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SECURITIES AND ITS THEORETIC LEGAL FORMULATION NOT ONLY IN THE CONDITIONS OF THE SLOVAK REPUBLIC

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19th International Scientific Conference on Economic and Social Development
Melbourne, Australia, 9-10 February 2017
182
SECURITIES AND ITS THEORETIC LEGAL FORMULATION NOT
ONLY IN THE CONDITIONS OF THE SLOVAK REPUBLIC
Alexandra Mittelman
Comenius University in Bratislava, Faculty of management, Slovak Republic
alexandra.mittelman@fm.uniba.sk
Boris Mucha
Bratislava region, Slovak Republic
boris.mucha@gmail.com
Tomas Peracek
Comenius University in Bratislava, Faculty of management, Slovak Republic
tomas.peracek@fm.uniba.sk
ABSTRACT
In the most general meaning of the word, security is an instrument that embodies certain right
of the owner against the drawer of this document. The long historical development contributed
to this generalization, beginning with the era of the reign of Alexander the Great in the 4th
century BC, while some authors speak even about the eras of the Babel Empire. In the majority
of European states with the exception of Switzerland, floatation of securities or contracts is not
amended not even in one Act. The same situation was also in the era of the first Czechoslovak
Republic, where from the reason of excessive fractionalism of the particular adjustments of
securities and further, with regard to the financial market needs, the intention to create legal
enactment arose after 1989 in the form of codex, that would eliminate this defect. Theoretic
legal research of the issue of securities not only in the conditions of the Slovak Republic
presents the main aim of this paper, that with its content focus interferes in the area of financial
management, however it leads to the area of financial law and it offers significant overlaps into
commercial and constitutional law. The paper has effects of multidisciplinary and international
research of the issue of securities whose concept and legal enactment remains in the legal
environment to a large extent unfinished after years of professional and amateur discussions.
Keywords: Act on securities, financial management, security
1. INTRODUCTION HISTORICAL DISCURSION
In the most general meaning of the word, security is an instrument that embodies certain right
of the owner against the drawer of this document. The long historical development contributed
to this generalization, beginning with the era of the reign of Alexander the Great in the 4th
century BC, while some authors speak even about the eras of the Babel Empire. (Van de
Mieroop,2010, p. 103). As soon as that time, first documents started to exist that were similar
to securities, with which debtors confirmed their liabilities to their creditors. In the era of
Roman Empire there was not enough attention paid to the legal economic institute of
securities and moreover it was being degraded and damaged by the classic Roman law despite
the fact that ancient Rome had its commerce developed significantly and it was mediated by
bankers who, because of savings of payments, created the chain of remittances. However, the
problem appeared. The liability to pay persons not named originally in the sense of the modern
additional clause of meeting liability of owner of security to person not listed in document
(additional clause on the holder of bearer securities) could not have developed in the money
1927, p. 8). According to this, it was possible to conclude a contract with definite person
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whereby contracts concluded between the indefinite persons or for the benefit of the third
person were void contracts. Despite of this restriction of the legal regulation, there is knowledge
about the handing out orders known as tesserea
which the owner got either money or perquisities. They could even be used as the tickets to
attributio
perskriptio f roman bankers based on
the fact that wealthy people vested their money to bankers to administer it and they got money
for it. Bonds were known already in the era before Christ in the Jewish nation, Talmud even
contained certain practical cases of its usage.
In Middle Ages, known as lag period, the roman legal institutes were sinking into obscurity
mainly from the reason of its deep formality and strictness. It was substituted by simpler
instruments certifying legal right. It was mainly the issue of letters of credit, by means of which
the ruling class gained resources necessary for conducting wars, mainly crusades. They were
so called General letters of credit (bonds), whereby it was partial bond where the
Establishment, i.e. monarch or aristocracy divided certain necessary amount into smaller
amounts, which were after collected from their lieges resp. other persons, mainly bankers. At
the same time, they were obliged to pay these loans after certain period of time and to pay the
creditor regular interest till the maturity. It is possible to mention the letters issued by the
English King in 1199, then the letters issued with the connection to crusades that were led by
lek,
1990, p. 7) as the examples of these letters of credit.
As the professional literature states, in general, bills of exchange used in the north-italian Town
Republics were considered in strict sense of the term, the first securities. The commerce with
bills of exchange began at the meetings of tradesmen in 12th and 13th century in Milan, Genoa
and Florence. These meetings of tradesmen took place around factories of italian tradesmen
mainly in the vicinity of italian consular houses. Places where this trade took place were not in
that time called stock markets but loggiems ( ) The ancestors of bills of
exchange can be found except of the Middle East also in China, where in 8th century BC, under
dynasty Tang rule, the special tools so called ''feitsyn'' were used for the safe transfer of money
for long distances. Later, arab tradesmen used as the papers for money transfer instruments
(ancestors of bills of exchange) called
tradesmen began to use similar financial instruments in 12th century , that brought along its
subsequent growth and they gained the main features of the current appearance of bills of
exchange. The next stage of its development was connected to France and Netherlands in 16th
to 18th century, when the endorsement appeared. The popularity of bills of exchange and its
relationships was connected also to the fact that bill of exchange was from its start able to fulfill
more functions. As the tool of payment method, it enabled the payment of without the risk of
cash transfer to distant places as well as it provided the possibility of credit settlement.
The developing commerce and increasing living standard of citizens meant also the
development of securities which interfered more and more with the ordinary life of citizens.
Under the government of Napoleon III, Act on loans preferred by the Caesar, influenced the
common citizen life, which should have solved the unstable necessity of industrial society for
financial resources.
By this step, the state helped itself by means of issuing bonds and big capital trade companies
emitted stocks and premissory notes. However, they did not look on the necessities and interests
of third state or agriculturists, who missed more and more credit and insurance law. Agriculture
must have adapted after the revolutionery agricultural reform and after the abolishing of
landlordry and cooperative economy to capital intensive and income demanding economy what
was not possible without foreign capital and loans. The basis of liability could have been only
land ownership, what required the adjustment of loan and morgage conditions. Citizens, who
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wanted to invest safely and profitably, needed securities that could be transfered and be
profitable. More and more people wanted to secure their retirement. In that time, the possibility
''to be a rentier from the profit of their own capital'' was an ideal to secure their retirement.
(Urfus, 1994, p. 129).
The youngest and so far not finished impulse for the development of securities became the
posssibility of its dematerialization (removal of its own material substratum) i.e. the letter that
was for long-term untouchable. We can see its removal right with the connection to solving the
sensitive cases, where security was destroyed, lost or stolen. As far back as 19th century, french
law used the analog intitute of amortization of security , where because of the uprising of
communards, the significant part of securities in the given country was destroyed in the
dematerialized securities in the mass measure came with the development and mass arrival of
information technology.
2. THEORETIC LEGAL DEFINITION OF FORMULATION
The theory of law was not discussed for long decades in Czechoslovakia and consequently in
Slovakia, because the economic meaning of securities was negligible in the conditions of the
centrally planned economy and there was no interest to deal with this problematics not even in
the field of juridical science. Except of Act no. 191/1950 of Journal of Laws, there was no legal
regulation of this issue.
Till the entry into the force of the Act of Federal Assembly of Czech and Slovak Federal
Republic no. 600/1992 of Journal of Laws on securities, the legal definition of this expression
did not exist in the conditions of the mentioned countries. The Civil Procedure Code according
to which ''it is posible to amortize lost or destroyed letter, which has to be presented for the
was the first to define this expression. However,
from this articulation of law, it did not result unambiguously that letters have at the same time
the status of securities. However, the Slovak Republic was not by no means unique by the
absence of the adjustment of this formulation because the majority of european countries left
this formulation to theory of law as well to Court's case-law, e.g. in the english law it is not
valid even that securities are those subjects of legal relationships, that are provided by law, but
the determination what is security is highly left to judicial practice. (Kasinec, 2011, pp. 115-
127)
Czech legal theory, when trying to define this expression, focused on the german legal
theoretician H. Brunner, who, as the first one who systematically summarized single types of
securities used in commercial environment to the single category and separated them from other
letters, that had legal meaning. The result of his performance is the formulation of the first
definition of security in 1882, according to what security is a letter about private right whose
application is private legal and it is dependent on understanding the letter. Its standing in german
law persists till now. As H. Brox states in the Commercial law and Securities' law, ''security is
the letter with which the private right is secured by the way that . the holding of the letter is
necessary for the law to be applicable. (Brox, 1983, p. 222))
This definition is similar in the swiss law which in Clause of the Article 965 of the Swiss
obligation Act from 1911 states that security is the letter , which the right is connected to in that
way that it can not be applicable or transferred without this letter. Supreme Court tried to define
this expression in 1940, that in its sentence stated, that securities are those letters which are the
condition of creation, transfer, execution or duration of right where are those letters exposed
and by this they are different from the accompanying (legitimate) letters, which are the evidence
about the right, however they are not carriers of right and they have only the formal legal
meaning for law. (Kasinec, 2013, pp. 9-35).
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However, these traditional definitions were not possible to apply for book-entry securities
where the certificated form is substituted by the registration into the certain record. However,
Elek regarded the lega
possible to apply for certificated as well as book-entry securities. According to them security is
the written expression of will (script act), with which subjective law is connected to by the way
that the disposition with this law is possible only together with the disposition of script act.
Supreme Court of USA understands this expression completely differently and extensively. It
keeps the opinion that ''security is every invesment contract on the basis of which , certain
person invests their financial resources to the common business and they are led by the
expectation of profit exclusively on the basis of endeavour of the certain businessmanor the
third person. From the above, it results that the understanding of security in the american law,
in contrast to central european legal cultures, the way of applying or transfer of the right is not
decisive but the content of legal right established by security is. The basis of security is in this
sense investment contract and the expression security rather accords with the expression
investment. It is necessary to say that whatever conparison of the slovak, resp. european
understanding of the expression security is, with its understanding in english or american law
it is quite problematic with regards to the completely different development of these legal
cultures. (Kasinec, 2011, pp. 312 -320)
3. CZECHOSLOVAK, RESP. CZECH LEGAL REGULATION OF SECURITIES
AFTER 1989.
In the majority of the european states with the exception of Switzerland, the issue of securities
or contracts is not regulated not even in one act. The same situation was in the era of the first
Czechoslovak Republic, when, from the reason of the extensive difference of regulations of
securities, and moreover regarding the necessities of financial market, the intent to create legal
enactment in the form of codex arose, which would have removed this defect.
The first endeavour of the common legislator Federal Assembly of Czech and Slovak Federal
Republic was the approval of Act no.600/1992 of Journal of Laws, that was effective in the
Slovak Republic as late as 31.12. 2002. Other, more problematic situation was in the Czech
Republic, where Czech National Council also approved at the end of 1992 the act on securities
published in Journal of Laws with no. 591/1992, that became effective on 1.1. 1993. Except of
the different determination of competence of the Republic and federal organs, there were only
two legal enactments with the same content and it was necessary to equal legally with the
existence of the same legal enactments. The convenient solution that was accepted by the theory
Constitution Act of Czech National Council no. 4/1993 of Journal of Laws on measurements
connected to the extinction of Czech and Slovak Federal Republic from 15.12 1992. As the
Article I from this constitutional act states, the legal enactments remain valid in the day of
extinction of Czech and Slovak Federal Republic, in the area of Czech Republic, however,
according to the enactment of the Article II that solves the collision of the Republic and federal
legal enactments, the preference is on the Republic legal ena
made the conclusion that was accepted also by the legal practice, what meant the necessity to
follow the Act FA CSFR no.591/1992 of Journal of Laws on securities, whereas the Act FA
CSFR no. 600/1992 of Journal of Laws could not have been applied in Czech Republic as the
valid act. The faith of federal Act was finally sealed by the approval of the Act no.152/1996 of
Journal of Laws, which changes and amends the Act of Czech National Council on securities
whose Article IV cancelled federal legal enactment and by this the issues above mentioned were
-99)
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The new czech Civil Code, that entered into force on 01.01. 2014 cancelled the Act of Czech
National Council 591/1992 of Journal of Laws and implemented into the legal order of Czech
Republic the legal definition of security, that states that security is a letter which is law
connected with in the way that after issuing of security it is not possible to apply it without this
letter, not transfer it. On the first sight it appears here as the czech legislator after the years of
preparation forgot that also book-entry form of security exists. The stated enactmnet comes out
from the Article 965 of Swiss Act on obligation law, from which other legal enactments come
out, mainly italian or polish ones
4. THE SLOVAK LEGAL ENACTMENT AFTER 1993
The legal order of the Slovak Republic left the federal legal regulation as the part od the slovak
legal order as it was not in conflict with the clause of the Article 152 part 1 of the Constitution
of the Slovak Republic, according to which constitutional acts, acts and other generally binding
legislative acts remain valid in the Slovak Republic if they are not in conflict with the
Constitution. They can be changed or cancelled by the competent authorities of the Slovak
Republic.' The Act no. 600/1992 of Journal of Laws on securities regulated generally legal
status of securities, securities traders, stock exchange as well as the conditions of securities
public negotiability. It has been amended 12 times during its effectiveness.
Regarding the proposed range of changes in the regulation of performance and status of traders,
stock exchange and other subjects of the capital market of the Slovak Republic as well as with
the implementation of other institutions (guarantee fund of investments, state supervision on
the consolidation basis), it was substituted by the Act no.566/2001 of Journal of Laws under
the new name -103)
to which security is the listing valuable by money in the form appointed by law and with which
the rights are connected according to this law and the rights according to the special laws,
mainly the authorization to require certain property rights or to execute certain rights against
the persons legally determined. There are three basic characters of security that come out from
this legal definition and they are:
1. security is the listing that is valued by money,
2. security owner has the right to require certain either financial or property rights,
3. the right connected to the listing has to have legal form.
The following clause 2 of the Act on securities also names enumeratively particular types of
securities.
5. CONCLUSION
If we came out from the basic expression of security, it would be possible to say that the first
characteristic mark is the material substrate (letter) where the certain written speech is caught.
Generally, it is the letter in the classical meaning of the word, i.e. sheet of paper. However, the
character of the particular material substrate does not have the important meaning, it can be
whatever movable asset that has the ability to become the bearer of written information. As the
professional literature states, the second characteristic mark is then the value of security, which
it is not possible to understand in the general meaning of the word , but in the legal meaning.
Letter is valuable by its legal consequences that are connected to it by legal order. It means
then, that security can be whatever marked letter whose contain is capable of inducing legally
certificated consequences. It results from the stated that under the expression of security we can
not understand those letters that are legally irrelevant, despite the fact that they can be very
importatnt for parties. As the above mentioned, it is
clear that german, austrian or czech definitions of securities find its legal nature in that they are
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letters resp. papers that the right is connected to in the special way where it is incorporated to
and that is necessary to present for the purpose of claiming the right.
There are many other papers except of securities that are not considered as securities in spite of
the fact that they show certain legal meaning and can be presented to claim certain subjective
right. To conclude, it is possible to state that the way, that has been chosen by the slovak
legislator , i.e. accepting the legal definition of security and legal enumerative naming of
particular types of securities, it is necessary to evaluate this way as the right one. Only the legal
enactment that does not allow different digressions or liberal explanation is the guarantee of the
financial market stability, that is inseparable part of the properly funcioning market economy
of state.
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6. Kasinec, R. (2011).
7. Kasinec, R. (2011). ku a v USA,
In: Historia et theoria iuris.
8. Kasinec, R. (2013). -
a zajtra. ubliky.
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10. Bratislava:
Eurounion
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Bratislave
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Bratislava: KARTPRINT
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14. Urfus, V. (1994). Praha: C. H. Beck
15. Van de Mieroop, M. (2010). , Praha: Academia
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