The Commission issued its legal assessment of the Hague Securities Convention recommending that the European Community and Member States sign the Convention, and that the Settlement Finality Directive be amended so that securities settlement systems are governed by one Convention law only.
The assessment finds that three of the issues pose no major difficulty, while on the fourth issue it cautions that the use of more than one Convention law within securities settlement systems would endanger financial stability.
The Hague Securities Convention establishes a conflicts-of-law regime, under which the law applicable to holdings of securities is the one named in the account agreement with the relevant intermediary. This differs from the regime which is currently applied in the European Community, under which the law applicable to holdings of securities is determined by the location of the account.
The Commission's legal assessment concludes that the issues on ‘scope of application’, ‘extent of third-party rights’, and ‘consequences for substantive and public law’ would not pose major difficulties, but that the application of the Convention may affect the financial stability of securities settlement systems, if participants in such a system decided to apply more than one Convention law.
The Commission therefore suggests that, apart from changing three Directives, in which the 'location of the account' formula appears, an additional eligibility criterion be introduced in Article 2 of the Settlement Finality Directive to ensure that, within systems, one and only one Convention law should be expressly chosen by all participants. These amendments would have to be introduced after the signing of the Convention and before its ratification.
The USA and Switzerland signed the Convention on 5 July 2006
© European Commission
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