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?	Principal stock must be kept separate from agency (customer) stock and stock held for non Bermudians must be kept separate from stock held for Bermudians.
2.	How are clients' assets protected in the event of insolvency of a custodian or depository?	Custodians hold customer securities in separate accounts, clearly identified as customer assets.
3.	Does local law recognise the existence of beneficial owners who may differ from the legal owner of a security?	No. Nominee registration is market practice; shares are not usually registered in the beneficial owner’s name although it is allowed. Due to the 40 percent foreign ownership limit of a Bermuda company, holders of nominee registered securities can be required by law to provide all details of 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?	No.
5.	Does a pledgee have an absolute right to realise their security at all times?	Yes.
6.	Does the depository have loss sharing provisions in its rules, and how would these be applied?	No.