1Обухова_RESUME_Civil law regulation of n..mentary securitiies holding_УАД (Гражданско-правовое регулирование учёта прав на бездокументарные ценные бумаги), страница 5

The essentialdifference between the dematerialization and immobilization is that in the lattermodel sometimes a very indirect, but existing connection between the title andcertificate as a thing under the immobilization is used as a legal tool to protect therights of investors. As for dematerialized non-documentary securities the relationof the title to security and security certificate that is essential for the concept ofsecurities collapses. In some jurisdictions (France, the USA etc.) dematerializationreduces the right to a non-documentary security to the contractual claim under thesecurities account contract between the intermediary and the client.

At the sametime, the absence of the relations between the issuer and the ultimate purchaserentails the impossibility to establish an ultimate purchaser that may affect therights of the issuer and bona fide ultimate purchasers.In the fourth paragraph ‘Holding models with a mixed approach’ legalapproaches to regulation of securities holding that are not subject to the previouslyare considered. The USA model is considered in this paragraph as an example ofshift from dematerialization and immobilization to forms of holding (indirect /direct).

The European Union practice is inserted in this paragraph because of thespecific normative effect of its regulations and directives on the marketinfrastructure. In the Russian Federation, immobilization and dematerializationmodels are applied to different types of securities31 so its regulatory model isconsidered here also.However, the application of a mixed approach to holding models requiresappropriate market investigation as well as an analysis of the potential risks of                                                            31For example, the Federal Law of 22 April 1996 N 39-FZ On Securities Markets requiresobligatory dematerialization for shares while global certificates may be immobilized.19  application of both holding models. For example, Russian market perceives amixed holding model but does not establish clear rules.

Decline of the issuer'sinvolvement in the securities holding process (especially with the shift toentitlement by the issuer’s register) the concept of joint and several liability of theissuer and the registrar remains unchanged.The third chapter ‘Forms of non-documentary securities holding’ of the thesisis devoted to the legal aspects of indirect and direct holding of non-documentarysecurities.The notion of the legitimated person as well as rights of ultimate purchasers andfinancial intermediaries are the key issues that determine the distribution of title tosuch securities. Distribution of title to the ultimate purchaser or to the nomineeholder has generated two main accounting systems: a direct (including transparent)system and an indirect system.In the first paragraph ‘Indirect holding’ the specifics of the title to a nondocumentary security is examined.

The distribution of rights of ultimate purchasersand financial intermediaries that hold securities on accounts is a key issue of thisparagraph.It is established that minimization to certain extent of risks of differentlegitimation of the ultimate purchaser and other holding chain participants ispossible by the usage of segregated accounts (as a technical solution).The difference between the two holding systems is so significant thatintermediated non-documentary securities have even acquired a separate genericname in certain jurisdictions. The analysis of recent changes in the legislativeprocedure for maintaining registers of persons entitled to non-documentarysecurities are also examined.

The attempt to define the balance of titles attached toindirectly held securities as well as methods to minimize the risks that are raised byindirect holding is made.20  It has been proposed to clarify the norms and definitions of domestic legislationthat determine persons entitled and legitimated to securities, as well as the specificsof the formation of issuers’ registers.The second paragraph ‘Direct holding and Transparent systems’ discloses adirect holding model when the ultimate purchaser’s name is directly registered inthe issuer’s register, as well as the applicability and risks associated with usingsuch a form of accounting.Direct holding is a rare phenomenon (employed in Brazil, China, and someScandinavian countries).

However nowadays it is obtaining new significancethanks to technologies as a distributed registers. Technology eliminates doubts inthe title of the ultimate purchaser but still embody some risks. The inability toaccess the account by any means other than entering the password of the systemparticipant excludes the restoration of access to the account. Participation in directholding systems with equal access to information also requires high professionalknowledge from unqualified investors. Processing large amounts of informationusually requires the involvement of specialists, which (again) are intermediaries professional participants.The fourth chapter of the ‘Cross-border holding of non-documentarysecurities: conflict of laws’ specifics of the legal regulation of cross-bordersecurities holding in connection with different jurisdictional approaches (e.g.localization of non-documentary securities by lex rei sitae rule, PRACA -relevantaccount or the PRIMA -relevant intermediary methods).In the first paragraph ‘Conflict of law problems’ it is established that the levelof legal certainty in the cross-border non-documentary securities holding isinsufficient.

The introduction of general regulation in Russian Civil Code isproposed. That measure could minimize the choice of law problems arising inrelations in the system of non-documentary securities holding.In the second paragraph ‘Cross-border holding from the substantive law pointof view’, certain jurisdictional approaches are observed (extraterritoriality of the21  jurisdiction related to some elements of persons involved in cross-border holding).Serious risks arise not only because of differences in the treatment of securities andthe choice-of law rules but given extraterritorial application of foreign public law.More specifically, an element of public law in the securities regulation sometimesprecludes party autonomy and paves the way for extraterritoriality of public law inlegal relations between the parties.

The effects of extraterritoriality sometimesapply to Russian companies doing business abroad. The example of the USAregulation as of the most highly demanded country thus often involved in thesecurities holding chain risks of cross-border holding (extraterritoriality risks) isanalyzed.The Conclusion contains the main results of the research, recommendations andproposals for the further development of the theme.The main conclusions found in the main propositions and conclusions to bedefended are reflected in the following articles (published in journalsrecommended by the Higher Attestation Commission of the Ministry ofEducation and Science of the Russian Federation):1.

E.V. Obukhova. Indirect holding of non-documentary securities. Conflict oflaws / Zakon. 2016, N8. P. 62-71;2. E.V. Obukhova. Jurisdiction risks in securities transactions / Zakon. 2017,N7. P. 146-160;3. E.V. Obukhova. Specific characteristics of entitlement to indirectly heldsecurities / Zakon. 2018, N2. P.

163-175.22  .