United States and Switzerland first to sign
Hague Treaty providing legal certainty to modern forms of holding and transferring of securities
1. The United States and Switzerland, which represent two of the world's foremost financial markets, today jointly signed the Hague Convention on the Law Applicable to Certain Rights in Respect of Securities held with an Intermediary.
2. The signature of this novel multilateral treaty (widely known as "the Hague Securities Convention”) marks an important step in the development of the new legal infrastructure needed to match modern systems for the holding, transfer and pledge of securities.
3. The vast quantity of securities are nowadays held, transferred and pledged by electronic entries to accounts with clearing and settlement systems and other intermediaries, rather than directly in physical form or directly by issuers. The global financial market, which for the OECD countries alone has a volume of more than 2,000 million US dollars a day, is in need of a legal regime that deals effectively with this new reality. There is broad agreement in the financial world that the traditional legal rules, based on physical transfers and direct holdings, are too diverse, out-dated and inadequate. The result is legal uncertainty, increased risk, and higher costs for global clearing and settlement, with repercussions at all levels of the global financial market.
4. The Hague Securities Convention ensures that there is a clear and certain answer to questions such as which law governs the determination of the legal nature of the rights resulting from a credit of securities to a securities account, the steps required for a transfer or pledge of securities to such accounts to be enforceable among the parties and third parties, and the steps required to realise a pledge of securities credited to such accounts.
5. The ratification of the Convention by the United States, Switzerland and other nations will reduce the risk of financial transactions and lower costs. Significantly, Switzerland has announced that it may incorporate the rules of the Convention into its domestic law even before the Convention comes into force at the global level.
6. Today’s joint signing coincides with another crucial event relating to the Securities Convention, that is the release of the European Commission’s “[l]egal assessment of certain aspects of the Hague Securities Convention”. The Commission concludes in particular that “adoption of the Convention would be in the best interest of the Community” and recommends that the Convention “be signed after or with at least two of its main trading partners, the USA included.” Together with today’s signing of the Convention, it is hoped that the Commission’s assessment paves the way for quick Community action. To access the press release relating to the Commission’s assessment click here.
THE HAGUE, 5 July 2006
The Hague Conference is an inter-governmental organisation based in the Netherlands working for the harmonisation of rules of private international law. It has 65 Member States located on every continent. Furthermore, more than 120 States are Parties to one or more of the Hague Conventions.
In essence, the purpose of the Organisation is to build bridges between various legal systems, while respecting their diversity. In doing so it reinforces the legal security of private persons – an essential role in an age of globalisation in which rules and guidelines are needed.
For more information:
Hague Conference on Private International Law
2517 KT The Hague
Tel: +31 (70) 363 33 03
Fax: +31 (70) 360 48 67