The Uncertificated Securities Regulations 1995

Regulation 5(3)

SCHEDULE 1 REQUIREMENTS FOR APPROVAL OF A PERSON AS OPERATOR

Arrangements and resources

1.  An Operator must have adequate arrangements and resources for the effective monitoring and enforcement of compliance with his rules or, as respects monitoring, arrangements providing for that function to be performed on his behalf (and without affecting his responsibility) by another body or person who is able and willing to perform it.

Financial resources

2.  An Operator must have financial resources sufficient for the proper performance of his functions as an Operator.

Promotion and maintenance of standards

3.  An Operator must be able and willing to promote and maintain high standards of integrity and fair dealing in the operation of the relevant system and to cooperate, by the sharing of information or otherwise, with the Treasury and any other authority, body or person having responsibility for the supervision or regulation of investment business or other financial services.

Operation of the relevant system

4.  Where an Operator causes or permits a part of the relevant system which is not the Operator-system to be operated by another person (other than as his agent) the Operator—

(a) shall monitor compliance by the person and that part with the requirements of this Schedule; and

(b) shall have arrangements to ensure that the person provides him with such information and such assistance as he may require in order to meet his obligations under these Regulations.

System security

5.  A relevant system must be constructed and operate in such a way&—

(a) so as to minimise the possibility of unauthorised access to, or modification of, any program or data held in any computer forming part of the Operator-system;

(b) that each dematerialised instruction is properly authenticated in accordance with the specifications of the Operator, which shall provide that each dematerialised instruction—

(i) is identifiable as being from the computers of a particular system-participant; and

(ii) is designed to minimise fraud and forgery;

(c) that each dematerialised instruction, in accordance with the specifications of the Operator, expresses by whom it has been sent and, where relevant, on whose behalf it has been sent;

(d) that each dematerialised instruction, in accordance with the specifications of the Operator, indicates—

(i) where it is sent to a system-participant or the Operator, that it is addressed to that system-participant or the Operator; and

(ii) where it is sent to a person who is using the facilities of a sponsoring system-participant to receive dematerialised instructions, that it is addressed to that person and the sponsoring system-participant; and

(iii) where it is sent to the Operator in order for him to send an Operator-instruction to a system-participant, that it is addressed to the Operator, to the system-participant and, if the system-participant is acting as a sponsoring system-participant, to the relevant person on whose behalf the sponsoring system-participant receives dematerialised instructions; and

(e) that the possibility for a system-participant to send a dematerialised instruction on behalf of a person from whom he has no authority is minimised.

System capabilities

6.  A relevant system must ensure that the Operator-system can send and respond to properly authenticated dematerialised instructions in sufficient volume and speed.

7.  Before an Operator-instruction to a participating issuer to register a transfer of uncertificated units of a security is generated, a relevant system must—

(a) be able to establish that the transferor is likely to have title to or, by virtue of regulation 25(1) or (2), an interest in, such number of units of the security as is in aggregate at least equal to the number to be transferred; or

(b) be able to notify the participating issuer in accordance with regulation 24(1) that the transfer is one of two or more transfers which may be registered in accordance with regulation 24(2).

8.  A relevant system must maintain adequate records of all dematerialised instructions.

9.  A relevant system must be able—

(a) to permit each system-member to obtain a copy of any records relating to him as are maintained by the relevant system in order to comply with paragraph 7(a) or 8; and

(b) to make correcting entries in such records as are maintained in order to comply with paragraph 7(a) which are inaccurate.

10.  A relevant system must be able to establish, where there is a transfer of uncertificated units of a security to a system-member for value, that a settlement bank has agreed to make payment in respect of the transfer, whether alone or taken together with another transfer for value.

11.  A relevant system must ensure that the Operator-system is able to generate Operator-instructions—

(a) requiring participating issuers to amend the appropriate registers of securities kept by them; and

(b) informing settlement banks of their payment obligations.

12.  A relevant system must—

(a) enable a system-member—

(i) to grant authority to a sponsoring system-participant to send properly authenticated dematerialised instructions on his behalf; and

(ii) to limit such authority by reference to the net value of the units of securities to be transferred in any one day; and

(b) prevent the transfer of units in excess of that limit.

13.  A relevant system must enable system-members—

(a) to change the form in which they hold or are to hold units of a participating security; and

(b) where appropriate, to require participating issuers to issue certificates relating to units of a participating security held or to be held by them.

Operating procedures

14.  A relevant system must comprise procedures which provide that it responds only to properly authenticated dematerialised instructions which are attributable to a system-user or an Operator.

15.—(1) Subject to subparagraph (2), a relevant system must comprise procedures which provide that an Operator-instruction requiring a participating issuer to register a transfer of uncertificated units of a security, or informing a settlement bank of its payment obligations in respect of such a transfer, is generated only if—

(a) it has—

(i) received a system-member instruction from the transferor; or

(ii) been required to do so by a court in the United Kingdom or by or under an enactment;

(b) it has—

(i) established that the transferor is likely to have title to, or is likely to have by virtue of regulation 25(1) or (2) an interest in, such number of units as is in aggregate at least equal to the number to be transferred; or

(ii) established that the transfer is one of two or more transfers which may be notified to the participating issuer in accordance with regulation 24(1);

(c) in the case of a transfer to a system-member for value, it has established that a settlement bank has agreed to make payment in respect of the transfer, whether alone or taken together with another transfer for value; and

(d) the transfer is not in excess of any limit which by virtue of paragraph 12(a)(ii) the transferor has set on an authority given by him to a sponsoring system-participant.

(2) A relevant system must comprise procedures which provide that an Operator-instruction requiring a participating issuer to register a transfer of uncertificated units of a security, or informing a settlement bank of its payment obligations in respect of such a transfer, may be generated if necessary to correct an error and if in accordance with the rules and practices of an Operator instituted in order to comply with this Schedule.

16.—(1) Subject to subparagraph (2), a relevant system must comprise procedures which provide that an Operator-instruction to a participating issuer relating to a right, privilege or benefit attaching to or arising from an uncertificated unit of a security, is generated only if it has—

(a) received a properly authenticated dematerialised instruction attributable to the system-member having the right, privilege or benefit requiring the Operator to generate an Operator-instruction to the participating issuer; or

(b) been required to do so by a court in the United Kingdom or by or under an enactment.

(2) A relevant system must comprise procedures which provide that an Operator-instruction to a participating issuer relating to a right, privilege or benefit attaching to or arising from an uncertificated unit of a security, may be generated if necessary to correct an error and if in accordance with the rules and practices of an Operator instituted in order to comply with this Schedule.

17.  A relevant system must comprise procedures which ensure that, where the relevant system maintains records in order to comply with paragraph 15(1)(b)(i), the records are regularly reconciled with the registers of securities maintained by participating issuers.

18.  A relevant system must comprise procedures which—

(a) enable system-users to notify the Operator of an error in or relating to a dematerialised instruction; and

(b) ensure that, where the Operator becomes aware of an error in or relating to a dematerialised instruction, he takes appropriate corrective action.

Rules and practices

19.  An Operator’s rules and practices—

(a) must bind system-members and participating issuers—

(i) so as to ensure the efficient processing of transfers of title to uncertificated units of a security in response to Operator-instructions; and

(ii) as to the action to be taken where transfer of title in response to an Operator-instruction cannot be effected;

(b) must make provision for a participating issuer to cease to participate in respect of a participating security so as—

(i) to minimise so far as practicable any disruption to system-members in respect of their ability to transfer the relevant security; and

(ii) to provide the participating issuer with any relevant information held by the Operator relating to uncertificated units of the relevant security held by system-members;

(c) must make provision for the orderly termination of participation by system-members and system-participants whose participation is disruptive to other system-members or system-participants or to participating issuers; and

(d) if they make provision for the designation of a subsidiary undertaking as a relevant nominee, must require that the relevant nominee maintain adequate records of—

(i) the names of the persons who have an interest in the securities it holds; and

(ii) the nature and extent of their interests.

20.  An Operator’s rules and practices must require—

(a) that each system-participant is able to send and receive properly authenticated dematerialised instructions;

(b) that each system-member has arrangements—

(i) for properly authenticated dematerialised instructions attributable to him to be sent;

(ii) for properly authenticated dematerialised instructions to be received by or for him; and

(iii) with a settlement bank for payments to be made, where appropriate, for units of a security transferred by means of the relevant system; and

(c) that each participating issuer is able to respond with sufficient speed to Operator-instructions.

21.  An Operator must have rules which require system-users and former system-users to provide him with such information in their possession as he may require in order to meet his obligations under these Regulations. 28

Regulation 13

SCHEDULE 2 PREVENTION OF RESTRICTIVE PRACTICES

Examination of rules and practices

1.—(1) The Treasury shall not approve a person as Operator of a relevant system unless they are satisfied that the rules and any guidance of which copies are furnished with the application for approval—

(a) do not have, and are not intended or likely to have, to any significant extent the effect of restricting, distorting or preventing competition; or

(b) if they have or are intended to have that effect to any significant extent, that the effect is not greater than is necessary for the protection of investors, or for compliance with Council Directive 89/646/EEC(1).

(2) The powers conferred by subparagraph (3) shall be exercisable by the Treasury if at any time it appears to them that—

(a) any rules made or guidance issued by an Operator;

(b) any practices of an Operator; or

(c) any practices of a system-user,

have, or are intended or likely to have, to a significant extent the effect of restricting, distorting or preventing competition and that the effect is greater than is necessary for the protection of investors or for compliance with Council Directive 89/646/EEC.

(3) The powers exercisable under this paragraph are—

(a) to withdraw approval from the Operator;

(b) to direct the Operator to take specified steps for the purpose of securing that the rules, guidance or practices in question do not have the effect mentioned in subparagraph (2); or

(c) to make alterations in the rules of the Operator for that purpose.

(4) Subsections (2) to (5), (7) and (9) of section 11 of the 1986 Act shall apply in relation to the withdrawal of approval under subparagraph (3) as they apply in relation to the revocation of an order under subsection (1) of that section; and in those subsections as they so apply—

(a) any reference to a recognised organisation shall be taken to be a reference to the Operator; and

(b) any reference to members of a recognised organisation shah be taken to be a reference to system-users.

(5) The practices referred to in subparagraph (2)(b) are practices of the Operator in his capacity as such.

(6) The practices referred to in subparagraph 2(c) are practices in relation to business in respect of which system-users are subject to the rules of the Operator and which are required or contemplated by his rules or guidance or otherwise attributable to his conduct in his capacity as Operator.

Modification of paragraph I where delegation order is made

2.—(1) This paragraph applies instead of paragraph 1 where the function of approving a person as Operator has been delegated to a designated agency by virtue of regulation 11.

(2) The designated agency—

(a) shall send to the Treasury a copy of the rules and any guidance copies of which are furnished with the application for approval together with any other information supplied with or in connection with the application; and

(b) shall not grant the approval without the leave of the Treasury,

and the Treasury shall not give leave in any case in which they would (apart from the delegation of functions to a designated agency) have been precluded by paragraph 1(1) from granting approval.

(3) A designated agency shall send to the Treasury a copy of any notice received by it from an Operator under regulation 10(3).

(4) If at any time it appears to the Treasury that there are circumstances such that (apart from a delegation order) they would have been able to exercise any of the powers conferred by paragraph 1(3) they may, notwithstanding the delegation order—

(a) themselves exercise the power conferred by paragraph 1(3)(a); or

(b) direct the designated agency to exercise the power conferred by paragraph 1(3)(b) or (c) in such manner as they may specify.

(5) In this paragraph “delegation order” means an instrument in writing under regulation 11.

Reports by the Director General of Fair Trading

3.—(1) The Treasury shall before deciding—

(a) whether to refuse to grant an approval in pursuance of paragraph 1(1); or

(b) whether to refuse leave for the granting of an approval in pursuance of paragraph 2(2),

send to the Director General of Fair Trading (in this Schedule referred to as “the Director”) a copy of the rules and of any guidance which the Treasury are required to consider in making that decision together with such other information as the Treasury consider will assist in discharging his functions under subparagraph (2).

(2) The Director shall report to the Treasury whether, in his opinion, the rules and guidance copies of which are sent to him under subparagraph (1) have, or are intended or likely to have, to any significant extent the effect of restricting, distorting or preventing competition and, if so, what that effect is likely to be; and in making any decision as is mentioned in subparagraph (1) the Treasury shall have regard to the Director’s report.

(3) The Treasury shall send to the Director copies of any notice received by them under regulation 10(3) or paragraph 2(3) together with such other information as the Treasury consider will assist the Director in discharging his functions under subparagraphs (4) and (5).

(4) The Director shall keep under review—

(a) the rules, guidance and practices mentioned in paragraph 1(2); and

(b) the matters specified in the notices of which copies are sent to him under subparagraph (3),

and if at any time he is of the opinion that any such rules or guidance taken together with any such matters, have, or are intended or likely to have, to any significant extent the effect mentioned in subparagraph (2), he shall report his opinion to the Treasury stating what in his opinion that effect is or is likely to be.

(5) The Director may report to the Treasury his opinion that any such matter as is mentioned in subparagraph (4)(b) does not in his opinion have, and is not intended or likely to have, to any significant extent the effect mentioned in subparagraph (2).

(6) The Director may from time to time consider whether any such practices as are mentioned in paragraph 1(2) have, or are intended or likely to have, to any significant extent the effect mentioned in subparagraph (2) and, if so, what that effect is or is likely to be; and if he is of that opinion he shall make a report to the Treasury stating his opinion and what the effect is or is likely to be.

(7) The Treasury shall not exercise their powers under paragraph 1(3) or 2(4) except after receiving a report from the Director under subparagraph (4) or (6).

(8) The Director may, if he thinks fit, publish any report made by him under this paragraph but shall exclude from a published report, so far as practicable, any matter which relates to the affairs of a particular person (other than the person seeking approval as an Operator) the publication of which would or might in his opinion seriously and prejudicially affect the interests of that person.

Investigations by the Director General of Fair Trading

4.—(1) For the purpose of investigating any matter with a view to his consideration under paragraph 3 the Director may by a notice in writing—

(a) require any person to produce, at any time and place specified in the notice, to the Director or to any person appointed by him for the purpose, any documents which are specified 30 or described in the notice and which are documents in his custody or under his control and relating to any matter relevant to the investigation; or

(b) require any person carrying on business to furnish to the Director such information as may be specified or described in the notice, and specify the time within which, and the manner and form in which, any such information is to be furnished.

(2) A person shall not under this paragraph be required to produce any document or disclose any information which he would be entitled to refuse to produce or disclose on grounds of legal professional privilege in proceedings in the High Court or on grounds of confidentiality as between client and professional legal adviser in proceedings in the Court of Session.

(3) Subsections (6) to (8) of section 85 of the Fair Trading Act 1973(2) (enforcement provisions) shall apply in relation to a notice under this paragraph as they apply in relation to a notice under subsection (1) of that section but as if in subsection (7) of that section, for the words from “any one” to “the Commission” there were substituted “the Director”.

Exemptions from the Fair Trading Act 1973

5.—(1) For the purpose of determining whether a monopoly situation within the meaning of the Fair Trading Act 1973 exists by reason of the circumstances mentioned in section 7(1)(c) of that Act, no account shall be taken of—

(a) the rules or guidance issued by an Operator or any conduct constituting such a practice as is mentioned in paragraph 1(2); or

(b) any guidance issued by a designated agency in the exercise of its functions under these Regulations or any practices of a designated agency in the exercise of its functions under these Regulations.

(2) Where approval is withdrawn there shall be disregarded for the purpose mentioned in subparagraph (1) any such conduct as is mentioned in that subparagraph which occurred while the approval was in force.

(3) Where on a monopoly reference under section 50 or 51 of said Act of 1973 falling within section 49 of that Act the Monopolies and Mergers Commission find that a monopoly situation within the meaning of that Act exists and—

(a) that the person (or, if more than one, any of the persons) in whose favour it exists is subject to the rules of an Operator or to the requirements imposed and guidance issued by a designated agency in the exercise of functions delegated to it under regulation 11(1); or

(b) that any such person’s conduct in carrying on any business to which those rules relate is the subject of guidance issued by an Operator or designated agency; or

(c) that the person (or, if more than one, any of the persons) in whose favour the monopoly situation exists is an Operator or designated agency,

the Commission, in making their report on that reference, shall exclude from their consideration the question whether the rules, guidance or any acts or omissions of such an Operator or agency as is mentioned in subparagraph (c) in his or its capacity as such operate, or may be expected to operate, against the public interest; and section 54(3) of that Act shall apply subject to the provisions of this paragraph.

Exemptions from Restrictive Trade Practices Act 1976

6.—(1) The Restrictive Trade Practices Act 1976(3) shall not apply to any agreement for the constitution of an Operator, including any term deemed to be contained in it by virtue of section 8(2) or 16(3) of that Act.

(2) The said Act of 1976 shall not apply to any agreement the parties to which consist of or include—

(a) an Operator; or

(b) a person who is subject to the rules of an Operator,

by reason of any term the inclusion of which in the agreement is required or contemplated by the rules or guidance of the Operator.

(3) Where approval is withdrawn from an Operator the foregoing provisions shall have effect as if the Operator had continued to have approval until the end of the period of six months beginning with the day on which the withdrawal takes effect.

(4) Where an agreement ceases by virtue of this paragraph to be subject to registration—

(a) the Director shall remove from the register maintained by him under the said Act of 1976 any particulars which are entered or filed in that register in respect of the agreement; and

(b) any proceedings in respect of the agreement which are pending before the Restrictive Practices Court shall be discontinued.

(5) Where an agreement which has been exempt from registration by virtue of this paragraph ceases to be exempt in consequence of a withdrawal of approval from an Operator, the time within which particulars of the agreement are to be furnished in accordance with section 24 of, and Schedule 2 to, the said Act of 1976 shall be the period of one month beginning with the day on which the agreement ceased to be exempt from registration.

(6) Where in the case of an agreement registered under the said Act of 1976 a term ceases to fall within subparagraph (2) in consequence of the withdrawal of approval from an Operator and particulars of that term have not previously been furnished to the Director under section 24 of that Act, those particulars shall be furnished to him within the period of one month beginning with the day on which the term ceased to fall within that subparagraph.

Exemptions from Competition Act 1980

7.—(1) No course of conduct constituting any such practice as is mentioned in paragraph 1(2) shall constitute an anti-competitive practice for the purpose of the Competition Act 1980(4).

(2) Where approval is withdrawn from an Operator, there shall not be treated as an anti-competitive practice for the purposes of that Act any such course of conduct as is mentioned in subparagraph (1) which occurred while the approval was effective.

Supplementary provisions

8.—(1) Before the Treasury exercise a power under paragraph 1(3)(b) or (c), or their power to refuse leave under paragraph 2(2), or their power to give a direction under paragraph 2(4), in respect of an Operator, they shall—

(a) give written notice of their intention to do so to the Operator and take such steps (whether by publication or otherwise) as they think appropriate for bringing the notice to the attention of any other person who in their opinion is likely to be affected by the exercise of the power; and

(b) have regard to any representation made within such time as they consider reasonable by the Operator or by any such other person.

(2) A notice under subparagraph (1) shall give particulars of the manner in which the Treasury propose to exercise the power in question and state the reasons for which they propose to act; and the statement of reasons may include matters contained in any report received by them under paragraph 3.

(3) Any direction given under this Schedule shall, on the application of the person by whom it was given, be enforceable by injunction or, in Scotland, by an order for specific performance under section 45 of the Court of Session Act 1988.

(4) The fact that any rules made by an Operator have been altered by or pursuant to a direction given by the Treasury under this Schedule shall not preclude their subsequent alteration or revocation by the Operator.

(5) In determining under this Schedule whether any guidance has, or is likely to have, any particular effect the Treasury and the Director may assume that the persons to whom it is addressed will act in conformity with it.

Regulation 39(4)

SCHEDULE 3 ADAPTATIONS IN RESPECT OF NORTHERN IRELAND

Column 1	Column 2	Column 3
Reference to the 1985 Act	Provisions of these Regulations	Reference to the 1986 Order(5)
Section 182	Regulation 40(1)	Article 192
Section 183	Regulation 23(8)	Article 193
	Regulation 27(8)
	Regulation 40(2)
Section 185	Regulation 26(3)	Article 195
Section 186	Regulation 32(3)	Article 196
Section 188	Regulation 17	Article 198
	Regulation 19(6)
Section 190	Regulation 19(2)	Article 199
Section 191	Regulation 19(2)	Article 200
Section 192	Regulation 33(2)	Article 201
Section 352	Regulation 3(1)	Article 360
	Regulation 19(4)
Section 358	Regulation 22	Article 366
Section 362	Regulation 19(6)	Article 370
Section 370	Regulation 34(3)	Article 378
Section 376	Regulation 16(7)	Article 384
Section 380	Regulation 40(3)	Article 388
Section 428	Regulation 35(5)	Article 421
Section 429	Regulation 35(1)	Article 422
Section 430	Regulation 35(1)	Article 423
	Regulation 35(2)
	Regulation 35(4)
Section 430D	Regulation 35(4)	Article 423D
	Regulation 35(5)
Section 735	Regulation 3(1)	Article 3
Section 744	Regulation 3(1)	Article 2
Paragraph (2) of Schedule 14	Regulation 19(6)	Paragraph (2) of Schedule 14

(1)

The Second Council Directive on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions, and amending the First Council Directive (0.J No. L386, 30.12.89, p.1).

(2)

1973 c. 41

(3)

1976 c. 34

(4)

1980 c. 21

(5)

Article 198 was substituted by Article 65(6) of, and paragraph 6 of Schedule 4 to, the Companies (No.2) (Northern Ireland) Order 1990 (S.I. 1990/1504 (N.I.10)). Articles 421, 422 and 423 were substituted by Article 26 of the Companies (Northern Ireland) Order 1989 (S.I. 1989/204 (N.I.18)). Article 423D was inserted by Article 26 of the Companies (Northern Ireland) Order 1989 (S.I. 1989/204 (N.I.18)).