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 law ''On Securities'' obliges LCD and custodians to segregate clients' assets from custodians' assets. LCD opens separate accounts for custodians' principal securities and securities of their clients.
2.	How are clients' assets protected in the event of insolvency of a custodian or depository?	The protection of clients' assets is fully ensured by the Law ''On Securities''. In the case of the insolvency of a custodian all clients securities are transferred to LCD and later, by the choice of the client, to any other custodian. In case of LCD insolvency, the decision of the transferring securities safe-custody is taken by Securities Market Commission.
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?	The point of finality is determined by the LCD Rules on DVP settlement.
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 the event that 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?	LCD has no loss sharing provisions, therefore it is fully liable for any delays, omissions or errors that occur in its systems or are made by its employees. In order to minimize the risk of such cases, LCD developed internal risk management procedures according to the best practice and recommendations of risk surveyors. In addition to its internal risk management activities, the LCD carries insurance with Lloyd's to compensate losses caused by major operational risks. The current policy includes Bankers Blanket Bond Insurance, Insurance against computer crime and Professional indemnity for LCD employees.