Both the development of Latin American capital markets as an effective investment alternative and the value of securities traded in such markets as collateral in global market transactions depend on the existence of clear and precise rules reflecting current practices in leading financial markets in the United States and Europe. Preliminary research undertaken by the Center and by members of a group of legal practitioners from throughout the Americas indicates that existing law in Latin America and the Caribbean is ill equipped to handle transactional aspects such as: a) the creation, holding, transfer and extinction of entitlements in investment securities other than by their “original” or “historical” owners; b) the creation of security interests in entitlements (as contrasted with rights of ownership), as well as rules related to priority, reduced formalities, proceeds and substitution; c) the legal status of and rights and duties created by clearing corporations, intermediaries, entitlement holders and issuers; d) the insolvency of debtors holding entitlement rights in investment securities, as well as of intermediaries; and e) choice of law rules applicable to cross-border transactions.

A worldwide movement is underway to harmonize and modernize commercial laws that govern the ownership, transfer and pledge of investment securities. To the extent that laws and practices deviate from international standards and electronic methods for the investment securities business, the country in question as well as its debtors, creditors, investors and underwriters are denied access to international sources of liquidity. A drafting effort has been undertaken by the United States Department of State, the Center (including Center president and executive director Boris Kozolchyk, research director Mariana Silveira, and research attorney Marek Dubovec), the Securities and Exchange Commission, the Federal Reserve Bank of New York, the Depository Trust and Clearing Corporation and a number of private sector companies and law firms. The ultimate purpose of this effort is the adoption of a Model Law or Convention concerning the creation, transfer, pledge and extinction of rights in investment securities in Latin America and the Caribbean.