d'une autre procédure de liquidation forcée, le dépositaire fait valoir la distraction au profit de ses titulaires de comptes.

5 Cet article n'affecte ni la validité ni l'efficacité d'une convention antérieure selon laquelle, en cas d'incapacité de paiement, de faillite, de liquidation ou de circonstances semblables, un dépositaire ou un titulaire de compte n'a droit au paiement ou n'est tenu de payer que la différence entre les gains et les pertes non réalisés des opérations couvertes par cette convention (Closeout-Netting).

Article 18 – Insuffisance (shortfall)

1 Si les titres qui doivent être distraits conformément à l'article 17 ne suffisent pas à désintéresser complètement les titulaires de comptes, les titres de même genre que le dépositaire détient pour son propre compte sont également distraits dans la mesure nécessaire, même lorsque ces titres sont conservés séparément des titres de clients.

2 Si les titulaires de comptes ne sont toujours pas complètement désintéressés, ceux-ci supportent l'insuffisance à proportion du solde des titres du genre manquant crédités à leur compte.

Dans la même mesure, ils obtiennent une créance compensant leur perte contre le dépositaire.

Article 19 – Saisie et séquestre

1 Lorsque des titres intermédiés font l'objet d'une saisie, d'un séquestre ou d'une autre mesure provisionnelle à l'encontre d'un titulaire de compte, cette mesure est exécutée exclusivement en mains du dépositaire qui tient le compte du titulaire au crédit duquel les titres sont inscrits.

2 Est nulle toute saisie, tout séquestre et toute autre mesure provisionnelle à l'encontre d'un titulaire de compte qui est exécutée en mains d'un autre dépositaire que celui désigné au premier alinéa.

CHAPITRE 4 : ACTES DE DISPOSITION SUR LES TITRES INTERMEDIES ET EFFETS A L'EGARD DES TIERS

Section 1 : Actes de disposition

Article 20 – Instruction

1 Le dépositaire est tenu d'exécuter les instructions du titulaire du compte portant sur la disposition de ses titres conformément au contrat qui les lie.

2 Le dépositaire n'a ni l'obligation ni le droit de vérifier la cause juridique de l'instruction.