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?	Rule 33.01 of the Rules of Malaysian Central Depository states that assets owned by an ADA or an ADM must be maintained in the principal CDS accounts. Assets owned by clients must be maintained in the non-principal accounts of depositors.
2.	How are clients' assets protected in the event of insolvency of a custodian or depository?	MCD acts only as the bare trustee as stated in Section 21 of Securities Industry Central Depository Act (SICDA). Therefore, in the event the depository is declared insolvent, the assets will revert to its beneficial owner.
3.	Does local law recognise the existence of beneficial owners who may differ from the legal owner of a security?	Yes. As stated in the provisions for bare trustee above, assets are registered under MCD Nominees Sdn. Bhd. Nevertheless, in Section 35 of SICDA, depositors are entitled to all rights pertaining to the said assets.
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?	There is no specific provision stipulating the finality of trades. Nevertheless, efforts are at the final stage of ensuring the finality of trades to be codified.
5.	Does a pledgee have an absolute right to realise their security at all times?	Pledgees are bound by the provisions in the memorandum of deposit (MOD) or charge document as far as its rights and obligations vis-vis the pledgor is concerned. A pledgee has the right to realise its security at all times provided the obligations in the MOD/Charge documents are adhered to. MCD does not regulate the legal relationship between pledgor and pledgee.
6.	Does the depository have loss sharing provisions in its rules, and how would these be applied?	No.