Nowadays, shares and other securities are generally held in safekeeping by a financial intermediary rather than by the investors themselves. Where securities are held with an intermediary, the issue of who actually is in the possession of security certificates becomes irrelevant. The investor's claim to a certain number of securities is recorded in the form of a credit to an account that the financial intermediary operates in the name of the investor. The financial intermediary's securities holdings are, in turn, evidenced by credits to securities accounts which it holds with a central securities depository. The legal foundations for securities held by intermediaries no longer reflect current circumstances and must be modernized.
Uniform application of law
The Hague Securities Convention is the most important project aimed at standardizing private international law as it applies to securities held with intermediaries. The Convention, in the drafting of which Switzerland was involved, contains rules which will help determine applicable law in cross-border securities transactions. These rules on what is known as conflict of laws are of decisive importance, because the proportion of cross-border securities transactions is high, as is the degree of legal uncertainty. Specifically, the holding of securities with intermediaries and electronically has led to a situation which requires an enormous amount of effort and resources to establish where exactly physical securities are being held and, as a result, which law applies. The Hague Securities Convention creates clarity in this respect. It allows the parties to choose – to a certain extent – the applicable law to their relationship and also guarantees a uniform application of the law.
Adoption into Swiss law
It is not yet clear when the Hague Securities Convention will enter into force. The Federal Council is therefore intending to incorporate the Convention's rules in Swiss federal legislation on private international law (the Bundesgesetz über das Internationale Privatrecht, or IPRG). The progressive regulations of the Convention will therefore apply as autonomous law until the Convention itself becomes international law, thereby improving legal certainty in Switzerland's financial sector. The Federal Department of Justice and Police (FDJP) and the Federal Department of Finance (FDF) will now draw up the Federal Council Opinion on the addition to the IPRG and the ratification of the Hague Securities Convention, as well as on the Securities Held With an Intermediary Act (Bucheffektengesetz / Loi fédérale sur les titres intermédiés), which will bring the content of the Swiss securities legislation up to date.
Last modification 09.12.2005