COSOB Regulation No. 03-02 of March 18, 2003, Relating to the Maintenance of Securities Custody Accounts

Decree of 18 Rajab 1424 corresponding to September 15, 2003, approving the regulation of the Commission for the Organization and Supervision of Stock Market Operations No. 03-02 of 15 Moharram 1424 corresponding to March 18, 2003, relating to the maintenance of securities custody accounts.

The Minister of Finance,

Having regard to Ordinance No. 75-59 of September 26, 1975, as amended and supplemented, establishing the Commercial Code;

Having regard to Legislative Decree No. 93-10 of 2 Dhou El Hidja 1413 corresponding to May 23, 1993, as amended and supplemented, relating to the securities exchange;

Having regard to Ordinance No. 03-11 of 27 Joumada Ethania 1424 corresponding to August 26, 2003, relating to currency and credit;

Having regard to Presidential Decree No. 03-215 of 7 Rabie El Aouel 1424 corresponding to May 9, 2003, as amended, appointing members of the Government;

Having regard to Executive Decree No. 95-54 of 15 Ramadhan 1415 corresponding to February 15, 1995, fixing the attributions of the Minister of Finance;

Having regard to Executive Decree No. 96-102 of 22 Chaoual 1416 corresponding to March 11, 1996, implementing Article 32 of Legislative Decree No. 93-10 of May 23, 1993, as amended and supplemented, relating to the securities exchange;

Decrees:

Article 1. — The regulation of the Commission for the Organization and Supervision of Stock Market Operations No. 03-02 of 15 Moharram 1424 corresponding to March 18, 2003, relating to the maintenance of securities custody accounts, is hereby approved, the text of which is annexed to this decree.

Art. 2. — This decree shall be published in the Official Journal of the People's Democratic Republic of Algeria.

Done in Algiers, on 18 Rajab 1424 corresponding to September 15, 2003.

Abdelatif BENACHENHOU.

ANNEX

COSOB Regulation No. 03-02 of 15 Moharram 1424 corresponding to March 18, 2003, relating to the maintenance of securities custody accounts.

The President of the Commission for the Organization and Supervision of Stock Market Operations (COSOB),

Having regard to Ordinance No. 75-59 of September 26, 1975, as amended and supplemented, establishing the Commercial Code;

Having regard to Law No. 90-10 of April 14, 1990, as amended and supplemented, relating to currency and credit;

Having regard to Legislative Decree No. 93-10 of May 23, 1993, as amended and supplemented, relating to the securities exchange;

Having regard to Ordinance No. 96-08 of 19 Chaâbane 1416 corresponding to January 10, 1996, relating to collective investment undertakings in securities (UCITS), (SICAVs) and (FCPs);

After adoption by the Commission for the Organization and Supervision of Stock Market Operations (COSOB) on 15 Moharram 1424 corresponding to March 18, 2003;

Enacts the regulation as follows:

Article 1. — This regulation aims to set, in accordance with the provisions of Article 19 ter of Legislative Decree No. 93-10 of May 23, 1993, as amended and supplemented, cited above, the conditions for authorization and exercise of the activity of securities custody and administration, qualified as the maintenance of custody accounts.

Art. 2. — For the purposes of this regulation, the maintenance of custody accounts consists, on the one hand, of registering securities in the name of their holder, i.e., recognizing the holder's rights over said securities, and on the other hand, of conserving the corresponding securities holdings according to modalities specific to each securities issue.

Art. 3. — The following may be authorized by the Commission for the Organization and Supervision of Stock Market Operations, hereinafter referred to as "the Commission," to exercise the activity of maintaining securities custody accounts: banks and financial institutions, as well as stock market intermediaries.

In addition to authorized custody account keepers, the following are authorized to exercise the activity of maintaining custody accounts:
— institutions authorized to perform banking operations provided for by the legislative and regulatory provisions governing them; — issuing legal entities, for the maintenance of custody accounts for the securities they issue.

Art. 4. — The modalities for executing settlement instructions and the cash coverage of orders received from clients are subject to contractual formalization between stock market intermediaries and the banking establishments with which cash accounts are opened in the name of these clients.

Art. 5. — Establishments requesting authorization as custody account keepers must, in particular:
— submit an application for authorization to the Commission; — undertake to respect the specifications cited in Article 8 below; — undertake to respect the custody account maintenance rules defined by the Commission; — designate a manager in charge of the custody account maintenance activity who holds a higher education diploma and justifies sufficient professional preparation.

Art. 6. — The authorization application cited in the preceding article is accompanied by a file whose content is fixed by an instruction from the Commission.

Art. 7. — The Commission rules on the applicant's request taking into account, in particular, its organization, its technical and financial resources, the competence and integrity of its management.
The Commission rules within a period of two months after the filing of the file. This period is suspended until receipt of the additional elements necessary for the processing of the file.
The refusal of authorization is reasoned and notified to the interested party.

Art. 8. — The means and procedures that the custody account keeper must possess constitute the "specifications for the custody account keeper." These means and procedures cover, in particular, human resources, IT, accounting, client protection mechanisms, and internal control mechanisms. The "specifications for the custody account keeper" are defined by an instruction from the Commission. The custody account keeper must be able to justify at any time compliance with these requirements.

Art. 9. — The custody account keeper accounts for the securities and cash it receives on behalf of an order-giver in accounts opened in the name of said order-giver.
Before any accounting of securities in its books, the custody account keeper establishes an account opening agreement with its order-giver.
The account opening agreement defines the operating principles of the client's securities accounts and contains the following clauses:

1. the identity of the person(s) with whom the agreement is established and signed;
   — when it is a legal entity, the modalities for informing the service provider of the name(s) of the person(s) authorized to act on behalf of said legal entity; — when it is a natural person, the identity, if applicable, of the person(s) authorized to act on behalf of said natural person;
2. the services subject to the agreement as well as the categories of securities on which the services bear;
3. the pricing of services provided by the authorized service provider;
4. the duration of validity of the agreement;
5. the confidentiality obligations incumbent on the authorized service provider, in accordance with the laws and regulations in force relating to professional secrecy;
6. the characteristics of orders likely to be addressed to the authorized service provider, their mode of transmission, as well as the content and modalities of informing the order-giver regarding the conditions of their execution;
7. the modalities according to which information is addressed to the holder, on the one hand, regarding movements affecting securities and cash appearing in their accounts, and on the other hand, a portfolio statement as well as the information provided for by the regulations in force relating to the maintenance of custody accounts.
   The account opening agreement concluded between stock market intermediaries and their clients also specifies the modalities for executing settlement instructions, the cash coverage of received orders, and the name of the banking establishment in charge of maintaining the cash account. A model of account opening agreement is defined by an instruction from the Commission.

Art. 10. — Prior to opening a securities account in the name of a natural person, the custody account keeper verifies the identity and address of this person and ensures that they have the legal capacity and the required status to perform all operations entrusted to them. Prior to opening a securities account in the name of a legal entity, the custody account keeper verifies the validity of the power of attorney held by the representative of this legal entity. To this end, it requests the production of any document allowing it to verify the representative's authorization. The securities account must mention the identification elements of the persons in whose name it was opened and any specificities affecting the exercise of their rights.

Art. 11. — The custody account keeper ensures the safekeeping and administration of the securities entrusted to it in the name of their holders. It exercises its activity with diligence and loyalty, ensuring the primacy of client interests, and respects, under all circumstances, the following obligations:

1. the custody account keeper applies all due care to the conservation of securities and ensures the strict accounting of securities and their movements in compliance with procedures in force. The custody account keeper also applies all due care to facilitate the exercise of rights attached to these securities.
2. the custody account keeper may neither use the securities registered in the account and the rights attached to them, nor transfer ownership without the express agreement of their holder. It organizes its internal procedures to guarantee that any movement affecting the conservation of securities for third-party accounts under its charge is justified by an operation regularly recorded in a holder's account.
3. the custody account keeper has the obligation to return the securities entrusted to it. If these securities have no other support than book-entry, the custody account keeper responsible for their registration transfers them to the custody account keeper designated by the holder. This transfer is effected within the shortest possible time, provided that the account holder has fulfilled their own obligations.

Art. 12. — The custody account keeper is required to inform each securities account holder as soon as possible of:
— all executions of operations and all movements affecting securities and cash registered in their name; — securities operations decided by issuing entities requiring a response from the holder; — events modifying the holder's rights on the securities held, when the custody account keeper has reason to believe that the holder is not informed; — the elements necessary for the establishment of their tax declaration.

Art. 13. — The custody account keeper issues to any securities account holder who requests it an attestation specifying the nature and number of securities registered in their account as well as the mentions recorded therein. It sends this statement periodically and at least once a year.

Art. 14. — The custody account keeper ensures that, unless a contrary legal or regulatory provision applies, any movement of securities affecting a holder's account is carried out exclusively on the instruction of the holder or their representative, or, in the case of transfer, by an authorized third party. Any operation likely to create or modify the rights of an account holder is recorded as soon as the right is established. When the operation includes a movement of cash or rights on the one hand, and a corresponding movement of securities on the other hand, these movements are accounted for concomitantly.

Art. 15. — The custody account keeper describes its accounting organization in an appropriate document.
For the recognition and monitoring of holders' rights, securities accounts are kept according to double-entry accounting rules. With regard to securities accounting, the rights attached to securities are considered as securities.
The nomenclature of securities accounts and their operating rules are described in the "specifications for the custody account keeper" referred to in Article 8 above. This nomenclature has the effect, in particular, of classifying, for control purposes, in distinct categories, the securities of UCITS, those of other clients, and those belonging to the custody account keeper.

Art. 16. — The custody account keeper may use an agent to represent it in all or part of the tasks related to its conservation activity.
When the custody account keeper, having recourse to an agent, is not an issuing legal entity mentioned in the last paragraph of Article 3 above, this agent is another authorized custody account keeper.
The conservation mandate specifies, in particular:
— the tasks entrusted to the agent;
— the responsibilities of the principal and the agent; — the procedures implemented by the principal to ensure the control of operations performed by the agent.
The agent must take the necessary measures to ensure that, in the books of the central depository or central depositories to which it adheres, the holdings of UCITS for which the principal is the depository, the holdings of other clients, and the principal's own holdings are distinguished. The custody account keeper may entrust, simultaneously with or independently of a conservation mandate, a third party to make technical means available to it.

Art. 17. — When it uses an agent or a third party mentioned in Article 16 above, the custody account keeper proceeds to the evaluation of the means and procedures implemented and the risks incurred. It keeps this evaluation at the disposal of the Commission. The responsibility of the custody account keeper vis-à-vis the securities account holder is not affected by the fact that it mandates another custody account keeper or that a third party makes technical means available to it. By way of derogation, when a custody account keeper conserves securities, issued on the basis of foreign law, for the account of an investor enjoying professional competence or particular experience in financial investment matters, it may agree on a sharing of responsibilities with this investor.

Art. 18. — The provisions of this article and the following Articles 19 to 22 apply only to book-entry securities of entities under Algerian law, when they are registered and their holder has entrusted their administration to a custody account keeper within the framework of a mandate. This intermediary accounts for the holdings corresponding to the securities registered with the issuer in individual accounts identical to those kept by the issuer. The mandate for the administration of registered securities referred to in the preceding paragraph must conform to the model defined by an instruction from the Commission. This mandate is notified by the authorized intermediary to the issuing legal entity. When the administration mandate entrusted to an authorized intermediary is terminated, the latter informs the issuing legal entity.

Art. 19. — Issuing legal entities keep separate accounting for each of the securities they have issued. This accounting records separately the registered securities whose administration has been entrusted to them and the registered securities whose administration has been entrusted to an authorized intermediary. A general journal served chronologically traces all operations concerning each of the issued securities. A general account, "issuance in registered securities," opened for each security, records on its debit all registered securities registered with the issuer. Its credit counterpart appears in the individual accounts of holders who have entrusted the administration of their securities to the issuer itself, on the one hand, who have entrusted the administration of their securities to an authorized intermediary, on the other hand, as well as in various pending registered securities accounts.

Art. 20. — The recognition, in favor of holders, of rights detached from registered securities is effected exclusively:
— with authorized custody account keepers, when it concerns registered securities whose administration has been entrusted to them.
— with issuing legal entities, when it concerns registered securities whose administration has been entrusted to them.
These rights take the form of bearer securities with authorized custody account keepers, and the form of registered securities with issuers. Regardless of the form in which they are registered, these rights circulate in the form of bearer securities.

Art. 21. — The current accounts of issuers at the central depository of the issue trace the issuer's holdings in registered securities whose administration has been entrusted to it.
The current accounts of custody account keepers at the central depository of the issue separately record the holdings of holders of securities held in bearer form and in registered form whose administration has been entrusted to them.

Art. 22. — In the event of a change of holder of registered securities administered by an authorized financial intermediary or a change in the mode of administration of the account, each concerned custody account keeper:
— establishes a schedule of the holder's registered references to be registered or deleted, and transmits it, via the central depository, to the issuing legal entity, which is responsible, once the schedule is accepted, for updating its accounting, — and, if necessary, proceeds with the agreed cash settlement and securities delivery operations.

Art. 23. — The Commission ensures, through controls, compliance with this regulation and its implementation instructions by custody account keepers. It may be assisted by the central depository of securities.

Art. 24. — The withdrawal of authorization as a custody account keeper is pronounced by the Commission:
— at the request of the establishment,
— ex officio when the establishment no longer meets the conditions of its authorization, — when it has not used its authorization within a period of twelve months, — when it has no longer exercised its activity for at least six months, — when the continuation of its activity is likely to harm the interests of its clientele.

Art. 25. — The COSOB Regulation No. 97-05 of November 25, 1997, relating to account agreements between stock market intermediaries and their clients, is repealed.

Art. 26. — This regulation shall be published in the Official Journal of the People's Democratic Republic of Algeria.

Done in Algiers, on 15 Moharram 1424 corresponding to March 18, 2003.

Ali SADMI.