Issue no. 22: ICMA Regulatory Policy Newsletter

and “indirect” models – ie whether the investor had a legal
link to his securities or only a right against his intermediary.
The paper recommends that the notions of “direct” and
indirect” be set aside as being too vague.
The paper also examines cross-jurisdictional situations and
explains how domestic laws may influence various parts of
a cross-border securities holding chain. However, because
different jurisdictions can use different models (as described
above), it may be difficult easily to identify who has rights
over the securities, resulting in considerable legal uncertainty,
which can take considerable amounts of time to resolve.
The paper also highlights the need for a clear legal framework
for securities holding and disposition in relation to the provision
of collateral. While the Financial Collateral Directive sets out
MARKET INFRASTRUCTURE
rules about how collateral is validly established and provided
to the collateral taker, there is no common framework on
what happens if something goes wrong, such as validly
provided collateral being the subject of a priority contest
between two collateral takers. In this regard, legal uncertainty
is particularly problematic for central counterparties (CCPs).
If collateral is legally uncertain in times of financial turmoil,
the CCP cannot fulfil its function and the protections it is
supposed to provide would be limited. Finally, the paper
summarises the Commission’s recent consultation paper
and outlines some of the policy areas where respondents to
the consultation expressed support.
Contact: Lalitha Colaco-Henry
lalitha.colaco-henry@icmagroup.org
Steven Maijoor, Chairman of ESMA, delivering the keynote address at ICMA’s Paris AGM and Conference
ICMA Regulatory Policy Newsletter Third Quarter 2011 | 32