Reform in the securities clearing and settlement system regulation in Ukraine - Статья

Reform in the securities clearing and settlement system regulation in Ukraine Vygovskyy О. І. Doctor of Jurisprudence, Associate Professor of Law, Department of Private International Law, Institute of International Relations at Taras Shevchenko National University of Kyiv Abstract Recent developments in the regulation of securities clearing and settlement system in Ukraine aimed at harmonization of Ukrainian securities legislation with the European and international regulatory standards are discussed in this article. Attention is focused on the key provisions of the Law of Ukraine “On Depository System of Ukraine” which has become one of the cornerstones of the legislative framework for the securities market regulation. These provisions are compared with the rules of UNIDROIT Convention on Substantive Rules for Intermediated Securities and the level of harmonization of the Ukrainian securities legislation with the international standards is evaluated. Particular attention is paid to the concepts of intermediated securities and intermediaries, the issues of transfer and exercise of the rights in securities and rights attached to securities under the specified Law are explored, as well as the insolvency of intermediaries and its effect on their relations with the securities account holders is scrutinized. Attention is also devoted to the regulation of netting in Ukraine and major innovation introduced in legislation in this respect. The outcomes of the author’s analysis are summarized and general comments are provided as to the degree offinality of harmonization process in the Ukrainian securities regulation and regulation of clearing and settlement systems. Key words: intermediated securities, intermediaries, depository system, indirect holding system, netting. securities clearing international netting Анотація Реформа правового регулювання системи клірингу та розрахунків за цінними паперами в Україні. Recent researches and publications. Unfortunately, to date the issues of harmonization of the Ukrainian securities legislation to the international standards and the legal problems associated with this process were insufficiently considered by the Ukrainian academicians. The issues of legal nature of intermediated securities and exercise of the rights attached to these securities have been scrutinized by many foreign researchers such as Ch. W. Mooney, H. Kanda, M. Ooi and others. Netting arrangements were the focus of in-depth analysis by Ph. R. Wood, O. Boger and some others. Purposes of article. This article discusses the main novelties introduced by the Law on Depository System in their comparison with the relevant provisions contained in the Geneva Securities Convention. In particular, the paper considers the concepts of an ‘intermediary’ and ‘intermediated securities’ as the cornerstones of indirect holding system within the context of the regulatory framework established by the Law on Depository System, analyzes the issues of exercise of the rights attached to the securities under the new Law, and deals with the issues of insolvency of an intermediary under the Ukrainian legislation. One of the major innovations introduced by the Law on Depository System into the securities legislation is the definition of netting as a part of the clearing procedure. It should be emphasized that no specific provision concerning netting has been available in Ukrainian legislation so far. Therefore, the separate part of the article shall be dedicated specifically to recognition of the netting arrangements in Ukraine prior to the enactment of the Law on Depository System and consideration of the changes brought by the current legal reform. The final section shall conclude our brief analysis. Main research results. It is well-recognized that an efficient securities settlement system can enhance the integrity of the market [5]. The level of its efficiency can be measured, inter alia, by the degree of proximity to the legal framework established by the Geneva Securities Convention, and in particular, its key concepts and underlying principles. The paramount concepts which lie at the very root of the indirect holding systems are ‘intermediaries’ and ‘intermediated securities’, so the starting point of our analysis shall be consideration of whether these concepts were effectively adopted by the Law on Depository System and, if so, in which particular form. Revealing no significant departure from the existing terminological tradition in the Ukrainian securities legislation, the new Law does not employ the term ‘intermediary’ at all. As it follows from the definition of a ‘securities account holder’, such an account can be opened by a professional participant of the Ukrainian depository system or the NBU (see Art. 1 (1) of the Law on Depository System). The category of such professional participants embraces the CSD and depository institutions. The depository institutions refer to the legal entities established as joint- stock com