The European Commission’s Legal Certainty Group (LCG) has proposed in its report, entitled “Second Advice”, the solutions expected to lead to an improved and harmonised legal framework for holding and settlement of securities through intermediaries and for the processing of corporate actions.
Furthermore, the report proposes to give issuers free choice between European Central Securities Depositories.
“Legal barriers make it much more complex to hold securities cross-border, and lead to higher costs for transactions and credit,” says Charlie McCreevy, internal market and services commissioner. “In addition, they cause difficulties and uncertainty among investors when exercising their rights in corporate actions abroad. The Legal Certainty Group’s work will help us to bring down these barriers. I particularly welcome the fact that the Group has addressed issues that could prove instrumental in making our post-trading market more competitive. Also, its contribution to preparing the way for an industry-led consolidation of the European post-trading environment will provide additional support for the Code of Conduct on Clearing and Settlement.”
Main conclusions of the Legal Certainty Group’s Second Advice
Recommendations 1-11 present possible solutions to the so-called Giovannini Barrier 13 (which deals with the fact of absence of an EU-wide framework of laws regarding book-entry securities). The Recommendations deliver a whole set of rules that covers many important legal aspects, such as the different methods for creating security interest, priorities, or the protection of the integrity of the issue.
Recommendations 12-14 relate to the legal aspects contained in Giovannini Barrier 3 (which deals with the differing rules governing corporate actions’ processing). The Recommendations propose the removal of insufficiencies in corporate actions processing by introducing a rule on cross-border interconnectivity between conflicting models of securities holding and propose a rule on the specific duties of intermediaries regarding the information flow between investor and issuer as well as on the exercise of certain investors’ rights through the holding chain.
Recommendation 15 presents potential solutions for dismantling Giovannini Barrier 9 (which deals with restrictions on the location of securities) and ties in with the Code of Conduct for Clearing and Settlement. It advocates that issuers should have a free choice in choosing their Central Securities Depository.