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 National Depository for Securities separates securities belonging to a participant, which are registered on the registration accounts managed for that participant, from the collective securities of investors for whom that participant manages securities accounts.
2.	How are clients' assets protected in the event of insolvency of a custodian or depository?	In order to safeguard the cash assets of investors deposited on the cash accounts managed by brokers or custodians and to compensate investors for securities lost on securities accounts managed by banks and brokers, a compulsory investor compensation scheme has been introduced in the event of the insolvency or bankruptcy of these institutions (Investor Compensation Fund). Investors' assets deposited on accounts managed by banks are safeguarded by a guarantee system managed by the Bank Guarantee Fund. Securities belonging to clients that are registered on securities accounts in a bank are not considered to form part of that bank's assets in the event of its bankruptcy, as a result of which these securities may only be lost as a consequence of criminal action, or at the very least negligence.
3.	Does local law recognise the existence of beneficial owners who may differ from the legal owner of a security?	Polish Law does not distinguish between the owner of securities and the beneficial owner, which does not prevent the securities owner from transferring the rights to such benefits to another party on the basis of an agreement.
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 National Depository's Rules of Operation define the deadlines within which transactions are settled. According to the Law on the Public Trading in Securities, the amounts due, calculated on the basis of netting, are binding from the moment a transaction is concluded and therefore even before the amount has been defined by the clearing house. The irrevocability of a transaction order sent to the settlement system derives from the National Depository's Rules of Operation, which contain no provisions for the withdrawal of a transaction order sent to the system.
5.	Does a pledgee have an absolute right to realise their security at all times?	The realisation of a pledge may take place at the request of a pledgee the moment that the asset secured by the pledge is required. The transfer of pledged securities for the purpose of satisfying the demands of the pledgee takes place outside the regulated market and with the consent and according to the terms defined by the Securities and Exchanges Commission.
6.	Does the depository have loss sharing provisions in its rules, and how would these be applied?	According to the Law on the Public Trading in Securities, the National Depository for Securities is entrusted with the management of a settlement guarantee fund made up of the contributions of its participants; the fund guarantees the correct settlement of transactions. The settlement guarantee fund guarantees the settlement of transactions concluded by brokerage houses and banks carrying out brokerage activities in the regulated market. The participants enjoy common ownership of the assets of settlement guarantee fund. The assets of the fund are excluded from any participant's assets that are subject to bankruptcy proceedings against the participant. Only assets paid out from the fund by the National Depository to cover all binding obligations of the entity, against which proceedings have begun, may be affected. The amount of the contributions to the settlement guarantee fund paid in by the participants is set according to the level of liabilities that may arise as a result of operations carried out by a participant in the regulated market and settled by the National Depository for Securities. In order to maintain trading safety, the Management Board of the National Depository for Securities may settle transactions concluded by a particular participant, using for this purpose the assets of the relevant part of the settlement guarantee fund up to an amount exceeding that participant's contribution to that part of the fund.