A new legal costume for intermediated securities

Keywords: Assets

Speeches, FDJP, 01.09.2008. Only the spoken work is valid

Geneva. Speech given in Geneva on 1st September 2008 by Federal Councillor Eveline Widmer-Schlumpf at the opening of the Diplomatic Conference on the adoption of a UNIDROIT Convention on intermediated securities

Mr Secretary-General
Mr Cantonal Councillor
Your Excellencies
Ladies and Gentlemen

On behalf of the Swiss Federal Council, it gives me great pleasure to welcome you to Geneva for the Diplomatic Conference regarding the law on securities. Some 80 years ago, Geneva was already the focal point of the securities world. At that time, the matter in hand was the adoption of uniform legislation on cheques and bills of exchange. Today we are looking at a further example of modernisation: you are faced with the important and interesting task of adopting a convention on intermediated securities. The preparatory work has been carried out by the International Institute for the Unification of Private Law, UNIDROIT, with the active participation of your membership.

We are aware that, as a result of technological innovations, the framework conditions in the financial world have undergone enormous changes in recent decades. The legal system, however, does not yet adequately reflect this change. The legal basis for the holding of securities by financial intermediaries is still rooted in the theory that securities are transferred backwards and forwards between the various actors in document form. But in reality this is very different today: substantial assets are held and managed electronically by intermediaries, without the need for any physical transactions. The mediatised holding of securities, in fact, forms the basis for the systems governing the clearing and settlement of securities, which represent the backbone of the modern financial market infrastructure. In some countries the legal bases have not kept up with the technical developments.

At international level, the settlement of transactions involving centrally-held securities is limited by diverging practices and conditions, thus proving expensive, complicated and not sufficiently secure. This inefficiency is due to a lack of globally-valid norms and disparate legal preconditions in the sphere of securities settlement. Securities transactions between actors from different countries are about twenty times more expensive than those between participants from the same country. Your current aim, ladies and gentlemen, is the introduction of remedial measures to ensure that a minimal level of material legal unification can be adopted. In this way, the securities market will become transparent, inexpensive and secure.

In the demanding task of providing the legal costume for intermediated securities with a more modern and simpler cut, you can build on successful preparations. UNIDROIT has been tackling open questions surrounding the modernisation of the law on securities since 2002. In the course of five preparatory meetings, it has elaborated a basis for an international convention, the essence of which has been distilled by an international study group into a preliminary draft convention. The latter has spent several months in the hands of national and international financial experts in order to obtain their opinion. It is now the subject of today’s diplomatic conference.

During this preparatory work you have fought hard and long for each single provision. In doing so, you have no doubt also kept an eye on the discussions and experiences of another international organisation: the Hague Conference on Private International Law. Even if the participants in the Hague Conference have already adopted the result of their negotiations – in the form of the agreement of 5th July 2006 providing legal security to modern forms of holding and transferring securities – there is still a lot to do. The Hague Convention is limited to aspects concerning the conflict of law rules in this sphere, whereas the current UNIDROIT project is aimed at creating actual minimal standards of a contextual, material nature. I am heartened to see that the preliminary draft of this instrument of substantive law has been prepared with all the necessary care. You have shown a sure eye and – for all your appreciation of fashion – have avoided extravagances. The legal provisions on the holding of securities by financial intermediaries are to be harmonised worldwide only as far as they guarantee legal security in trans-border holding conditions; the national legal provisions are still to be accorded a wide room for manoeuvre. The draft convention is based on the following principles:

  • appropriateness;
  • the compatibility of the various systems;
  • the central role of entries (inscriptions en compte);
  • and all this accompanied by a neutral and functional approach.

Of course the preliminary draft is not yet perfect, but, with so many participants from different legal cultures, the creation of a flawless instrument with one single haute-couture line would be an illusion. The preliminary draft convention is aimed at fulfilling the most urgent needs of the financial markets in a modest and simple form, more likely to be situated in the field of prêt-à-porter. Nevertheless, it seems particularly important to me that the national legal systems will retain a wide scope for their own ideas. I am convinced that you, for your part, will do your best to make the preliminary draft convention more elegant but that, at the same time, you will also endeavour to reach a successful conclusion.

Switzerland still has a strong and important financial centre, even if it has been exposed to a rough wind in recent times. Our country is very much interested in rendering the legal systems for the clearing and settlement of securities as efficient and legally secure as possible. The market conditions should facilitate the transparent, inexpensive and secure execution of these transactions. As your host, Switzerland will certainly do its best to offer you an inspiring and worthy framework for the fulfilment of your demanding task.

May the spirit of co-operation and collaboration continue to resound today, some 80 years after the adoption of the law on cheques and bills of exchange and may you all succeed in bringing the work you have begun to a satisfactory result. I wish you many fruitful discussions and much success!

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