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 Securities Law and Regulations on securities accounting the assets of participants' clients are held on segregated accounts separated from participants' own investment (both securities and cash).
2.	How are clients' assets protected in the event of insolvency of a custodian or depository?	By Securities Law the client's cash funds transferred or held with broker are deemed the property of the client and are not subject to any claims of brokers' creditors. CSDL, like any other broker, segregates its own assets from the assets of participants (clients) and in the case of insolvency, the creditors' claims can't be directed to participants' (clients') assets. In all cases of liquidation or suspension of the brokers' activity, the clients' assets were safely transferred to other operating reliable custodians.
3.	Does local law recognise the existence of beneficial owners who may differ from the legal owner of a security?	The Law does not recognise the difference between beneficial and legal owners, but the Rules on Securities Accounting and Their Circulation allow the opening of two different accounts for foreign custodian in the books of local custodian: (a) for foreign custodians' own investment; (b) account of foreign custodian held for clients' benefit (nominee account).
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?	Law on Payments clearly defines the point of time when settlement of cash funds achieves finality. The settlement is deemed final and irrevocable, when the funds are credited to payee account or into the correspondence account of the payee bank. In case of securities this point is determined in the Regulations of SC and CSDL (transfer in CSDL accounts at the end of settlement cycle - both for SE and OTC transactions).
5.	Does a pledgee have an absolute right to realise their security at all times?	The pledgee has the right to realise securities only in cases when the obligations of the pledgor are not fulfilled.
6.	Does the depository have loss sharing provisions in its rules, and how would these be applied?	CSDL does not act as the central counterparty and does not take the risks related to it. Loss sharing provisions are implemented by SE Guarantee Fund, the rules on which are determined by SC (see R4q3).