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 KSEI regulation requires the Securities Companies and Custodian Banks to open sub accounts for deposit of securities and funds in order to segregate their own asset and their client asset.
2.	How are clients' assets protected in the event of insolvency of a custodian or depository?	Refer to the BAPEPAM Rule Number VI.A.3 : Securities Accounts at Custodians stipulate that if a Custodian (including Depository) is liquidated because of bankruptcy or dissolution, the liquidator must return securities that are posted in Securities accounts to the account holders. Securities that are in the name of a Person other than the account holder must be transferred into the name of the account holder (beneficial owner).
3.	Does local law recognise the existence of beneficial owners who may differ from the legal owner of a security?	In essence, beneficial owner is taken as the registered owner although in the case of KSEI, it is recognised in the rule book of Bapepam that KSEI involvement is limited to the role as the central depository only.
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, final and irrevocable DVP is the principle of KSEI system.
5.	Does a pledgee have an absolute right to realise their security at all times?	No, in the case of a bankruptcy all securities kept in the custodian/depository will under control of liquidator and this pledgee shall have the right to claim or receive securities pledged from the liquidator.
6.	Does the depository have loss sharing provisions in its rules, and how would these be applied?	No.