Recommendation 1 Recommendation 2 Recommendation 3 Recommendation 4

Recommendation 5 Recommendation 6 Recommendation 7 Recommendation 8

Market selection

Recommendation 8

Local laws and regulations should ensure that there is segregation of client assets from the principal assets of their custodian; and no possible claim on client assets in the event of custodian bankruptcy or a similar event. Regulators and markets, to further improve investor protection, should work:

• to ensure clarity on the applicable law on cross border transactions
• to seek international agreement on a legally enforceable definition of finality in a securities transaction
• to ensure that local law fully protects the rights of beneficial owners
• to strengthen securities laws both to secure the rights of the pledgee and the protection accorded to client assets held in Securities Systems.

1.	Under local rules and regulations, what are the segregation requirements for keeping client assets and custodian assets in the depository?	The CSD runs an omnibus account for each participant. All holdings are considered to be clients' assets. CSD clients, which are only banks, are required by law to segregate their own assets from their clients' assets.
2.	How are clients' assets protected in the event of insolvency of a custodian or depository?	According to Austrian law, the clients have full ownership of the securities deposited with a custodian or depository. In case of insolvency of the custodian or depository, the securities are separated and handed over to the beneficial owner. Securities are not part of the bankrupt's estate.
3.	Does local law recognise the existence of beneficial owners who may differ from the legal owner of a security?	Pursuant to Art. 3 para 1, Austrian Securities Deposit Act 1969, a custodian may use the service of a second tier custodian and may deposit the assets under its own name. The CSD does not maintain accounts for individuals. The CSD runs omnibus accounts and, hence, does not know (potential) beneficial owners.
4.	Does local law clearly define the point of time when a settlement, both for the security and the cash involved, achieves finality and thus cannot be unwound?	The EU Finality Directive authorising respective determination of finality by the SSS has been adopted by Austrian Federal Law Gazette I/1999/123. The Terms and Conditions of the CSD describe in Section 32 delivery versus payment transactions. If the securities as well as the cash account of the trading parties show sufficient balances, settlement will be irrevocably executed. Settlements on value date are final (no retrospective zero hour rule in Austria).
5.	Does a pledgee have an absolute right to realise their security at all times?	Yes, subject to information from the pledgor of the intended sale and lapse of an 8-days term.
6.	Does the depository have loss sharing provisions in its rules, and how would these be applied?	Section 14 of the CSD's Terms and Conditions defines: Losses in a collective safe-deposit for which the CSD is not answerable must be borne jointly by the co-owners of the collective safe-deposit in proportion to their share therein as assessed at the time a loss occurs. The CSD will assess each deposit-holder's proportional share in the loss with binding effect. This assessment will require written attestation by the CSD's auditor.