Direct or indirect holdings - A Nordic perspective

Abstract

This article will discuss the scope of the preliminary draft UNIDROIT Convention on Harmonised Substantive Rules regarding Securities Held with an Intermediary (hereinafter: draft UNIDROIT Convention) related to the terms “direct” or “indirect holdings” and “intermediary”. It will argue that these terms have often been and still are misunderstood, a fact which is highlighted in the draft UNIDROIT Convention.1 Part I of the article will give a short presentation of the holding systems in the four Nordic countries (Sweden, Finland, Denmark and Norway), offering a background for the reasoning developed in Part II. While the smaller countries' holding systems are generally not well known and may therefore be regarded by others as “exotic”, this article will show that the Nordic holding systems are by and large as “modern” as many of the other systems more often highlighted in current discussions. It should also be noted that the Nordic holding systems as a whole are very flexible. A combination of owner accounts and nominee accounts facilitates both disinter-mediation for those who wish to minimise the intermediary chain and efficient cross-border links and nominee holdings for more traditional holding patterns. The Nordic CSDs therefore represent a combination of direct and indirect holdings. Part II of the article will highlight some of the issues that arise in connection with the examples of “modern legislation” that are often mentioned in the current context of securities regulation. It will argue that these examples may generate reluctance in some countries and hinder rather than foster their acceptance. It will also raise the point that one consequence of the Hague Convention is that the laws of a given jurisdiction may be applicable to actions related to securities accounts not covered by the present national legislation.2 There may be a need for further development of insufficient national regulation. Lastly, the article will discuss how the terms “direct” or “indirect” holdings and “intermediary” should be interpreted. The proposed Convention should, in these authors' opinion, focus on the fact that securities are held in accounts rather than held directly, indirectly or with an intermediary.