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Legal Task Force Session In ACG15 November 4th, 2011 Seoul, Korea.
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Transcript of Legal Task Force Session In ACG15 November 4th, 2011 Seoul, Korea.
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Legal Task Force Session
In ACG15
November 4th, 2011
Seoul, Korea
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Legal Task Force Session in the 15th ACG
Presentation by SD&C Presentation by Jasdec Discussion among the
members Summary
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Presentation by SD&C
Legal Protection of CSD/CCP in Case of Participants’ Insolvency
Comments on Principles for FMI Next Step
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Legal Protection Of CSD/CCP In Case Of Participants’ Insolvency
Contributions from SD&C Contributions from other members Facts and feedbacks Conclusions and Suggestions
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Contributions from SD&C
Questionare investigation Draft of the report Send the draft to members and get
feedbacks Finalization of the report
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Contributions from other members
TSD,NSDL,VSD,KSD,SICDA,CSEHKSCC, JASDEC, JDCC, JSCC, TDCC, KACD, CDC, CDSL.
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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
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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
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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
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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
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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
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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
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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
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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)
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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
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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.
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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
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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)
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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)
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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)
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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
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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?
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Next Step (3)
III 、 New Research Program Outlines (to be discussed) Collateral Transactions Collateral Agreement
Title Transfer Collateral Agreement
conclusions