The Law Applicable to Certain Rights in Respect of Securities Held with an Intermediary: The Hague Securities Convention

• Jurisdiction: South Africa
• Date: 16 August 2019
• Author: Christa Roodt
• Published date: 16 August 2019
• Pages: 83-96

The Law Applicable to Certain Rights in

Respect of Securities

Held with an Intermediary: The Hague

Securities Convention

CHRISTA ROODT*

University of South Africa

1 Introduction

The law governing the transfer of title, the taking of security, or the use

of securities as collateral for obtaining credit by way of pledge or f‌i duciary

transfer of ownership has never been settled.1 When the Hague Conference

on Private International Law began its work in May 2000, prospects for legal

certainty improved dramatically in a very short time.2 In the major f‌i nancial

centres of the world, the Hague Convention on the Law Applicable to Certain

Rights in Respect of Securities Held with an Intermediary (‘the Convention’)

is expected to become a legal reality by early 2006.

There can be no choice-of-law problem in securities transactions as long as

trade is conf‌i ned to one country, the relationship between issuer and investor

is direct, securities are physically transferred from one vault to the next, and

investors have physical possession of their securities. But modern transaction

techniques in today’s capital markets support a different reality. Many dealings

occur cross-border. For purposes of carrying out securities transactions abroad,

a f‌i nancial institution that lends money to investors and accepts securities as

collateral from issuers may use agents, custodians, or brokers in the home

market of the securities in question. A variety of functions performed at different

off‌i ces of a f‌i nancial institution may all pertain to the maintenance of one and

the same individual securities account. In practice, maintenance activities

are either dispersed or outsourced. Consequently, different off‌i ces located in

different jurisdictions, or different legal entities in several different locations,

may be involved in the maintenance and servicing of a securities account.3

Actually, the parties (issuer and lender), the collateral, and the certif‌i cates

representing security may be linked to multiple locations and be governed by

a variety of different laws. Also, active investors participating in the market

83

* LLB (Pret) LLM (Unisa) LLD (UFS). Professor in Jurisprudence, University of South Africa,

Pretoria.

1 H Kronke ‘Capital Markets and Conf‌l ict of Laws’ (2000) 286 Recueil des Cours 249 at 318–319.

2 Adopted at the Nineteenth Diplomatic Session of the Hague Conference on Private International

Law on 3 May 2005, accessible at <http://www.hcch.e-vision.nl>, last visited on 3 May 2005.

3 R Potok ‘The Hague Securities Convention — Closer and Closer to a Reality’ (2004) 15 J of Banking

& Finance Law & Practice 204 at 213–214, accessible at <http://law.rikkyo.ac.jp/ribls/symposium/Potok.

pdf>, last visited on 3 May 2005.

(2006) 18 SA Merc LJ 83

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