The European Commission reports that it has been granted authority to open negotiations, on behalf of the EU, for a deal that would make it easier to hold and transfer securities worldwide.

The negotiations will take place within the International Institute for the Unification of Private Law, which aims at modernizing, harmonizing and co-ordinating private and commercial law internationally. Fifty-nine countries are member states of UNIDROIT, including all EU member states, except Latvia and Lithuania, and Canada and the United States..

In modern securities markets, securities are mostly held for others by intermediaries. These accounts are treated commercially and economically as being the focus of ownership. However, legally their status differs across nations. There is a lack of clarity about who has what rights and of what kind when securities are held for investors by means of an intermediary’s accounting records. In 2004, UNIDROIT released a “preliminary draft convention on harmonised substantive rules regarding securities held with an intermediary”, intended to solve this issue.

This issue has also been discussed extensively at the EU level. It was identified, for example, as being of pivotal importance to the fulfillment of the single market in financial services in the Giovannini reports on clearing and settlement in April 2004.

EU internal market and services commissioner Charlie McCreevy said, “More and more securities are held and transferred internationally. This benefits investors, businesses, and markets. We want the EU legal framework to keep pace with this. Giving Europe a strong voice in drawing up this convention will contribute to making sure the rules for holding securities develop coherently worldwide and in a way that is compatible with the high level of sophistication currently attained in the EU. These rules should also fit the practice of the markets, both as they are and as we hope they will develop.”

The commission hopes that the work of UNIDROIT will contribute to a greater understanding and to a greater coherence worldwide of this esoteric but vital area of law.