A Guide to the Law of Securitisation in Australia - Clayton Utz

When Austraclear receives notification from Euroclear orClearstream that the transfer has taken place, it then credits thenominated Security Record of the lodging Member with therelevant Euroentitlements.Once the lodgement procedure has been completed, transactionsin Euroentitlements are recorded in exactly the same way as forother types of securities lodged in Austraclear. Austraclear holdsthe Euroentitlement as nominee for the relevant Owner and mustdeal with it in accordance with the Owner’s instructions.12.5.4 Dematerialised SecuritiesDematerialised Securities are created electronically and are notrepresented by a physical instrument. They are intended to beequivalent to certain classes of Paper Securities.Dematerialisation has the advantage of removing one step in thetrading transaction – that of issuing and reissuing physicalcertificates. It permits a streamlining and simplification of theissue process, leading to savings in operating time and the costsof registration.The obligations of the issuer to holders under a DematerialisedSecurity are set out entirely in the Regulations and the OperatingManual and are effective by virtue of the contract between theMembers. It follows that an issuer of a Dematerialised Securitymust be a Member of Austraclear and that a DematerialisedSecurity while in this form can be traded and held only byMembers.Regulation 8B.2 provides as follows:“(b) the records of Austraclear prove the terms and the executionof a Dematerialised Security in the same way and with thesame effect as the Equivalent Paper Security;(c) the rights and obligations of a person who is deemed to bethe issuer, drawer, maker, acceptor, indorser or holder of aDematerialised Security are to be equivalent to those towhich that person would be entitled or subject if it were theissuer, drawer, maker, acceptor, indorser or holder (as thecase may be) of an Equivalent Paper Security,notwithstanding that the relevant rights and obligations havenot been embodied in a document which satisfies therequirements for formal validity of the Equivalent PaperSecurity.”In addition, under regulation 8B.2(e) each Member andParticipating Bank is estopped from asserting that the rights ofthe holder of a Dematerialised Security differ from those theholder would have if it held the Equivalent Paper Security.Lodgement and titleThe process for creating and lodging a Dematerialised Security iscontained in paragraph 8A.1 of the Operating Manual. In short, aMember enters into the system electronically all of the essentialqualities of the Dematerialised Security, such as the details of itscorresponding Equivalent Paper Security, its issue and maturitydates, the face value, the drawer, the acceptor/issuer or maker,the payee, the place at which it is payable and so forth. Once theDematerialised Security is accepted for lodgement, it becomes avalid debt security in accordance with its terms.Dematerialised Securities are intended to be equivalent in allrespects to their Equivalent Paper Securities. However, whilethey are in electronic form, the provisions of the Bills of ExchangeAct cannot apply to them. The Regulations seek, though, toreplicate the position.This is achieved, indirectly, through regulation 8B.2(c) (see above)which confers in respect of a Dematerialised Security all thequalities applying to its Equivalent Paper Security. These include,presumably, those under the Bills of Exchange Act. In thisrespect, perhaps the most interesting aspect is the attempt bythe Regulations to replicate the benefits of a holder in duecourse under the Bills of Exchange Act.Regulation 8B.1 provides that “the owner of a LodgedDematerialised Security has good title to it if the Member hastaken that Dematerialised Security in good faith for value andwithout notice at the time of taking title of any defect in the titleof its immediate predecessor in title.” In addition, regulation8B.2(f) provides:“where a Member acquires a Dematerialised Security by transferto the Member’s Security Record in good faith, for value andwithout notice of any defect in the title of the transferor ... theMember acquiring the Dematerialised Security will have rights inrelation to its equivalent to those of a holder in due course of theEquivalent Paper Securities and will accordingly acquire a title tothat Dematerialised Security which is free of equities.”Regulations 8B.1 and 8B.2 are binding on the Members. As suchthe Regulations should be effective in determining any disputesamongst them regarding the title to a Dematerialised Securityand for curing any defects to a Member’s title.68