The Commission is consulting informally on principles for legal certainty on securities holding and dispositions. The main proposal is that EU law should regulate the legal framework that governs holding and disposition of securities held through securities accounts, and the processing of rights flowing from these securities. Because of varying national laws and rules on dematerialised securities holding, the Commission believes EU law should ensure that:
- all account providers are regulated at EU level (probably under MiFID);
- there should be clear conflicts of laws arrangements in line with measures such as the Settlement Finality and Financial Collateral Directives;
- there are compatible substantive law arrangements; and
- investors can fully exercise their rights.
However, the Commission is adamant that EU laws should not cover the question of who individual jurisdictions regard as the legal holder of securities, nor should they address creation, recording or reconciliation of securities against their issuer by central securities depositories, central banks, transfer agents or registrars. The proposal also covers:
- sharing functions carried out by account providers;
- clarifying the minimum rights that securities on the credit of a securities account should confer;
- that national laws should provide for acquisitions and disposals of account-held securities to happen by credit or debit to the account (but national law should not contravene EU-level principles in this regard);
- effectiveness in insolvency;
- circumstances in which reversal is possible and protection of acquirers against reversal;
- consistent priority rules;
- protection of account holders in the case of account provider insolvency;
- instructions (which should in principle come only from the account holder);
- how creditors of account holders can "attach" account-held securities, and attachment by creditors of the account provider;
- how to determine applicable law (which should be the law of the country where the account holder maintains the securities account – where applicable the law of the branch that handles the relationship with the account holder will be relevant);
- cross-border recognition of rights attached to securities;
- passing on information;
- requiring the account provider to help determination of an exercise of rights attached to securities at the request of the ultimate account holder;
- ensuring charges do not discriminate between domestic and cross-border holdings;
- exercise of rights flowing from securities by the account provider on the basis of contract; and
- regulating the status of the account provider (so the MiFID ancillary service of "safekeeping of securities etc" will become an investment service).
The Commission wants comments by 1 January 2011.