Brussels, 22 August 2008
Post-trading: Commission expert group calls for harmonised solution to dismantle legal barriers in cross-border securities transactions
The European Commission's Legal Certainty Group (LCG) has put forward solutions to legal barriers related to the cross-border holding and settlement of securities. The solutions proposed in its report, entitled 'Second Advice', are 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.
Internal Market and Services Commissioner Charlie McCreevy said: "Legal barriers make it much more complex to hold securities cross-border, and lead to higher costs for transactions and credit. 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 address comprehensively the legal effects of book-entries made to securities accounts. However, they circumvent the necessity to make fundamental changes to Member States' laws that currently govern securities holding and settlement. 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). They propose the removal of insufficiencies in corporate actions processing by introducing on the one hand a rule on cross-border interconnectivity between conflicting models of securities holding. On the other hand they 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. Such a freedom of choice would considerably enhance competition and the possibility to consolidate amongst post-trading infrastructures.
The way forward
The Commission will now analyse the proposals of the Second Advice, which is calling for harmonised legislation in this area of law, in view of taking a decision on the appropriate way forward before the end of 2008.
Post-trading takes place after two parties have agreed a securities transaction, in order to organise for the acquisition of the securities on one side and their disposal on the other. Systems in the EU have developed nationally, as cross-border activity has been limited until recently. Much to the detriment of the EU's financial markets, cross-border post-trading in the EU is still more expensive and complex than post-trading in a single Member State or in the United States.
About the Legal Certainty Group
The Legal Certainty Group is an advisory group made up of 36 eminent legal experts from the post-trading industry, academia, legal practice and competent authorities. It is chaired by the Commission which also provides the Secretariat. The Members are drawn from 23 EU Member States and participate in their personal capacity. The Legal Certainty Group was created in 2005 and delivered its First Advice together with a fact finding study in summer 2006. Its sister groups are CESAME (on industry related matters) and FISCO (on fiscal compliance procedures).
The Second Advice of the Legal Certainty Group is available at:
 The Giovannini Reports were published in 2001 and 2003 and describe difficulties within the post-trading sector and identified fifteen specific obstacles to an ideal post-trading market, the so-called "Giovannini Barriers".