Abstract
This chapter uses comparative law analysis to examine the systems and processes of post-trading infrastructure – clearing and settlement – in the UK and Taiwan. Its purpose is to identify the differences in the operating models, the governance and the regulatory thinking behind them. Taiwan clearly shows its cautious approach to post-trading infrastructure which is evidenced in its vertical silo system and in its direct and transparency holding system. However, Taiwan does not provide clear legal rules dealing with insolvency risk and settlement finality. It is also not clear why Taiwan does not follow the ‘place of the relevant intermediary approach’ (hereinafter ‘PRIMA’). It is argued that Taiwan can learn from the UK’s non-vertical silo model to increase innovation. Taiwan could also adopt the trust and non-transparency indirect holding system to increase investor protection and settlement finality to increase legal certainty.
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Notes
- 1.
The Giovannini Group (2001), Cross-Border Clearing and Settlement Arrangements in the European Union, http://ec.europa.eu/internal_market/financial-markets/docs/clearing/first_gio vannini_report_en.pdf. Accessed 19 March 2016.
- 2.
Committee on Payment and Settlement Systems, Technical Committee of the International Organization of Securities Commissions [hereinafter ‘CPSS-IOSCO’], Recommendations for Central Counterparties, http://www.bis.org/publ/cpss61.pdf Accessed 19 March 2016; Recommendations for Scurities Settlement Systems, http://www.bis.org/publ/cpss46.htm Accessed 19 March 2016.
- 3.
Case T-496/11 United Kingdom of Great Britain and Northern Ireland v European Cent. Bank (ECB) , http://curia.europa.eu/juris/document/document.jsf?docid=162667&doclang=EN. Accessed 4 March 2015.
- 4.
Marie-Noëlle Calès et al. (2015), Competition between Clearing Houses on the European Market, http://ssrn.com/abstract=2046033 or http://dx.doi.org/10.2139/ssrn.2046033.
- 5.
Both CCP and CSD are regulated under Part 18 of the Financial Services and Markets Act 2000 (UK) [hereinafter FSMA 2000]; http://www.hm-treasury.gov.uk/consult_financial_sector_ resolution_broadening_regime.htm. Accessed 20 March 2016; On EU perspective see Consultation on a possible framework for the recovery and resolution of nonbank financial institutions, http://ec.europa.eu/internal_market/consultations/2012/nonbanks_en.htm. Accessed 20 March 2016.
- 6.
The Uncertificated Securities Regulations 2001. (UK), http://www.legislation.gov.uk/uksi/2001/3755/pdfs/uksi_20013755_en.pdf. Accessed 20 March 2016.
- 7.
CREST Rule 14, Part 4, Section 3–8 and CREST Reference Manual, Chapter 5.
- 8.
Regulation (EU) No 909/2014 of the European Parliament and of the council of 23 July 2014 on improving securities settlement in the European Union and on central securities depositories and amending Directives 98/26/EC and 2014/65/EU and Regulation (EU) No 236/2012, 2014 OJ (L257) 1 (EU).
- 9.
T+2 EU Industry Wide Shortened Settlement Cycle for Securities, http://www.hsbcnet.com/gbm/financial-regulation/csdr-t2. Accessed 20 March 2016.
- 10.
Securities and Exchange Law (Taiwan), art. 6 and 8.
- 11.
Regulations Governing Centralized Securities Depository Enterprises (Taiwan).
- 12.
This is the same in S. Korea; KRX does not have a balance sheet separating its assets of the clearinghouse from other assets of the exchange.
- 13.
Max Seddon, London Stock Exchange underlines its appeal with profit jump, Financial Times, 4 March, 2016 8:26 AM), https://next.ft.com/content/06086d76-e1e0-11e5-8d9b-e88a2a889797. Accessed 20 March 2016.
- 14.
John Gapper, The death and rebirth of the stock exchange Trading venues have grown in value despite regulatory, technological and competitive disruption, Financial Times, (6 March 2016, 5:58 PM), https://next.ft.com/content/655a436c-e55f-11e5-bc31-138df2ae9ee6. Accessed 20 March 2016.
- 15.
CPSS-IOSCO, Principles for Financial Market Infrastructure, http://www.bis.org/cpmi/publ/d101a.pdf, p. 76. Accessed 20 March 2016; CPSS-IOSCO, Recommendations for Central Counterparties, http://www.bis.org/cpmi/publ/d61.pdf, p. 14. Accessed 20 March 2016.; and CESR-ECB Standard 7.
- 16.
Euroclear, www.euroclear.com. Accessed 20 March 2016; see also Chapter 7 of the CREST Rules.
- 17.
CREST Reference Manual, Chapter 2 Section 2.
- 18.
EUI (2015), Disclosure Framework Observance by Euroclear UK & Ireland of the CPSS-IOSCO Principles for Financial Market Infrastructures, https://www.euroclear.com/dam/DisclosureFrameworks/MA3023-Disclosure-Framework-EUI.pdf. Accessed 20 March 2016.
- 19.
Id.
- 20.
The Companies Act 2006, s. 768 (UK); The Uncertificated Securities Regulation 2001 (UK) [hereinafter USR 2001].
- 21.
Barclays Bank Ltd v Quistclose Investments Ltd, [1970] AC 567; Re Kayford Ltd [1975] 1 WLR 279.
- 22.
The Regulations Governing Centralized Securities Depository Enterprises, art 5 (Taiwan).
- 23.
The Civil Code , art. 589 (Taiwan).
- 24.
The Civil Code, art. 576 (Taiwan).
- 25.
The Civil Code , art. 629 (Taiwan).
- 26.
The Civil Code, art. 618 (Taiwan).
- 27.
Enriques et al. (2010), p. 714.
- 28.
ECSDA (2014), CSD Fact book, http://ecsda.eu/wp-content/uploads/2013_CSD_Factbook.pdf. Accessed 20 March 2016.
- 29.
Financial Markets Law Committee (2005), pp. 339–355.
- 30.
The assets held by the broker-dealer in trust are excluded from the estate by s. 283(3)(a) of the Insolvency Act 1986.
- 31.
EUI Effective corporate actions, https://www.euroclear.com/en/services/asset-servicing/corporate-actions.html. Accessed 20 March 2016.
- 32.
International Securities Services Association, Recommendations 2000, http://www.csd-bg.bg/Dokumenti%20EU/ISSA%20Recommendations%202000.pdf. Accessed 20 March 2016.
- 33.
Khimji (2005), p. 287.
- 34.
European Financial Markets Lawyers Group (2003), Up-Date Report, the Money Market: Legal Aspects of Short-Term Securities, pp. 4, 9 and 12. http://www.efmlg.org/Docs/Documents/2003-12-15%20EFMLG%20Up-date%20Report%20-%20The%20Money%20Market%20-%20Legal%20Aspects%20of%20Short-Term%20Securities.pdf. Accessed 20 March 2016.
- 35.
Goode (1998), p. 22.
- 36.
Directive 2009/44/EC of the European Parliament and of the council of 6 May 2009 amending the Settlement Finality Directive and the Financial Collateral Arrangements Directive 2002/47/EC on financial collateral arrangements as regards linked systems and credit claims, 2009 OJ (L 146) 37 (EU).
- 37.
The Financial Markets and Insolvency (Settlement Finality ) Regulations 1999 (UK)
- 38.
Convention on the Law Applicable to Certain Rights in Respect of Securities Held with an Intermediary, concluded 5 July 2006, https://assets.hcch.net/docs/3afb8418-7eb7-4a0c-af85-c4f35995bb8a.pdf. Accessed 20 March 2016.
- 39.
UNIDROIT Convention on Substantive Rules for Intermediated Securities, adopted 9 October 2009, http://www.unidroit.org/english/conventions/2009intermediatedsecurities/convention.pdf. Accessed 20 March 2016.
References
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T+2 EU Industry Wide Shortened Settlement Cycle for Securities. http://www.hsbcnet.com/gbm/financial-regulation/csdr-t2. Accessed 20 Mar 2016
The Giovannini Group (2001) Cross-border clearing and settlement arrangements in the European Union. http://ec.europa.eu/internal_market/financial-markets/docs/clearing/first_giovannini_report_en.pdf. Accessed 20 Mar 2016
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Lee, J. (2016). Equity Clearing and Settlement Models in the UK and Taiwan: Market Stability and Investor Protection Perspectives. In: Lo, Cf., Li, N., Lin, Ty. (eds) Legal Thoughts between the East and the West in the Multilevel Legal Order. Economics, Law, and Institutions in Asia Pacific. Springer, Singapore. https://doi.org/10.1007/978-981-10-1995-1_25
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