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 Indeval, participants/members are required to separate proprietary assets from assets held on behalf of third parties. Regulation also requires segregating third parties foreign assets as well as equities supporting ADRs.
2.	How are clients' assets protected in the event of insolvency of a custodian or depository?	Indeval does not provide credit to its participants, nor does it act as counterpart to transactions. There is no risk of loss due to bankruptcy of Indeval. Indeval receives securities on deposit in a fiduciary capacity. Therefore, such deposits do not constitute an extension of credit and the securities do not become part of Indeval’s assets in the case of insolvency or bankruptcy, but rather would be held for the account of, or returned to the depositors. Indeval also handles cash control accounts in which daily movements of cash are registered. The cash control accounts do not hold "real" cash balances and are zeroed out at the end of the day. Whatever balances the bank holds during the day do not constitute an extension of credit, and do not form part of Indeval’s assets. Since all client assets are segregated and held separate from the custodian’s proprietary position, in default scenario client assets will not be considered as part of the custodian assets.
3.	Does local law recognise the existence of beneficial owners who may differ from the legal owner of a security?	According to Mexican law, the legal owner of a security is considered the beneficial owner, there is no difference.
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?	According to Indeval procedures, a settlement is final once the securities and cash entries have been posted to the respective participant’s/member’s account. Once the trade has settled, it cannot be unwound.
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 agreement and this is legally set up and enforced under Mexican law.
6.	Does the depository have loss sharing provisions in its rules, and how would these be applied?	Indeval does not have a loss sharing or mutualization provision in its rules. Indeval’s settlement fund does have loss sharing provisions.