Maisie Ooi on the Effect of Intermediation on Investor Rights (LQR)

"Intermediation and its Effect on Investor Rights"
Maisie Ooi
Law Quarterly Review
2015, Vol 131, pp. 536-542
Secure Capital SA v Credit Suisse AG [2015] EWHC 388 (Comm); [2015] 1 Lloyd’s Rep. 556 considered an issue of immense importance to investors who purchase and hold securities on an intermediated holding system. Do they enjoy the same rights in relation to those securities as would have accrued to them had the securities not been on the intermediated system? The answer was decided by the court’s choice of the applicable law, underlining the importance of conflicts law to corporate and securities transactions these days. As these transactions are increasingly cross-border it is no longer sufficient for corporate and securities lawyers to be familiar only with the substantive law relating to these matters. 

     This note analyses the scope and application of the court’s choice of the governing law of the securities to determine the investor’s rights in relation to intermediated securities. The securities were two tranches of notes (Notes), a form of debt security, which had been issued by Credit Suisse. Secure Capital sued Credit Suisse for breach of a term of the Notes that it had taken all reasonable care to ensure accuracy of information on the Notes. 

     The Notes had been issued in bearer form which meant that transfer of title was by delivery of their certificates. Had Credit Suisse (very unusually) decided against placing the Notes on an intermediated system, Secure Capital, which acquired some of the Notes at issuance, would have been issued with the relevant certificates making it the legal owner. This would also have made Secure Capital counterparty to Credit Suisse in relation to the Notes contracts. Secure Capital would, then, indubitably have been entitled to sue for breach of the terms of the Notes. 

     Credit Suisse had however, as is common these days, placed the Notes on an intermediated system, specifically Clearstream. This was done by depositing with the Common Depository, which held the Notes for Clearstream, a global certificate representing the entire issue of each tranche, constituting it their legal owner. In place of the certificates Secure Capital’s acquisition was reflected by a credit entry in its securities account with its intermediary on Clearstream.... Full article is available from Westlaw or from the author.