Explanatory notes to the preliminary draft UNIDROIT convention on harmonised substantive rules regarding securities held with an intermediary

The purpose of the future instrument is to promote legal certainty and economic efficiency with respect to the cross-border holding and disposition of securities held with an intermediary, by harmonising certain legal aspects in this regard. This has become a necessary venture due to the considerable change in market practices within the last 50 years, combined with an everincreasing volume of cross-border activities in the capital markets. It has been widely recognised in recent years that these developments in the practice of holding and disposition of securities have, in a number of respects, outrun the traditional legal framework. The basic rules on the legal nature, transfer and collateral provision of securities were formulated in the days when securities were transferred individually by physical delivery of certificates representing them. Under these rules, there was always a direct relationship between issuers and holders. In the case of registered securities, the investor’s name was always registered in the issuer’s books. In the case of bearer securities, the mere possession of a securities certificate represented or evidenced the direct property interest. The tokens were either physically held by the investors or under their names by an agent, for example a bank or a broker. Any type of transfer of the securities involved a direct or indirect possessory transfer and sometimes entailed the physical transfer of the tokens from one vault to another