Market Needs as Paradigm: Breaking Up the Thinking on EU Securities Law
28 Pages Posted: 14 Feb 2013 Last revised: 25 Mar 2014
Date Written: September 14, 2012
Modern patterns for holding investment securities face three basic legal challenges: first, negotiability and the possibility of good faith acquisition must be ensured as they are the basis of today’s anonymous trading and settlement of securities. In the past, securities have been incorporated in paper certificates to achieve this result, allowing for the application of principles of property law to what in substance is a set of mutual rights and obligations. Second, account holders need to be protected against intermediary risk. Traditionally, concepts like safekeeping or trust were applied to achieve this result. Since there is a need to adjust to modern, basically electronic holding of securities, these concepts are now stretched to a considerable extent. Third, 40% of holdings entail cross-jurisdictional questions. Therefore, the issues of both negotiability/good faith acquisition and protection against intermediary risk need to be addressed from an international perspective. Modern conflict-of-laws concepts, in particular PRIMA, lead to the application of different laws to the 'same' securities, with potentially differing legal analyses in respect of these securities. The EU legislator was so far unable to address these problems. The Geneva Securities Convention and the Hague Securities Convention provide for answers but face criticism and are not yet implemented.
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