Legal Task Force Session In ACG15 November 4th, 2011 Seoul, Korea.

Legal Task Force Session

In ACG15

November 4th, 2011

Seoul, Korea

Legal Task Force Session in the 15th 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

Comments on Principles for FMI Next Step

Legal Protection Of CSD/CCP In Case Of Participants’ Insolvency

Contributions from SD&C Contributions from other members Facts and feedbacks Conclusions and Suggestions

Contributions from SD&C

Questionare investigation Draft of the report Send the draft to members and get

feedbacks Finalization of the report

Contributions from other members

TSD,NSDL,VSD,KSD,SICDA,CSEHKSCC, JASDEC, JDCC, JSCC, TDCC, KACD, CDC, CDSL.

Facts and feedbacks (1) Would CSD/CCP be affected by participants’ inso

lvency? No affectted, 7 members For CCP only, 1 member For CSD only, 1 member For both CCP and CSD, 2 members

Are there any cases of participant’s insolvency? No cases , 4 members Having cases, 7 cases

Facts and feedbacks (2) Do the rules take precedence over law of

insolvency? Type one: Not clearly defined, 6 members Type two: Explicitly stipulated in laws, 7

members

Are settlement instructions still enforceable after the participants go into bankruptcy? Type one: Not clearly defined, 3 members Type two: Explicitly stipulated in laws, 9

members

Facts and feedbacks(3)

Are the rules and contracts between CSD/CCP and its participants still be binding to the insolvent participants? Type one: Not clearly defined, 1 member Type two: Yes, 12 members

Facts and feedbacks (4) Would the rights of investors be affected if the

participant goes into insolvency? No, 8 members

separately segregate securities account held separately in investor’s own name

Not clear, 1 member depends on the relationships between

investors and participants Yes, 2 members

Facts and feedbacks(5) Is it possible for investors to move their

securities and money from insolvent participants to other participants? No, 4 members Not clear, 1 member Yes, 6 members

Facts and feedbacks (6) Is loss sharing rule applicable?

No, 11 members Do you assume obligation of guarante

e settlement? Yes, 9 members No, 1 member Not applicable, 1 member

Which DVP models apply to your market? Model 1, 3 members Model 2, 4 members Model 3, 6 members

Facts and feedbacks (7) Do you have self-disciplined rules?

Yes, 6 members No, 4 members Not applicable, 1 member

What is the relationship between participants and their clients? Commission / brokerage relationship: 9 members Trust relationship: 3 members Agent relationship: 6 members Others, Contractual (deposit) Relationship: 3 members

What is the relationship between CSD/CCP and its participants? Principal and agent: 1 member Members or Participants: 3 members Direct contractual relationship: 6 members According to the agreement: 2 member

Does CSD/CCP has 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 members

Facts 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

Comments on CPSS/IOSCO principle

Generally speaking, ACG members

support CPSS and IOSCO to establish

the new set of principles for FMIs;

Besides, ACG members have also some

suggestions to CPSS/IOSCO.

Suggestions (1)

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)

Suggestions (4)

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)

Next Step (1)

I 、 Wrap up of the topic “Legal Protection

of CSD/CCP in case of Participants’

Insolvency ” Finalizing the version after the 13th Cross Training

Program

Sharing research outcomes among members

II 、 Continue the topic “Legal Application in

cross-border securities transactions” This will be 2012 ‘s focus

Next Step(2)

III 、 Any new topics for 2013?Theme: The application of title transfer collateral agreement in securities markets---suggested by SD&C

Any others?

IF we will start the topic suggested by SD&C, what are the major points we should enhance our research?

Next Step (3)

III 、 New Research Program Outlines (to be discussed) Collateral Transactions Collateral Agreement

Title Transfer Collateral Agreement

conclusions

Thanks, and a warm welcome to

Jasdec

Contact info:

[email protected]

[email protected]