Admission of securities to collective safe custody: Procedure and legal opinions

As a part of the admission process for equities (shares) or debt instruments (bonds) of international issuers, clients of Clearstream Europe AG (CEU) may be required to present a legal opinion.

CEU points out that requests for the admission of international securities are subject to individual checks.

In connection with the delivery of international securities into collective safe custody (CSC) with CEU, the following legal issues to be clarified in a legal opinion include, in particular:

• Is the securities certificate that is to be held in CSC in Germany a financial instrument within the meaning of section 1 paragraph 1 of the German Securities Deposit Act (Depotgesetz, DepotG), which even certifies rights that are fungible with one another vis-à-vis the issuer (“the rights from the document follow the right to the document”)?
• Are there any special legal requirements regarding the characteristics of the securities certificate under the law of the issuer’s country of domicile?
• For registered securities: Can the financial instrument be transferred by means of endorsement in the country of domicile of the issuer?
  If so, what are the requirements regarding the form of the endorsement and the disposal of the financial instrument?
• Does the law of the issuer country permit the issuer to deposit the securities certificate outside the home market of the jurisdiction applicable to the issuer (in particular the law applicable to the rights embodied in the financial instrument (Wertpapierrechtsstatut); and in this case with CEU in Germany?
• Does safe custody outside the home market have a detrimental effect on the investor's position vis-à-vis the issuer, especially in the case of shares?
• Can any voting rights be exercised without restrictions?
• Are dispositions (for example, a sale or a pledge) that the investor makes through CEU as intermediary, within the latter's custody and settlement system in Germany – and therefore outside the jurisdiction of the issuer’s home country  – recognised under the law of the issuer’s home country?
• Would German law ultimately take precedence on the application of the law of the home country of the issuer and the conflict-of-laws rules of German law (lex cartae sitae or possibly section 17a of the German Securities Deposit Act)?

The legal questions to be clarified are to be assessed in two legal opinions:

• A legal opinion evaluates the questions to be clarified from the point of view of German law (to be issued by a German law firm); and
• A legal opinion evaluates the questions to be clarified from the point of view of the home country (to be issued by a law firm of the home country).

CEU asks clients to take into consideration that the examination of legal opinions by CEU may attract longer processing times.

In order to enable observance of scheduled value dates, legal opinions must be submitted at least ten business days before the planned value date (VD-10). The processing period differs from the period required for checking all other admission-related documents.

Together with the issuer or legal advisor, the issuing agent (issuing bank/lead manager) must ensure that the above-stated legal requirements are fulfilled.

Should the check by CEU reveal that there is further need for clarification, legal opinions may need to be revised. This could lead to longer processing times for admission applications.

In no case will CEU contact the issuer. This also applies to third-party issues.