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?	There are no legal requirements for segregation of client assets in Switzerland. However, any participant can open as many accounts in SIS as needed to provide for segregation, if so required by the participant.
2.	How are clients' assets protected in the event of insolvency of a custodian or depository?	Clients' assets are fully protected by the Federal Law of Banks and Saving Banks and the Swiss Bankruptcy law. If an insolvent custodian's assets (in physical or book-entry form) are re-deposited with a subcustodian or other third party, all assets are legally deemed to be the property of the clients of the insolvent custodian, rather than those of the insolvent institution itself. Account segregation is therefore not necessary to protect clients' assets. To block any assets, a creditor must first prove that they are the property of the insolvent institution.
3.	Does local law recognise the existence of beneficial owners who may differ from the legal owner of a security?	The concept of beneficial owner and fiduciary responsibility is enshrined under Swiss law.
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 Swiss trading and clearing settlement network knows the principle: SFIDVP (simultaneous, final, irrevocable, delivery versus payment) on real-time and gross basis with Central Bank money.
5.	Does a pledgee have an absolute right to realise their security at all times?	No. In the case of a bankruptcy the pledgee enters first in the bankrupt's estate, whereby the rights of the holder of a pledge are granted.
6.	Does the depository have loss sharing provisions in its rules, and how would these be applied?	No. Should intent or negligence on the part of SIS be involved, SIS is liable for damages arising from disturbances, delays, omissions and errors of any nature.