Transferring Dematerialized Shares in Germany, Austria and in the United States of America

The present article is aimed at briefly reviewing the historical development of dematerialized shares in Germany, Austria, and in the United States of America (the USA). A brief comparison is made between the dematerialized shares in the United Kingdom and those in Germany and Austria. Discussed is the reason why the securities certificates in Germany and Austria were removed from the transferring process by taking them out of circulation (immobilization), and not through abolishing them (dematerialization). Presented is the development of the most active and liquid capital market in the world—that of the United States Department of the Treasury. There is a brief description made of the System of the conventional paper certificates and the system of the dematerialized securities known as direct holding system, as well as of the System for immobilization and possessing through intermediaries, known as indirect holding system. In conclusion, there is a short presentation of the currently valid legal status unrelated to transferring dematerialized shares in the three countries.

reflects the fact that the document related to a security epitomizes a valuable right. The term is aimed at reflecting also the theory, which lays the foundations of both German and Austrian securities, i.e., that the rights concerned by the securities certificate and the certificate itself merge and become one single tangible asset. As a result of that, securities, their transferring and the indirect ownership over securities are all subject to the rules regulating the tangible assets.
The analysis adopted by contemporary German and Austrian law appeared somewhat later after securities were used for the first time.
The securities depositories in Germany and Austria emerged as the prevailing type of service provider, which was of assistance to the clients wishing to own securities indirectly. The rules concerning the securities and their transferring-in particular, the rule protecting a buyer from counter claims-fostered the development of this type of service provider on the German and Austrian markets.
The fact that the securities were governed by the rules concerning the tangible assets encouraged Germany and Austria to abolish the paper form from the transferring process through immobilization, and not through dematerialization.
In order to facilitate the indirect holding of securities, German and Austrian law elaborated a complex doctrine for joint ownership and co-ownership. That particular form of analysis of the doctrine emerged both in Germany and in Austria because securities were classified as tangible moveable property. This legal analysis provided the regulatory framework where the securities market and the legal regulations supporting it developed. The analysis influenced the way in which the paper form was eliminated from the transferring process, nevertheless Germany had introduced an alternative system for transferring government bonds, which could have been used as a model for creating a transferring system without using a paper carrier (Note 2).

Indirect Holding
The German and Austrian legaldoctrineinrespecttosecuritiesinfluencedthetypeofserviceprovider, which emerged on the German and Austrian markets in order to serve investors, who wanted to own shares indirectly. The process, where by the paper certificates were eliminated from the transferring process, was formed by the legal doctrinal framework, which directly regulated the owned securities.
The fact that the German and Austrian bearer securities were classified as tangible assets brought the advantage that the German and Austrian rules concerning assignment were no longer applied for transferring. Transferring, instead, was subjected to the rules, identical to those regulating the tangible assets. As result of that, the acquirer was protected against counter claims. The legal doctrine, where the purchaser of securities is offered protection against counter claims, had a huge impact on the development of the institutional framework, prevailing in Germany and Austria.
The bona fide acquirer becomes owner upon acquiring tenancy over the securities. That rule had a substantial influence on the way in which investors held securities certificates in Germany and Austria.
Unlike England, where the securities certificates did not need to be deposited in custody, because the owners would not lose their rights if those certificates were stolen and then transferred to a third party, www.scholink.org/ojs/index.php/ape Advances in Politics and Economics Vol. 4, No. 3, 2021 any investor under the German and Austrian law had to keep the securities certificates out of circulation, so that a third-party would not be allowed to acquire tenancy over them, and, subsequently-ownership over the bearer securities.
The paper certificates should be kept in a safe place, and that need of depositing in custody facilitated an important development in Germany and Austria. It created a demand for depository services, and that demand was met by the German and Austrian banks, which developed the activity of depositing securities in custody for investors as a separate branch of its commercial activities.
Instead of renting out deposit boxes or safe deposit boxes to individual investors, banks initially took the securities certificates and kept them in custody for the respective clients. The banks kept separate files for every client; the paper documents were not physically held by the investors, nevertheless, they were distributed for each of them. The German and Austrian depository services for securities are an example how a doctrine can foster the emergence of certain types of infrastructure providers. Similarly, just like the English law on notation facilitated the advent of registrars in England, the German and Austrian doctrine, protecting buyers against counter claims, favored the emergence of depositories in those countries (Note 3).
The German and Austrian rules, safe guarding buyers against counter demands, issuing from unlawful transferring, prompted the need for investors to prevent any disappearance of their documents. That led to a demand for depository services on the German and Austrian markets. That demand was met by the German and Austrian banks, which elaborated specialized depository services. The doctrinal framework, regulating the paper transferring of securities, influenced the way in which the paper certificates were removed from the transferring in Germany and Austria. The legal doctrine, which provides the ground for securities in both jurisdictions, is based on the normative presumption that the special rules regulating securities transferring are applied because securities are tangible assets. Hence, thelegalexpertsdrewtheconclusionthatifsecuritieswerenotclassifiedas tangible, those specific rules could not be applied. Securities transferring, instead, should have been governed by the laws for assignment.
In order to prevent that, it was possible to elaborate as pecialegime, which was to be applied for securities transferring, nevertheless how they were classified. Besides, it would have been possible both for the German and Austrian law to refer to the rules, which had existed for the government bonds, for which there were no paper certificates.
That option, however, was not the preferred done. The securities certificates, instead, were eliminated from the transferring process by taking them out of circulation (immobilization), and not through abolishing them (dematerialization). The prevailing point of view was that it was essentially important that the legal analys is governing the paper certificates be further applied, even though in an environment, where paper certificates no longer fulfilled their original function for transferring the rights embodied in them. As are setoff that, the German and Austrian markets introduced the central securities depositories (Note 4).
Unlike England, which chose transferring dematerialized securities, Germany and Austria preferred change in the German legal terminology. Prior to the reform, the share registry was called "the book ofs hares" (Aktienbuch). This term was abandoned in the reform process and was replaced by the term "registry of shares" (Aktienregister). The explanatory notes to the revised legislative act explicitly state that this terminology was chosen to reflect more accurately the English term for a "registered share". The German settlement system helped the German companies in the transition from bearer shares to registered shares by introducing an optional lowing the small-scale investors to list their names in the share registry, nevertheless whether they own those shares through a chain of intermediaries or not.
That development is an example of convergence (alignment). German law has changed to a ling with the prevailing international standard to enable the German issuers be competitive on the global market.
It should be pointed out that there form did not change the already existing legal doctrine. The bearer shares were replaced by registered shares to ensure compliance with the American market practice. The share registry was renamed so that it should reflect the English language use. None of those changes, however, had an impact on the doctrinal analysis of share transferring.

Direct and Indirect Holding Systems
The system for immobilization and possessing through intermediaries does not entirely replace the system of dematerialized securities, and none of those systems does entirely replace the system of direct holding and the provision of conventional certificates on paper. Article 8 of the UCC contains the legal regulations for all the three systems. The system of the conventional paper certificates and the system of the dematerialized securities are known as direct holding system. The system for immobilization and possessing through intermediaries is known as indirect holding system.
With the direct holding system, each investor is registered as an owner of the security in the issuer's registries, which are often kept by a transferring agent. This can be illustrated by Figure 1.

Figure 1. Direct Holding System
With the indirect holding system, most of the investors have no direct connection and do not communicate directly with the issuer, but they own their investment through intermediaries. The indirect holding system is not entirely independent from the direct holding system: in the case with the securities. The legal entity, which is at the top of the indirect holding chain, communicates with the issuer from the direct holding system. The relation between the two systems, as well as the relationships within the indirect holding system, can be illustrated by Figure 2. -asset management, including services related to depositing securities and services related to dividend payment.
The securities (or other financial assets) are shares from the capital of a corporation, where investor 1 has their Ghtofcollateral for those shares, credited in to his/her securities account kept with broker 1.
Broker 1, in turn, is in the same relationship with the DTC, which is the registered owner of the shares in the books of the computer corporation.

Scope of the Two Systems
The direct holding system is applied only for securities, while the indirect holding system has a wider application and comprises securities as well as other financial assets. The definition for a security, www.scholink.org/ojs/index.php/ape Advances in Politics and Economics Vol. 4, No. 3, 2021 presented in § 8-102 of the UUC supported by § 8-103 of the UCC differs substantially from the security definition used in the federal securities acts.
It is important to quote part of the provision of § 8-102, namely §8-102 (1) of the UCC, directly concerning the above discussed question: A materialized security, "means an obligation of an issuer or a share, participation, or other interest in an issuer or in property or an enterprise of an issuer: which is represented by a security certificate in bearer or registered form, or the transfer of which may be registered upon books maintained for that purpose by or on behalf of the issuer; which is one of a class or series or by its terms is divisible into a class or series of shares, participations, interests, or obligations; and which: is, or is of a type, dealt in or traded on securities exchanges or securities markets; or is a medium for investment".
"Un certificated (dematerialized) security" means a share, participation or another other interesting an issuer or in property or an enterprise of an issuer, or an obligation of an issuer, which is not represented by a security certificate, where thetransferofwhichshallberegistereduponbooksmaintainedforthatpurposebyoronbehalfoftheissuer; which is one of a class or series or by its terms is divisible into a class or series of shares, participations, interests, or obligations; and which: is, or is of a type, dealt in or traded on securities exchanges or securities markets; which is one of a class or series or by its terms is divisible into a class or series of shares, participations, interests, or obligations.
"A security" may be materialized or dematerialized. If it is materialized, the terms "security" and "materialized security" may mean either an intangible interest, or the document representing that interest, or both, as required by the context. The present article, and not article 3 regulates the written document, which is a materialized security, nevertheless, the document in question meets the requirements of the latter article as well. The present article does not concern money. If a security is detained by or delivered to an issuer or his/her transferring agent due to reasons other than registering of transferring, another temporary purpose, payment, replace mentor acquisition by an issuer, such as security shall be treated as a dematerialized security for the purposes of the present article.
A materialized security is in a "registered from" if it nominates person, who is entitled to the security or to the rights it represents and its transferring may be registered upon books maintained for that purpose by or on behalf of the issuer, or if that is specified in the security.
A materialized security is in a "bearer from" if it belongs to the bearer according to its terms, but not by reason of an additionally registered endorsement.

Summary
The individual share holders in the USA certify their ownership right in a business company through the shares acquired by them from its capital. The ordinary share capital lentitlestheholdertotakepartinthecompanycontrolhavingrighttoonevote for each share listed in the registry, as well as to an interest in the profits in the form of dividends and to participate in the Theshareholderscankeeptheirpercentageofvotescontrollingwhetherthecompanyshallemitanyadditionala mountsofsharesfromitscapitalbyexercisingtheirrighttopreferentialbuyout. They are entitled to prosecute a claim on behalf of the company for damages incurred upon it if, at a request by them, the company refuses to do so (Note 9).