Proposal for a Council Decision Concerning the signing of the Hague Convention on the Law applicable to certain rights in respect of securities held with an intermediary
Date: 2003-12-15
Institutions: European Commission
Subjects: financial market, free movement of capital, international agreement, securities

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 15.12.2003
COM(2003) 783 final

Proposal for a

COUNCIL DECISION

Concerning the signing of the Hague Convention on the Law applicable to certain rights
in respect of securities held with an intermediary

(presented by the Commission)

EN

  EN

EXPLANATORY MEMORANDUM

1.

The  great  majority  of  securities  in  the  financial  markets  are  now  held  in  electronic
book entry form in securities accounts with custodians or depositaries or settlement
systems  resulting  in  proprietary  rights  in  or  for  the  delivery  or  transfer  of  the
securities  concerned.  This  has  caused  some  difficulty  in  applying  the  traditional
conflict of laws principle under which proprietary aspects of dispositions of property
are governed by the law of the place where the property in question is situated at the
time  (the  lex  situs  or  lex  rei  sitae),  since  for  securities,  electronically  stored,  it  is
often difficult to identify where such securities are located. This creates uncertainty
with regard to the law, e.g. which law collateral providers and collateral takers need
to comply  with in the  creation of interests  in  collateral and in their  perfection.  The
difficulties  are  particularly  acute  where  the  securities  are  held  through  a  chain  of
intermediaries in different countries.

The Hague Securities Convention

2.

3.

4.

In  order  to  agree  on  a  world-wide  uniform  formula  to  reduce  the  above-mentioned
legal uncertainties in cross-border situations, the Hague Conference, the world-wide
intergovernmental  organisation  with  the  purpose  to  work  for  the  progressive
unification of the rules of private international law, started in May 2000 to work on a
future  Convention  on  the  law  applicable  to  proprietary  rights  in  indirectly  held
securities. In autumn 2000, the Hague Conference constituted a working group with
experts  from  Member  States  of  the  Conference  and  associations  specialised  in  the
field in collaboration with other international organisations, notably UNCITRAL and
UNIDROIT.  The  working  group  met  in  January  2001  and  January  2002.  The
European Commission participated in the working group  as  an observer  and,  at the
final  stage,  negotiated  the  Convention  on  behalf  of  the  Community  (see  paragraph
14).

The final text of the  Hague Convention  on  "The  law  applicable  to  certain  rights  in
respect  of  securities  held  with  an  intermediary",  hereinafter  the  Hague  Securities
Convention, was agreed on December 13, 2002 at the end of the Hague Conference's
19th diplomatic session. All Member States and 7 Accession Countries by signing the
Final Act certified that the text of the Convention was indeed the one resulting from
the  negotiations.  Altogether  53  States  that  are  Members  of  the  Hague  Conference
signed the final act, including the USA, Japan, Australia,  Brazil, Argentina and  the
Russian Federation. The Commission not being a Member of the Hague Conference
did not sign the Final Act.

The  Hague  Convention  is  a  Multilateral  Treaty.  The  underlying  legal  formula  is
based on the choice of law of the intermediary and its customer, which is a variant of
PRIMA (Place of the Relevant Intermediary Approach). The Convention states that
the  applicable  law  is  the  one  named  in  the  account  agreement  with  the  relevant
intermediary,  backed  by  a  so-called  “reality  test”  intended  to  ensure  that  the
intermediary  does  actually  conduct  securities  business  in  that  jurisdiction,  even
though not necessarily in relation to the account in question.

2

 
Reasons for the implementation of the Hague Securities Convention

5.

6.

7.

8.

9.

10.

11.

The Member States by signing the Final Act on 13 December 2002 stated that they
supported  the  approach  adopted  by  the  Convention  and,  by  implication,  that  were
also willing to accept the adaptation of EU law where necessary. This position was
confirmed unanimously at the Coreper meeting of 11 December 2002.

A number of existing directives also contain provisions to be used to determine the
applicable law governing a securities account. The formula used in these directives,
is  that  the  account  is  governed  by  the  law  of  the  country  where  the  account  is
located.  There  is  therefore  a  conflict  between  the  approach  in  the  Convention  and
existing Community law.

According  to  Article  18  of  the  Hague  Securities  Convention  a  Regional  Economic
Integration  Organisation,  which  is  constituted  by  sovereign  States  and  has
competence  over  certain  matters  governed  by  the  Convention  may  similarly  (as
Member States to the Hague Conference and other  Contracting states) sign, accept,
approve  or  accede  to  the  Convention.  The  Regional  Economic  Integration
Organisation shall in that case have the rights and obligations of a Contracting State,
to  the  extent  that  that  Organisation  has  competence  over  matters  governed  by  the
Convention.  The  European  Union  is  to  be  understood  as  one  Regional  Economic
Integration  Organisation  in  the  sense  of  Article  18  of  the  Hague  Securities
Convention.

The  Commission  considers  that  the  implementation  of  the  Hague  Securities
Convention will, to a considerable extent, contribute to enhancing the free movement
of capital in the Internal Market and world wide by removing uncertainties as to the
applicable law and thereby allowing wider trade in securities between Member States
as well as on the international capital markets.

The  negotiations  in  the  Hague  for  the  new  Convention  and  the  negotiations  in
Brussels  concerning  a  proposal  for  the  Collateral  Directive  (2002/47/EC)  were
running most of the time in parallel with the first feeding into the second as can be
seen in the joint statement by the Council and the Commission in the minutes of the
Council of 5 March 2002 adopting the Common position on the Collateral Directive.

Given that the Collateral Directive is one of the measures foreseen in the  Financial
Services  Action  Plan  (FSAP)1,  the  implementation  of  the  Hague  Securities
Convention  may  also  be  seen  as  a  measure  to  fulfil  the  FSAP  objectives  and
therefore its conclusion (signature and ratification) may be also considered as to be
bound by the same time-frame.

At the meetings held with Member States on 19 May 2003 and 8 July 2003, on the
implementation  of  the  Hague  Convention,  there  was  a  unanimous  call  for  a  rapid
signature and subsequent ratification of the Convention.

1

COM(1999) 232 final of 11 May 1999

3

 
                                                
12.

13.

The  ratification  of  the  Hague  Convention  has  been  urged  by  the  G-30  ("Global
Clearing and Settlement – A Plan of Action", Group of Thirty, released on January
23, 2003). Specifically, its Recommendation Nr 15 when referring to the Choice-of-
law rules indicates  that :  “Financial  supervisors  and  legislators  should  ensure  that
the  Hague  Convention  on  the  Law  Applicable  to  Certain  Rights  in  Respect  of
Securities Held with an Intermediary, adopted on December 13, 2002, is signed and
ratified  by  their  respective  nations  as  soon  as  is  reasonably  possible.  The  Hague
Convention,  once  ratified  by  all  relevant  nations,  will  ensure  that  there  will  be  a
clear and certain answer to the question in an international setting as to which law
governs in determining whether a collateral taker has received a perfected interest in
pledged securities”.

The  signature  of  the  Hague  Securities  Convention  will  send  therefore  an  important
political  signal  to  all  parties  concerned  and  in  particular  to  the  financial  services
industry.  Signature  by  the  Community  and  its  Member  States,  but  also  as  many  as
possible of the relevant third countries, members of the Hague Conference, such as
the USA will ensure the success of the agreement.

Procedural matters

14.

15.

The  Commission  was  authorised  to  negotiate  at  the  Hague  Conference  by  Council
decision on 28 November 2002.

Following  the  signature  of  the  Hague  Securities  Convention,  the  Commission  will
put forward proposals to amend the necessary directives, such as the Collateral and
Settlement  Finality  Directives,  at  the  same  time  as  the  proposal  for  a  Council
decision, which requires the assent of the European Parliament, to ratify or accede to
the  Hague  Securities  Convention.  In  a  favourable  scenario  the  accession  to/
ratification of the Hague Securities Convention may take place by the end of 2004 or
early 2005.

Practicalities

16.

The  Council  is  asked  to  authorise  its  President  to  designate  the  person  or  persons
authorised to sign, on behalf of the Community, the Hague Securities Convention on
the law applicable to certain rights in respect of securities held with an intermediary.

Proposal

17.

In  the  light  of  the  above,  the  Commission  proposes  that  the  Council  adopts  the
attached draft decision.

4

 
Proposal for a

COUNCIL DECISION

Concerning the signing of the Hague Convention on the Law applicable to certain rights
in respect of securities held with an intermediary

(Text with EEA relevance)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Articles
47(2) and  95 thereof, in conjunction with the first  sentence of  the  first  paragraph  of  Article
300(2),

Having regard to the proposal from the Commission2,

Whereas:

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

The Hague Convention on the law applicable to certain rights in respect of securities
held  with  an  intermediary,  agreed  on  13  December  2002,  is  an  international
multilateral treaty intended to remove, at a global scale, legal uncertainties for cross-
border securities transactions

The Commission negotiated that Convention on behalf of the Community

Regional  Economic  Integration  Organisations  which  are  constituted  by  sovereign
States  and  have  competence  over  certain  matters  governed  by  that  Convention  are
allowed to sign, accept, approve or accede to it

Following the adoption of a number of Community directives containing provisions to
be used to determine the applicable law governing a securities account, Member States
have transferred competence to  the Community in respect  of  certain  matters  covered
by that Convention

Therefore,  the  European  Community  may  be  considered  a  Regional  Economic
Integration Organisation according to that Convention

The Community,  as well as the  international,  financial  markets  will benefit  from the
world-wide  removal,  of  legal  uncertainties  related  to  the  applicable  law  for  cross-
border securities trade. For this reason, that Convention should be signed on behalf of
the Community.

2

OJ C […], […], p. […]

5

 
                                                
HAS DECIDED AS FOLLOWS:

Sole Article

Subject  to  conclusion  at  a  later  date,  the  President  of  the  Council  is  hereby  authorised  to
appoint the person (or persons) empowered to sign, on behalf of the Community, the Hague
Convention  on  the  law  applicable  to  certain  rights  in  respect  of  securities  held  with  an
intermediary, according to Article 18(1) of that Convention.

The text of the Convention is attached as Annex I to this Decision.

At the time of signature, the declaration of competence attached in Annex II shall be made, in
accordance with Article 18(2) of the Convention.

Done at Brussels, […]

For the Council
The President
[…]

6

 
ANNEX I

HAGUE CONVENTION ON THE LAW APPLICABLE TO CERTAIN RIGHTS IN
RESPECT OF SECURITIES HELD WITH INTERMEDIARY

The States signatory to the present Convention,

Aware of the urgent practical need in a large and growing global financial market to provide
legal certainty and predictability as to the law applicable to securities that are now commonly
held through clearing and settlement systems or other intermediaries,

Conscious  of  the  importance  of  reducing  legal  risk,  systemic  risk  and  associated  costs  in
relation  to  cross-border  transactions  involving  securities  held  with  an  intermediary  so  as  to
facilitate the international flow of capital and access to capital markets,

Desiring  to  establish  common  provisions  on  the  law  applicable  to  securities  held  with  an
intermediary beneficial to States at all levels of economic development,

Recognising  that  the  “Place  of  the  Relevant  Intermediary  Approach”  (or  PRIMA)  as
determined by account agreements with intermediaries provides the necessary legal certainty
and predictability,

Have resolved  to conclude a Convention  to this effect,  and  have  agreed  upon  the  following
provisions –

CHAPTER I – DEFINITIONS AND SCOPE OF APPLICATION

Article 1

Definitions and interpretation

1. In this Convention –

a)  “securities”  means  any  shares,  bonds  or  other  financial  instruments  or  financial  assets

(other than cash), or any interest therein;

b)  “securities account” means an account maintained by an intermediary to which securities

may be credited or debited;

c)  “intermediary”  means  a  person  that  in  the  course  of  a  business  or  other  regular  activity
maintains securities accounts for others or both for others and for its own account and is
acting in that capacity;

d)  “account  holder”  means  a  person  in  whose  name  an  intermediary  maintains  a  securities

account;

e)  “account  agreement”  means,  in  relation  to  a  securities  account,  the  agreement  with  the

relevant intermediary governing that securities account;

f)  “securities  held  with  an  intermediary”  means  the  rights  of  an  account  holder  resulting

from a credit of securities to a securities account;

g)  “relevant intermediary” means the intermediary that  maintains  the  securities  account  for

the account holder;

7

 
h)  “disposition” means any transfer of title whether outright or  by  way  of  security  and  any

grant of a security interest, whether possessory or non-possessory;

i)  “perfection”  means  completion  of  any  steps  necessary  to  render  a  disposition  effective

against persons who are not parties to that disposition;

j)  “office”  means,  in  relation  to  an  intermediary,  a  place  of  business  at  which  any  of  the
activities  of  the  intermediary  are  carried  on,  excluding  a  place  of  business  which  is
intended  to  be  merely  temporary  and  a  place  of  business  of  any  person  other  than  the
intermediary;

k)  “insolvency  proceeding”  means  a  collective  judicial  or  administrative  proceeding,
including an interim proceeding, in which the assets and affairs of the debtor are subject to
control  or  supervision  by  a  court  or  other  competent  authority  for  the  purpose  of
reorganisation or liquidation;

l)  “insolvency  administrator”  means  a  person  authorised  to  administer  a  reorganisation  or
liquidation,  including  one  authorised  on  an  interim  basis,  and  includes  a  debtor  in
possession if permitted by the applicable insolvency law;

m)  “Multi-unit State” means a State within which two or more territorial units of that State, or
both the State and one or more of its territorial units, have their own rules of law in respect
of any of the issues specified in Article 2(1);

n)  “writing”  and  “written”  mean  a  record  of 

information
communicated  by  teletransmission) which  is  in  tangible  or  other  form  and  is  capable  of
being reproduced in tangible form on a subsequent occasion.

information  (including 

2.  References  in  this  Convention  to  a  disposition  of  securities  held  with  an  intermediary
include –

a)  a disposition of a securities account;

b)  a disposition in favour of the account holder’s intermediary;

c)  a lien by operation of law in favour of the account holder’s intermediary in respect of any
claim arising in connection with the maintenance and operation of a securities account.

3.  A  person  shall  not  be  considered  an  intermediary  for  the  purposes  of  this  Convention
merely because –

a)  it acts as registrar or transfer agent for an issuer of securities; or

b)  it records in its own books details of securities credited to securities accounts maintained
by an intermediary in the names of other persons for whom it acts as manager or agent or
otherwise in a purely administrative capacity.

4. Subject to paragraph (5), a person shall be regarded as an intermediary for the purposes of
this  Convention  in  relation  to  securities  which  are  credited  to  securities  accounts  which  it
maintains in the capacity of a central securities depository or which are otherwise transferable
by book entry across securities accounts which it maintains.

8

 
5. In relation to securities which are credited to securities accounts maintained by a person in
the capacity of operator of a system for the holding and transfer of such securities on records
of the  issuer or  other  records  which  constitute  the  primary  record  of  entitlement  to  them  as
against the issuer, the Contracting State under whose law those securities are constituted may,
at  any  time,  make  a  declaration  that  the  person  which  operates  that  system  shall  not  be  an
intermediary for the purposes of this Convention.

Article 2

Scope of the Convention and of the applicable law

1.  This  Convention  determines  the  law  applicable  to  the  following  issues  in  respect  of
securities held with an intermediary –

a)  the legal nature and effects against the intermediary and third parties of the rights resulting

from a credit of securities to a securities account;

b)  the legal nature  and effects against  the intermediary  and  third parties  of  a disposition of

securities held with an intermediary;

c)  the  requirements,  if  any,  for  perfection  of  a  disposition  of  securities  held  with  an

intermediary;

d)  whether  a  person’s  interest  in  securities  held  with  an  intermediary  extinguishes  or  has

priority over another person’s interest;

e)  the duties, if any, of an intermediary to a person other than the account holder who asserts
in competition with the account holder or another person an interest in securities held with
that intermediary;

f) 

the  requirements,  if  any,  for  the  realisation  of  an  interest  in  securities  held  with  an
intermediary;

g)  whether  a  disposition  of  securities  held  with  an  intermediary  extends  to  entitlements  to

dividends, income, or other distributions, or to redemption, sale or other proceeds.

2. This Convention determines the law applicable to the issues specified in paragraph  (1) in
relation  to  a  disposition  of  or  an  interest  in  securities  held  with  an  intermediary  even  if  the
rights  resulting  from  the  credit  of  those  securities  to  a  securities  account  are  determined  in
accordance with paragraph (1)(a) to be contractual in nature.

3. Subject to paragraph (2), this Convention does not determine the law applicable to –

a)  the  rights  and  duties  arising  from  the  credit  of  securities  to  a  securities  account  to  the

extent that such rights or duties are purely contractual or otherwise purely personal;

b)  the contractual or other personal rights and duties of parties to a disposition of securities

held with an intermediary; or

c)  the rights and duties of an issuer of securities or of an issuer’s registrar or transfer agent,

whether in relation to the holder of the securities or any other person.

Article 3

Internationality

This Convention applies in all cases involving a choice between the laws of different States.

9

 
CHAPTER II –APPLICABLE LAW

Article 4

Primary rule

1. The law applicable to all the issues specified in Article 2(1) is the law in force in the State
expressly  agreed  in  the  account  agreement  as  the  State  whose  law  governs  the  account
agreement or, if the account agreement expressly provides that another law is applicable to all
such issues, that other law. The law designated in accordance with this provision applies only
if the relevant intermediary has, at the time of the agreement, an office in that State, which –

a)  alone  or  together  with  other  offices  of  the  relevant  intermediary  or  with  other  persons

acting for the relevant intermediary in that or another State –

i) effects or monitors entries to securities accounts;

ii) administers payments or corporate actions relating to securities held with the intermediary;
or

iii)  is  otherwise  engaged  in  a  business  or  other  regular  activity  of  maintaining  securities
accounts; or

b)  is identified by an account number, bank code, or other specific means of identification as

maintaining securities accounts in that State.

2. For the purposes of paragraph (1)(a), an office is not engaged in a business or other regular
activity of maintaining securities accounts –

a)  merely  because  it  is  a  place  where  the  technology  supporting  the  bookkeeping  or  data

processing for securities accounts is located;

b)  merely  because it is  a  place  where  call  centres  for  communication  with  account  holders

are located or operated;

c)  merely because it is a place where the mailing relating to securities accounts is organised

or files or archives are located; or

d)  if  it  engages  solely  in  representational  functions  or  administrative  functions,  other  than
those  related  to  the  opening  or  maintenance  of  securities  accounts,  and  does  not  have
authority to make any binding decision to enter into any account agreement.

3.  In  relation  to  a  disposition  by  an  account  holder  of  securities  held  with  a  particular
intermediary  in  favour  of  that  intermediary,  whether  or  not  that  intermediary  maintains  a
securities account on its own records  for  which  it is  the  account holder, for the purposes of
this Convention –

a)  that intermediary is the relevant intermediary;

b)  the  account  agreement  between  the  account  holder  and  that  intermediary  is  the  relevant

account agreement;

c)  the securities account for the purposes of Article 5(2) and (3) is the securities account to

which the securities are credited immediately before the disposition.

10

 
Article 5

Fall-back rules

1.  If  the  applicable  law  is  not  determined  under  Article  4,  but  it  is  expressly  and
unambiguously  stated  in  a  written  account  agreement  that  the  relevant  intermediary  entered
into  the  account  agreement  through  a  particular  office,  the  law  applicable  to  all  the  issues
specified in Article 2(1) is the law in force in the State, or the territorial unit of a Multi-unit
State,  in  which  that  office  was  then  located,  provided  that  such  office  then  satisfied  the
condition specified in the second sentence of Article 4(1). In determining whether an account
agreement expressly and unambiguously states that the relevant intermediary entered into the
account agreement through a particular office, none of the following shall be considered –

a)  a  provision  that  notices  or  other  documents  shall  or  may  be  served  on  the  relevant

intermediary at that office;

b)  a  provision  that  legal  proceedings  shall  or  may  be  instituted  against  the  relevant
intermediary in a particular State or in a particular territorial unit of a Multi-unit State;

c)  a provision that any statement or other document shall or may be provided by the relevant

intermediary from that office;

d)  a provision that any service shall  or  may  be provided by the  relevant intermediary from

that office;

e)  a provision that any operation or function shall or may be carried on or performed by the

relevant intermediary at that office.

2. If the applicable law is not determined under paragraph (1), that law is the law in force in
the  State,  or  the  territorial  unit  of  a  Multi-unit  State,  under  whose  law  the  relevant
intermediary is incorporated or otherwise organised at the time the written account agreement
is entered into or, if there is no such agreement, at the time the securities account was opened;
if, however, the relevant intermediary is incorporated or otherwise organised under the law of
a Multi-unit State and not that of one of its territorial units, the applicable law is the law in
force in the territorial unit of that Multi-unit State in which the relevant intermediary has its
place  of  business,  or,  if  the  relevant  intermediary  has  more  than  one  place  of  business,  its
principal  place  of  business,  at  the  time  the  written  account  agreement  is  entered  into  or,  if
there is no such agreement, at the time the securities account was opened.

3. If the applicable law is not determined under either paragraph (1) or paragraph (2), that law
is  the  law  in  force  in  the  State,  or  the  territorial  unit  of  a  Multi-unit  State,  in  which  the
relevant intermediary has its place of business, or, if the relevant intermediary has more than
one  place  of  business,  its  principal  place  of  business,  at  the  time  the  written  account
agreement is entered into or, if there is no such agreement, at the time the securities account
was opened.

Article 6

Factors to be disregarded

In  determining  the  applicable  law  in  accordance  with  this  Convention,  no  account  shall  be
taken of the following factors –

a)  the place where the issuer of the securities is incorporated or otherwise organised or has
its statutory seat or registered office, central administration or place or principal place of
business;

11

 
b)  the places where certificates representing or evidencing securities are located;

c)  the place where a register of holders of securities maintained by or on behalf of the issuer

of the securities is located; or

d)  the place where any intermediary other than the relevant intermediary is located.

Article 7

Protection of rights on change of the applicable law

1. This Article applies if an account agreement is amended so as to change the applicable law
under this Convention.

2. In this Article –

a)  “the new law” means the law applicable under this Convention after the change;

b)  “the old law” means the law applicable under this Convention before the change.

3. Subject to paragraph (4), the new law governs all the issues specified in Article 2(1).

4.  Except  with  respect  to  a  person  who  has  consented  to  a  change  of  law,  the  old  law
continues to govern –

a)  the  existence  of  an  interest  in  securities  held  with  an  intermediary  arising  before  the
change  of  law  and  the  perfection  of  a  disposition  of  those  securities  made  before  the
change of law;

b)  with respect to an interest in securities held with an intermediary arising before the change

of law –

i)  the  legal  nature  and  effects  of  such  an  interest  against  the  relevant  intermediary  and  any
party to a disposition of those securities made before the change of law;

ii) the legal nature and effects of such an interest against a person who after the change of law
attaches the securities;

iii) the determination of all the issues specified in Article 2(1) with respect to an insolvency
administrator in an insolvency proceeding opened after the change of law;

c)  priority as between parties whose interests arose before the change of law.

5.  Paragraph  (4)(c)  does  not  preclude  the  application  of  the  new  law  to  the  priority  of  an
interest that arose under the old law but is perfected under the new law.

Article 8

Insolvency

1.  Notwithstanding  the  opening  of  an  insolvency  proceeding,  the  law  applicable  under  this
Convention governs all the issues specified in Article 2(1) with respect to any event that has
occurred before the opening of that insolvency proceeding.

2.  Nothing  in  this  Convention  affects  the  application  of  any  substantive  or  procedural
insolvency rules, including any rules relating to –

12

 
a)  the ranking of categories of claim or the  avoidance of a disposition as a preference or  a

transfer in fraud of creditors; or

b)  the enforcement of rights after the opening of an insolvency proceeding.

CHAPTER III – GENERAL PROVISIONS

Article 9

General applicability of the Convention

This Convention applies whether or not the applicable law is that of a Contracting State.

Article 10

Exclusion of choice of law rules (renvoi)

In this Convention, the term “law” means the law in force in a State other than its choice of
law rules.

Article 11

Public policy and internationally mandatory rules

1.  The  application  of  the  law  determined  under  this  Convention  may  be  refused  only  if  the
effects of its application would be manifestly contrary to the public policy of the forum.

2.  This  Convention  does  not  prevent  the  application  of  those  provisions  of  the  law  of  the
forum which, irrespective of  rules  of  conflict  of  laws,  must  be  applied even to international
situations.

3. This Article does not permit the application of provisions of the law of the forum imposing
requirements with respect to perfection or relating to priorities between competing interests,
unless the law of the forum is the applicable law under this Convention.

Article 12

Determination of the applicable law for Multi-unit States

1. If the account holder and the relevant intermediary have agreed on the law of a specified
territorial unit of a Multi-unit State –

a)  the references to “State” in the first sentence of Article 4(1) are to that territorial unit;

b)  the references to “that State” in the second sentence of Article 4(1) are to the Multi-unit

State itself.

2. In applying this Convention –

a)  the law in force in a territorial unit of a Multi-unit State includes both the law of that unit

and, to the extent applicable in that unit, the law of the Multi-unit State itself;

b)  if the law in force in a territorial unit of a Multi-unit State designates the law of another
territorial unit of that State to govern perfection by public filing, recording or registration,
the law of that other territorial unit governs that issue.

3.  A  Multi-unit  State  may,  at  the  time  of  signature,  ratification,  acceptance,  approval  or
accession, make a declaration that if, under Article 5, the applicable law is that of the Multi-
unit State or one of its territorial units, the internal choice of law rules in force in that Multi-
unit State shall determine whether the substantive rules of law of that Multi-unit State or of a
particular  territorial  unit  of  that  Multi-unit  State  shall  apply.  A  Multi-unit  State  that  makes
such  a  declaration  shall  communicate  information  concerning  the  content  of  those  internal

13

 
choice of law rules to the Permanent Bureau of the Hague Conference on Private International
Law.

4.  A  Multi-unit  State  may,  at  any  time,  make  a  declaration  that  if,  under  Article  4,  the
applicable law is that of one of its territorial units, the law of that territorial unit applies only if
the relevant intermediary has an office within that territorial unit which satisfies the condition
specified  in  the  second  sentence  of  Article  4(1).  Such  a  declaration  shall  have  no  effect  on
dispositions made before that declaration becomes effective.

Article 13

Uniform interpretation

In the interpretation of this Convention, regard shall be had to its international character and
to the need to promote uniformity in its application.

Article 14

Review of practical operation of the Convention

The Secretary General of the Hague Conference on Private International Law shall at regular
intervals convene a Special Commission to review the practical operation of this Convention
and to consider whether any amendments to this Convention are desirable.

CHAPTER IV – TRANSITION PROVISIONS

Article 15

Priority between pre-Convention and post-Convention interests

In  a  Contracting  State,  the  law  applicable  under  this  Convention  determines  whether  a
person’s interest in securities held with an intermediary acquired after this Convention entered
into  force  for  that  State  extinguishes  or  has  priority  over  another  person’s  interest  acquired
before this Convention entered into force for that State.

Article 16

Pre-Convention account agreements and securities accounts

1.  References  in  this  Convention  to  an  account  agreement  include  an  account  agreement
entered  into  before  this  Convention  entered  into  force  in  accordance  with  Article  19(1).
References  in  this  Convention  to  a  securities  account  include  a  securities  account  opened
before this Convention entered into force in accordance with Article 19(1).

2. Unless an account agreement contains an express reference to this Convention, the courts
of a Contracting State shall apply paragraphs (3) and (4) in applying Article 4(1) with respect
to account agreements entered into before the entry into force of this Convention for that State
in accordance with Article 19. A Contracting State may, at the time of signature, ratification,
acceptance,  approval  or  accession,  make  a  declaration  that  its  courts  shall  not  apply  those
paragraphs with respect to account agreements  entered into after the entry into force of this
Convention  in  accordance  with  Article  19(1)  but  before  the  entry  into  force  of  this
Convention for that State in accordance with Article 19(2). If the Contracting State is a Multi-
unit State, it may make such a declaration with respect to any of its territorial units.

3. Any express terms of an account agreement which would have the effect, under the rules of
the State whose  law  governs that agreement, that the  law  in force  in a  particular  State,  or  a
territorial unit of a particular Multi-unit State, applies to any of the issues specified in Article
2(1),  shall  have  the  effect  that  such  law  governs  all  the  issues  specified  in  Article  2(1),
provided  that  the  relevant  intermediary  had,  at  the  time  the  agreement  was  entered  into,  an
office in that  State which satisfied  the  condition  specified  in  the  second  sentence  of  Article
4(1). A Contracting State may, at the time of signature, ratification, acceptance,  approval or

14

 
accession, make a declaration that its courts shall not apply this paragraph with respect to an
account agreement described in this paragraph in which the parties have expressly agreed that
the securities account is maintained in a different State. If the Contracting State is a Multi-unit
State, it may make such a declaration with respect to any of its territorial units.

4.  If  the  parties  to  an  account  agreement,  other  than  an  agreement  to  which  paragraph  (3)
applies,  have  agreed  that  the  securities  account  is  maintained  in  a  particular  State,  or  a
territorial unit of a particular Multi-unit State, the law in force in that State or territorial unit is
the  law  applicable  to  all  the  issues  specified  in  Article  2(1),  provided  that  the  relevant
intermediary  had,  at  the  time  the  agreement  was  entered  into,  an  office  in  that  State  which
satisfied  the  condition  specified  in  the  second  sentence  of  Article  4(1).  Such  an  agreement
may be express or implied from the terms of the contract considered as a whole or from the
surrounding circumstances.

CHAPTER V – FINAL CLAUSES

Article 17

Signature, ratification, acceptance, approval or accession

1. This Convention shall be open for signature by all States.

2. This Convention is subject to ratification, acceptance or approval by the signatory States.

3. Any State which does not sign this Convention may accede to it at any time.

4. The instruments of ratification, acceptance, approval or accession shall  be deposited  with
the  Ministry  of  Foreign  Affairs  of  the  Kingdom  of  the  Netherlands,  Depositary  of  this
Convention.

Article 18

Regional Economic Integration Organisations

1.  A  Regional  Economic  Integration  Organisation  which  is  constituted  by  sovereign  States
and  has  competence  over  certain  matters  governed  by  this  Convention  may  similarly  sign,
accept,  approve  or  accede  to  this  Convention.  The  Regional  Economic  Integration
Organisation shall in that case have  the  rights  and  obligations of  a Contracting  State, to the
extent  that  that  Organisation  has  competence  over  matters  governed  by  this  Convention.
Where  the  number  of  Contracting  States  is  relevant  in  this  Convention,  the  Regional
Economic  Integration  Organisation  shall  not  count  as  a  Contracting  State  in  addition  to  its
Member States which are Contracting States.

2. The Regional Economic Integration Organisation shall, at the time of signature, acceptance,
approval  or  accession,  notify  the  Depositary  in  writing  specifying  the  matters  governed  by
this Convention in respect of which competence has been transferred to that Organisation by
its Member States. The Regional Economic Integration Organisation shall promptly notify the
Depositary in writing of any changes to the distribution of competence specified in the notice
in accordance with this paragraph and any new transfer of competence.

3. Any reference to a “Contracting State” or “Contracting States” in this Convention applies
equally to a Regional Economic Integration Organisation where the context so requires.

15

 
Article 19

Entry into force

1. This Convention shall enter into force on the first day of the month following the expiration
of three months after the deposit of the third instrument of ratification, acceptance, approval
or accession referred to in Article 17.

2. Thereafter this Convention shall enter into force –

a)  for  each  State  or  Regional  Economic  Integration  Organisation  referred  to  in  Article  18
subsequently  ratifying,  accepting,  approving  or  acceding  to  it,  on  the  first  day  of  the
month  following  the  expiration  of  three  months  after  the  deposit  of  its  instrument  of
ratification, acceptance, approval or accession;

b)  for  a  territorial  unit  to  which  this  Convention  has  been  extended  in  accordance  with
Article 20(1), on the first day of the month following the expiration of three months after
the notification of the declaration referred to in that Article.

Article 20

Multi-unit States

1.  A  Multi-unit  State  may,  at  the  time  of  signature,  ratification,  acceptance,  approval  or
accession,  make  a  declaration  that  this  Convention  shall  extend  to  all  its  territorial  units  or
only to one or more of them.

2.  Any  such  declaration  shall  state  expressly  the  territorial  units  to  which  this  Convention
applies.

3.  If  a  State  makes  no  declaration  under  paragraph  (1),  this  Convention  extends  to  all
territorial units of that State.

Article 21

Reservations

No reservation to this Convention shall be permitted.

Article 22

Declarations

For the purposes of Articles 1(5), 12(3) and (4), 16(2) and (3) and 20 –

a)  any declaration shall be notified in writing to the Depositary;

b)  any Contracting  State may  modify  a  declaration  by  submitting  a  new  declaration  at  any

time;

c)  any Contracting State may withdraw a declaration at any time;

d)  any  declaration  made  at  the  time  of  signature,  ratification,  acceptance,  approval  or
accession shall take effect simultaneously with the entry into force of this Convention for
the State concerned; any declaration made at a subsequent time and any new declaration
shall  take  effect  on  the  first  day  of  the  month  following  the  expiration  of  three  months
after  the  date  on  which  the  Depositary  made  the  notification  in  accordance  with  Article
24;

16

 
e)  a withdrawal of a declaration shall take effect on the first day of the month following the
expiration of six months after the date on which the  Depositary made the notification in
accordance with Article 24.

Article 23

Denunciation

1.  A  Contracting  State  may  denounce  this  Convention  by  a  notification  in  writing  to  the
Depositary. The denunciation may be limited to certain territorial units of a Multi-unit State to
which this Convention applies.

2. The denunciation shall take effect on the first day of the month following the expiration of
twelve months after the date on which the notification is received by the Depositary. Where a
longer  period  for  the  denunciation  to  take  effect  is  specified  in  the  notification,  the
denunciation  shall  take  effect  upon  the  expiration  of  such  longer  period  after  the  date  on
which the notification is received by the Depositary.

Article 24

Notifications by the Depositary

The  Depositary  shall  notify  the  Members  of  the  Hague  Conference  on  Private  International
Law, and other States and Regional Economic Integration Organisations which have signed,
ratified,  accepted,  approved  or  acceded  in  accordance  with  Articles  17  and  18,  of  the
following –

a)  the  signatures  and  ratifications,  acceptances,  approvals  and  accessions  referred  to  in

Articles 17 and 18;

b)  the date on which this Convention enters into force in accordance with Article 19;

c)  the declarations and withdrawals of declarations referred to in Article 22;

d)  the notifications referred to in Article 18(2);

e)  the denunciations referred to in Article 23.

In  witness  whereof  the  undersigned,  being  duly  authorised  thereto,  have  signed  this
Convention.

Done at The Hague, on the …… day of ………… 20…, in the English and French languages,
both texts being equally authentic, in a single copy which shall be deposited in the archives of
the Government of the  Kingdom  of  the  Netherlands,  and  of  which  a  certified  copy  shall  be
sent, through diplomatic channels, to each of the Member States of the Hague Conference on
Private  International  Law  as  of  the  date  of  its  Nineteenth  Session  and  to  each  State  which
participated in that Session.

17

 
ANNEX II

Declaration concerning the competence of the European Community with regard to
matters governed by the Hague Convention of 13 December 2002 on the Law applicable
to certain rights in respect of securities held with an intermediary

1.  Article  18(1)  of  the  Hague  Convention  provides  that  a  Regional  Economic  Integration
Organisation  which  is  constituted  by  sovereign  States  and  has  competence  in  respect  of
certain matters governed by this Convention, may become a party to it.

2. The current Members States of the European Community are the Kingdom of Belgium, the
Kingdom of Denmark, the Federal Republic of Germany, the Hellenic Republic, the Kingdom
of  Spain,  the  French  Republic,  Ireland,  the  Italian  Republic,  the  Grand  Duchy  of
Luxembourg,  the  Kingdom  of  the  Netherlands,  the  Republic  of  Austria,  the  Portuguese
Republic, the Republic of Finland, the Kingdom of Sweden and the United Kingdom of Great
Britain and  Northern  Ireland.  On  1 May  2004 the Republic  of  Cyprus,  the  Czech  Republic,
the  Republic  of  Estonia,  the  Republic  of  Hungary,  the  Republic  of  Latvia,  the  Republic  of
Lithuania,  the  Republic  of  Malta,  the  Republic  of  Poland,  the  Slovak  Republic  and  the
Republic of Slovenia will also be Member States of the European Community.

3.  This  declaration  is  not  applicable  to  the  territories  of  the  Member  States  in  which  the,
Treaty establishing the European Community does not apply and is without prejudice to such
acts or positions as may be adopted under the Convention by the Member States concerned on
behalf of and in the interests of those territories.

4. The European Community has competence according to the EC Treaty to adopt general and
specific measures to enhance the uniformity of rules relating to the applicable law in various
domains  in  its  Member  States.  In  respect  of  matters  covered  by  the  Convention,  the
Community  has  already  exercised  this  competence  by  the  adoption  of  the  European
Community directives, such as the Settlement Finality3 and Collateral4 directives, containing
provisions to be used to determine the applicable law governing a securities account. Hence,
in this field, it is for the Community to  enter into external undertakings  with third States or
competent organisations.

5. The exercise of competence which the Member States have transferred to the Community
pursuant  to  the  EC  Treaty  is,  by  its  nature,  liable  to  continuous  development.  In  the
framework of the Treaty, the competent institutions may take decisions which determine the
extent of the competence  of  the  European Community.  The European Community therefore
reserves  the  right  to  amend  the  present  declaration  accordingly,  without  this  constituting  a
prerequisite for the exercise of its competence with regard to matters governed by the Hague
Convention.

3

4

"Directive  98/26/EC  of  the  European  Parliament  and  of  the  Council  of  19  May  1998  on  settlement
finality in payment and securities settlement systems", OJ, L 166, 11.06.1998, p. 4
"Directive  2002/47/EC  of  the  European  Parliament  and  of  the  Council  of  6  June  2002  on  financial
Collateral arrangements", OJ, L 168, 27.06.2002, p. 43

18