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?	In the depository each custodian is granted separate House and client buckets and under regulations and the laws governing the depository, they are strictly required to maintain the securities separately in that order.
2.	How are clients' assets protected in the event of insolvency of a custodian or depository?	The clients can in case of insolvency of a custodian, request transfer to their closing position to another custodian. Furthermore, exchanges also operate investor protection funds etc. Validator comment: As per the local regulations, securities are unencumbered i.e. they can be claimed in the event of any bankruptcy. With regard to cash, however, if the CDC's agent bank becomes insolvent, the client/s may not be able to recover their assets depending on the liabilities of the bank.
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?	Yes.
5.	Does a pledgee have an absolute right to realise their security at all times?	Yes.
6.	Does the depository have loss sharing provisions in its rules, and how would these be applied?	N/A, The depository is not involved in the settlement process. Validator commment: The clearing house which manages the clearing function is part of the respective exchanges. Loss sharing provisions exist in respect of inter-broker settlements.