1. Do not re-size text boxes as they are measured to fit paper with pre- printed Freshfields Bruckhaus Deringer design. The red lines indicate absolute top and bottom. If you accidentally change the text boxes, go to ‘format/slide layout’ and choose the top left hand corner slide called ‘title slide’ and click ‘re-apply’. To insert other ready-formatted pages: go to the insert menu/slides from files/ select ‘presentation inserts.ppt’ Click the display button, then click the button on the right (marked with red below). Click on the slide(s) to insert then insert and close. The UNIDROIT project on harmonized substantive rules regarding securities held with an intermediary NameGuy Morton Date12 th October 2004

2. Background The Hague Convention is a huge step forward in clarifying the law applicable to issues on securities held with an intermediary……… …. but the Hague Conference deals only with choice of law, not substantive law Substantive rules of the law identified under the Hague Convention may be unsatisfactory …… …… or the laws applicable to different intermediaries in a holding structure may not be compatible when required to work in combination in cross-border context UNIDROIT Study Group set up to consider the issues and to recommend possible measures of harmonization Position Paper August 2003 Draft Convention May 2004 Revised draft expected shortly for member state governments to consider further action

3. The UNIDROIT project: basic principles of the Study Group Objectives of internal soundness and compatibility Cater for key needs of main participants Minimalist scope: deal only with issues essential from standpoint of systemic risk or market efficiency Core minimum rules to be incorporated into general law of relevant states

4. The UNIDROIT project: basic principles of the Study Group (continued) Functional/neutral approach: rules must be compatible with differing legal and conceptual frameworks – account holders as owners of underlying securities, intermediaries as depositories or record keepers account holders (including intermediaries) as holders of separate property or interest at each level Draft by reference to functional result, not particular legal terminology Simple, effective method of book entry holding and disposition Sufficiency of book entries Investors’ rights protected from intermediary insolvency No “upper tier attachment”

5. Key areas to be covered Core rights conferred by credit of securities to a securities account (fruits of ownership, rights of disposal, withdrawal, change of intermediary) Acquisition, disposition and creation of security interests by book entry Effectiveness of book entries, including rules on finality, reversal, revocation Prohibition of upper-tier attachment Priority among competing dispositions Protection of innocent acquirer (“good faith purchaser” rule) Protection of investors’ rights in insolvency of intermediary Interface with issuers: corporate law rules which preclude or inhibit effective holding and enjoyment of rights through intermediaries to be modified as necessary Preservation of rights of set-off Special regime for collateral transactions (optional)