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possibly conflicting entries on the register. It would certainly have been easier to abolish company registers altogether and to have both certificated and uncertificated shares administered by CREST. CRESTCo should, it seems, be able to provide a service through which it converts uncertificated into certificated securities and issues paper certificates for those securities holders who prefer to hold their entitlements in a certificated form. CRESTCo should also be able to put in place the infrastructure necessary to have the shareholder register available for inspection.

It is possible to explain this continuation of decentralised registers by a desire not to interfere with the incumbent English market infrastructure. A transfer to CRESTCo of all the functions related to registered securities would have had considerable impact on the branch of the financial services industry which keeps registers on behalf of issuers and it seems likely that this delayed reform for the time being. There may, however, occur further steps of reform in the future that will increase the functions performed by CRESTCo and reduce the relevance of the services provided by registrars.

This leads to an important insight into the nature of the influence exercised by providers of market infrastructure. They are able to slow down the pace at which law reform is carried out but market infrastructure providers and the lawyers advising them are themselves limited by the legal doctrines in place in a particular legal system when law reform is carried out. They are not in a position to promote law reform that is not supported by the existing legal doctrine of a particular jurisdiction.

3.4.3 Legal title

The 2001 reform changed the rules governing the acquisition of legal title, a change which provides us with evidence of both convergence and path-dependence. The background of the 2001 reform, and the results achieved, show that convergence can occur even in an area of the law which is notoriously parochial. The way in which convergence was effected is, however, an example of path-dependent legal development. The background of the reform and its results will be discussed first.

USR 2001 goes back to a consultative paper published by the Bank of England in March 1998.44 In the paper, the Bank sought the views of

44Securities Settlement Priorities Review (March 1998), available at http:\\www.bankofengland. co.uk.

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market participants and other interested parties on the future of securities settlement systems in the UK. The responses to the paper were published in September of that year.45

One of the conclusions of the consultation process was that market participants felt that the London settlement system should comply with international settlement standards. The CREST system was criticised because it did not comply with the standards put forward by the Bank for International Settlements (BIS) and the European Central Bank (ECB). The BIS published a report in 1992 on securities settlement systems in which it identified settlement risks and analysed the functioning of the systems then operative.46 The report emphasised that the payment of the purchase price and the delivery of securities should be as closely as possible linked to each other.47 The report defined delivery of securities as the final transfer of securities:48 in an ideal world, the buyer would become the owner of securities at the same time as the seller received the purchase money. In a report published in November 1997, the European Monetary Institute (EMI), the predecessor of the ECB, further developed the BIS principles. It identified nine criteria for assessing the quality of securities settlement systems that go beyond the BIS recommendations.49

CREST was designed to approach the BIS principles by means of a specific delivery versus payment mechanism. But the 1995 CREST mechanism did not fully achieve the delivery versus payment ideal; moreover, CREST did not fully comply with the upgraded standards issued by the EMI after CREST had been implemented. One of the deficiencies was that the final transfer (that is, the acquisition of legal title by the buyer) depended upon the issuer receiving the CREST instruction and registering the buyer’s name. The conclusion of the consultation process carried out by the Bank of England was that this deficiency should be eliminated.50

45Securities Settlement Priorities Review (September 1998), available at http:\\www. bankofengland.co.uk.

46Committee on Payment and Settlement Systems (CPSS) of the Central Banks of the Group of Ten Countries, Delivery Versus Payment in Securities Settlement Systems, CPSS Publications 6 (Basle: Bank for International Settlements 1992).

47See the summary of the report at 1–9. 48 At A2–3.

49Standards for the Use of EU Securities Settlement Systems in ESCB Credit Operations (Frankfurt am Main: Bank for International Settlements 1997); see also ECB, Assessment of EU Securities Settlement Systems Against the Standards for their Use in ESCB Credit Operations

(Frankfurt am Main: Bank for International Settlements 1998).

50Securities Settlement Priorities Review (September 1998), para. 69.

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The 2001 reforms are an example of convergence. The legislature intervened to make the English settlement system comply with international rules perceived by market participants to reflect best practice. English law was changed to converge with common international rules.

The method through which the reform was achieved is consistent with the path adopted by English law. The easiest way to bring forward the point in time at which the transferee acquires legal ownership would, of course, have been the adoption of a rule expressly stating that legal title vests in the transferee upon amendment of the Operator’s records. This, however, did not happen. The reform process had to work around a notorious pathimmanent obstacle. The English Parliament finds it very difficult to make time for legislation in the area of commercial law; it can be assumed that the forces driving the 2001 reform process felt that there was a fairly low chance that Parliament would be able to make time to adopt legislation legislation introducing a new rule on legal title on uncertificated securities. To be able to respond to market demands in a timely fashion, the authorities preferred to implement the reform through a statutory instrument (SI). This meant that the reform was effected in an indirect way.

The scope of an SI is, of course, determined by the provision enabling the relevant authority to act. The legal basis that was available for the 2001 reform was, unfortunately, limited. It did not seem to contain vires for interfering with the common law.

USR 2001 was adopted under CA 1989, s. 207. This provision gives authority to ‘The Secretary of State . . . [to] . . . make provision by regulations for enabling title to securities to be evidenced and transferred without a written instrument’. The regulations may make provision for procedures for recording and transferring title to securities, and for the regulation of those procedures and the persons responsible for or involved in their operation.51 CA 1989, s. 207 seems to give power to the Secretary of State only to reform transfer procedure and does not contain a power to change substantive property law.

USR 2001 does not directly interfere with the common law rules; the common law position continues to be that legal title vests in the transferee when her name is entered on the register of securities holders.52 USR 2001 changes only the legal significance of the records kept by CREST, by transforming them into the register of uncertificated

51CA 1989, s. 207 (2).

52CA 1985, s. 22; J. Sainsbury plc v. O’Connor (Inspector of Taxes) [1991] 1 WLR 963 at 977 (CA); Re Rose, Rose v. Inland Revenue Commissioners [1952] 1 Ch 499, at 518–519 (CA).

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securities. This has the desired effect on the point in time at which the transferee acquires legal title to uncertificated securities. Because the legally significant records of uncertificated securities are now maintained by CREST, legal title to uncertificated securities vests in the transferee upon amendment of the CREST records.

Working within the framework determined by the common law, the CREST records are classified as a shareholder register. The legal qualification of these records, but also the fact that, as already mentioned, the central CREST register is organised by issuer and not according to investors, is a function of the legal rules that were in place when the reform process was carried out. New law needs to fit with existing rules: even if the declared aim of new rules is to achieve convergence, this can be effected only by a reform that stays within the path adopted by the legal system concerned.53

3.4.4 Equitable title

Consistently with the legal doctrine prevailing in England, ownership in equity continues to play a role under USR 2001. Like USR 1995, USR 2001 does not abolish the equitable rules on ownership that developed in relation to paper transfers. USR 2001 also continues to have an explicit rule that refers to instances in which equitable ownership arises when uncertificated securities are transferred through CREST. Notwithstanding this, the practical role of equitable ownership has been further reduced under the new regime.

USR 2001 brought forward the point in time at which the buyer acquires legal ownership to uncertificated securities. The buyer of uncertificated shares, for example, now becomes the legal owner of those shares when the shares are credited to her CREST account. Under the rules implemented by USR 1995, equitable title would pass to the buyer at that point in time and legal title would not pass to the buyer until the register maintained by or on behalf of the issuer had been updated. To comply with international best practice, the rules were changed by USR 2001: the CREST records now constitute the shareholder register of uncertificated shares and the transferee acquires legal title when the CREST accounts are amended.

Equitable ownership now arises only as a result of the express provision in USR 2001 when securities are converted from the uncertificated to the certificated form. When uncertificated securities are transferred

53 See also pp. 74–75.