ACG Legal Task Force Progress in 2010 and Future Plans Presentation for the ACG 14 General Meeting December 3, 2010 Mumbai, India China Securities Depository and Clearing Co. Ltd Convener of the Legal Task Force

Working Arrangements of 2010  Main Task---Research Program  Legal Protection of CSD/CCP in Case of Participants’ Insolvency  Research Steps  Coordinator---SD&C  Distributing market survey  Organizing researches among members  First draft  Discussions and amendments  Final version

Conference Call-- Ⅰ  Time: March 23, 2010  Participants  HKSCC, JASDEC, NSDL, SD&C, TSD, VSD  Contents  Brief Review of Last Year’s activities  Discussion on Working Schedule for 2010  Discussion on the Outline of Two research themes  Other Comments

Conference Call-- Ⅱ  Time: October 25, 2010  Participants: CCDC, HKSCC, JASDEC, NSDL, SD&C, ICSD, VSD  Contents:  Confirmation of the contents of the activity report of Legal Task Force  Introduction to the theme of “Applicable Law in Cross-border Securities Transactions”  Declaration of important issues All participants gave confirmation of the contents of activity reports of Legal Task Force. All participants agreed to join next-term Legal Task Force. All participants agreed to vote SD&C for the convener of the next-term Legal Task Force. All participants agreed to the future plan of Legal Task Force.  Other feedback : other seven members agreed to the issues above- mentioned

Market Survey  Theme  Legal Protection of CSD/CCP In Case of Participants' Insolvency  Time: June 9, 2010  Feedbacks: 10 members  VSD, TSD, HKSCC, Central Depository Services (India) Limited, KSD, Central Depository System (Pvt) Limited Sri Lanka, Bursa Malaysia Depository Sdn. Bhd., JASDEC, JSCC, SD&C  Contents  Cases on participants’ insolvency  Elements related to participants’ insolvency  Legal arrangements on risk mitigation of CSD/CCP’s participants  Comment and advice

Market Survey  Cases: many members encountered events of participants’ insolvency a majority of CSD/CCP not be affected laws and regulations have been established to make sure that a CSD/CCP maintain a sound management system and the capability of performing operations and complete its operations in the event of participants’ insolvency/default.  Legal issues and risks: under most insolvency laws, the transaction results may be particularly vulnerable the provision of finality, effectiveness, precedence in rules can make sure that a clearing and settlement process can be accomplished indubitably and the settlement of instructions can be managed without the risk under insolvency law. the certainty of effectiveness of investors’ rights and interests is minimum requirement at any time including the scenario of an insolvency proceeding of a participant. In general, most of members give positive reply that investors’ rights will be unaffected and they may also exercise recall right to their securities due to their special business arrangement.

Market Survey  Elements analysis: There are some institutional causes to CSD/CCP’ potential risks in case of participant’s insolvency. In a way, the responsibility of CSD/CCP’s obligation of guarantee settlement may lead to CSD/CCP suffering loss.  legal arrangements and risk disposal : Legal relations among CSD/CCP, participants and their clients are fundamental legal factors in all markets. According to different legal background, many types relationship will present in laws and rules governing a system, such as Commission / brokerage relationship, Trust relationship, Agent relationship and Others. But common provisions are also in existence, that can be called contractual relationship. As a SRO institution, CSD/CCP usually signs contracts with their participants to carry out daily arrangements besides rules and procedures. Many rules must represent the content of contracts between the operators and the participants. As to CSD/CCP’s special role and privilege, the common and regular rights can be described simply as refusing to deliver securities/cash, which is defined in legal concept as Lien, Pledge and just Legal right.

Market Survey  Comment and further discussion The legal framework for securities depository and clearing/settlement varies from jurisdiction to jurisdiction and reflects a jurisdiction’s entire legal system. The legal framework includes several basic laws, such as securities, property and insolvency laws, and may include laws specifically related to the operation of the system. Furthermore regulations or other administrative acts, rules and procedures of the system are the vast and primary legal resource. In some jurisdictions, the general laws governing property rights and insolvency may not apply to securities depository and clearing/settlement suitably, or may constitute special provisions related to especial securities depository and clearing/settlement. Key aspects of these areas’ 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.

Market Survey  Suggestions to include these provisions hereinafter in domestic legal framework: the rules of the depository or settlement system and contracts between CSD/CCP and its participants are still effective even if the participant enters into insolvency process. the rules applicable for the process of securities depository, clearing and settlement take precedence over law of insolvency. any provision precludes the revocation of any instruction given by a participant after the instruction having been entered irrevocably into the relevant clearing and settlement process. any provision precludes the invalidation or reversal of a debit or credit of securities to a securities account after the time at which that debit, credit has been done. CSD/CCP has right (lien or other legal rights) of refusing to deliver securities/cash when the participants fail to fulfill his settlement obligation.

Research Process  ACG Cross Training Seminar:  Introduction to pilot study on the research  Subject presentations by SD&C, DTCC and Bursa Malaysia Depository  Discussions  Further research: —12  ACG General Meeting:  Reporting on the main research outcomes  Sharing research outcomes among members

Research Plan for 2011 ( excerpt from JASDEC ’ s report) 2010 Sep-Dec  Select legal issues which need to be analyzed in gaps with UNIDROIT ’ s functional approach  Establish model cases in cross-border securities transaction and settlement and narrow legal cases down to a couple of examples 2011 Jan-May  Survey about ACG members Based on examples built up in Stage1, conduct a survey via questionnaire about the practice of ACG members ’ substantive / private international laws 2011 Jun-Sep  Midterm report of the survey 2011 Autumn  Final Report will be provided by SD&C and JASDEC Stage1 Study Stage2 Survey Stage3 Summary Sep 2010: 12th ACG Cross Training Seminar Summer 2011: 13th ACG Cross Training Seminar Autumn 2011: ACG15

 Questionnaire will contain:  Gap analysis of ACG members’ substantive laws Identify the gap between each ACG member’s substantive law and main provisions in UNIDROIT Convention Examples: Rights of the account holder Procedures and effects of transfer of intermediated securities Integrity of the intermediated holding system  Case study of ACG members’ private international laws Identify the consequences of applying certain cases to each ACG member’s private international law Examples: Rights of receivers in case of double transfer Pledgees’ rights in case of double provision of security Obligor perfection Research Plan for 2011 ( excerpt from JASDEC ’ s report)

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