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?	OSFI requires appropriate and effective safeguards to ensure that procedures exist for the safekeeping and protection of client assets held in physical custody with the custodian or on a book-based system of an authorised depository.
2.	How are clients' assets protected in the event of insolvency of a custodian or depository?	Client assets held with the custodian are segregated and, as such, are protected in the event of insolvency.
3.	Does local law recognise the existence of beneficial owners who may differ from the legal owner of a security?	Yes.
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?	Yes.
5.	Does a pledgee have an absolute right to realise their security at all times?	The rights of a pledgee of securities within a depository are the same as pledgees of other assets outside of a depository. Absent fraud, collusion, fraudulent preferences, etc., pledgees have the right to realise on their security at all times.
6.	Does the depository have loss sharing provisions in its rules, and how would these be applied?	Each settlement service has one or more credit rings (including participant funds or collateral pools) whereby the survivors share the losses caused by the default of another participant within that service or credit ring, usually in proportion to each participant's use of the service.