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?	According to the by-laws of the CSDs and local regulations, participants/members are required to separate proprietary assets from assets held on behalf of third parties.
2.	How are clients' assets protected in the event of insolvency of a custodian or depository?	Decree 663/1993 details the bankruptcy laws that affect the CSDs as well as all financial institutions. If a financial institution declares bankruptcy, the supervising entity will intervene and liquidate its assets. However, the assets of a depositor are not included in the bankruptcy estate of the CSD or of one of its members, as these securities are part of an autonomous capital base, which is totally independent from the capital of the CSD and from the other members.
3.	Does local law recognise the existence of beneficial owners who may differ from the legal owner of a security?	According to Colombia law, the legal owner of a security is considered the beneficial owner.
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, the local securities laws do not define the point when the settlement of both securities and cash are final and cannot be unwound. This point is being included in the new securities law, which should be issued in the second semester of 2001.
5.	Does a pledgee have an absolute right to realise their security at all times?	Yes, as long as there is a default scenario contemplated in the by-laws of the different parties involved (e.g. Stock Exchange and Central Bank) and enforced under Colombian law.
6.	Does the depository have loss sharing provisions in its rules, and how would these be applied?	The depositories do not have loss sharing provisions in their rules.