AMEDA Leadership Forum Egypt

Overview of the requirements for compliance with G30, the Implications for CSDs of Unidroit and the

Hague Conventions

PRESENTED BY: Anne Njoroge DATE: Monday, 27 April 2009

INTERNATIONAL ORGANISATIONS

International activity in the post-trade clearing and settlement arena:

Group of Thirty

Giovannini Group

ISSA

Hague Conference on Private International Law

UNIDROIT

Conventions: Hague and UNIDROIT

Group of Thirty

Consultative Group on International, Economic and Monetary Affairs

Private non-profit, international body with representatives from public and private

sectors

Examines international economic and financial issues

Recommendations to improve the safety and efficiency of international securities

markets

G30 Recommendations: Interoperable global network

Eliminate paper and automate communication, data capture, and enrichment.

Harmonize messaging standards and communication protocols.

Develop and implement reference data standards.

Synchronize timing between different clearing and settlement systems and

associated payment and foreign-exchange systems.

Automate and standardize institutional trade matching.

Expand the use of central counterparties.

Permit securities lending and borrowing to expedite settlement.

Automate and standardize asset servicing processes, including corporate

actions, tax relief arrangements, and restrictions on foreign ownership.

G30 Recommendations: Mitigating Risk

Ensure the financial integrity of providers of clearing and settlement services.

Reinforce the risk management practices of users of clearing and settlement

service providers.

Ensure final, simultaneous transfer and availability of assets.

Ensure effective business continuity and disaster recovery planning.

Address the possibility of failure of a systemically important institution.

Strengthen assessment of the enforceability of contracts.

Advance legal certainty over rights to securities, cash, or collateral.

Recognize and support improved valuation and closeout netting arrangements.

G30 Recommendations: Improving Governance

Ensure appointment of appropriately experienced and senior board members.

Promote fair access to securities clearing and settlement networks.

Ensure equitable and effective attention to stakeholders’ interests.

Encourage consistent regulation and oversight of securities clearing and

settlement service providers.

Giovannini Group

Group of financial markets experts

Advises European Commission on harmonisation of rules, regulations and

practices for a single EU financial market

Lack of harmonisation creates barriers to cross-border clearing and settlement

International Securities Services Association ISSA

Formed as association of securities administrators from around the world

Key objective is to share professional knowledge in the securities industry

89 member institutions from 48 countries

Members include infrastructure providers and users

Hague Conference on Private International Law

International organisation

Purpose: working for progressive unification of rules of private international law

AME Member States: Egypt (1961), Israel (1964), Morocco (1993), Jordan

(2001) and South Africa (2002)

Hague Conventions: multilateral treaties

Hague Convention on the law applicable to certain rights in respect of securities held with an intermediary

Convention signed by Switzerland and the United States (2006), and Mauritius

(2008)

Provides legal certainty and predictability as to the law applicable to securities

held through intermediaries

Facilitates international flow of capital by reduction of legal risk and associated

costs in relation to cross-border securities transactions

Hague Convention

Traditional conflict of law approach: law of the place where securities are located

Unsatisfactory: requires “look-through” various layers of intermediaries to level of

issuer or register

Uncertainties in “look-through” approach

Place of relevant intermediary approach

Express agreement on governing law between account holder and intermediary,

subject to qualifying office requirement

Fall-back provisions

Hague Convention: Scope

Law determined in accordance with Convention is applicable to the following

issues:

Legal nature and effects of rights resulting from credit of securities

Legal nature and effect of disposition of securities

Requirements, if any, for perfection of disposition of securities

Priority of interests and effects

Duties of intermediary with regard to competing interests

Realisation of interest in securities

Disposition of securities and entitlements to dividends, income, or other distributions

UNIDROIT

United Nations International Institute for the Unification of Private Law

Inter-governmental organisation - Rome

Examines ways of harmonising and co-ordinating private law of States

AME Member states: Egypt (1951), Israel (1954), Nigeria (1964), South Africa

(1971), Tunisia (1980) and Saudi Arabia (2009)

UNIDROIT Draft Convention on Substantive Rules Regarding Intermediated Securities

International legal instrument to improve the legal framework for securities holding, transfer

and securities lending and borrowing

Provides basic legal framework for modern intermediated securities

Limitation and management of systemic risk

Supports intergration and competitiveness in financial markets

Enhancement of cross-border interconnectivity of systems

International treaty

Upon ratification, becomes “hard law” overriding domestic law

Need for harmonisation of domestic law with Convention

Convention allows “carve out” provisions through Declarations

Member States may denounce Convention after 12 months notice

UNIDROIT Draft Convention: Scope

Transparent and non-transparent systems of uncertificated securities holding

through intermediaries

Intermediated securities - intermediaries may include banks, brokers, financial

institutions and the central depository

Applies when transfer, pledge etc, take effect through book-entries

Does not apply to:

issuer activities

corporate law issues

supervisory issues

UNIDROIT Draft Convention

Potential legal risk in exercising rights through layers of intermediaries

Concept of ownership: CSD holding in omnibus accounts or segregated

accounts for end-investors

UNIDROIT Convention caters for both transparent and non-transparent holding

patterns

UNIDROIT Convention delegates operational issues to settlement system rules

UNIDROIT Draft Convention: Key Issues

Transfer of intermediated securities

Rights resulting from credit of securities to a securities account

Finality of book entry transfers

Irrevocability of instructions

Protects good faith acquirer of securities

Priority ranking among competing interests

Preclusion of upper-tier attachment

Insolvency

Loss-allocation

Collateral (Optional)

UNIDROIT Draft Convention: Impact for CSDs

Intermediary

Transparent or non-transparent

Settlement rules

Hague Convention and UNIDROIT Draft Convention

Ensure reduction of legal uncertainty in cross-border transactions

Hague Convention determines which law will apply

UNIDROIT Convention promotes the harmonisation of substantive domestic law:

Chosen domestic law should be clear and reliable

Chosen domestic law should be compatible with the law of other jurisdictions

THANK YOU AND QUESTIONS?

Anne Njoroge

Legal Counsel

Strate Ltd

annen@strate.co.za

+27 11 759 5318

www.strate.co.za