Form of legend for global securities: Overview, definition, and example
What is a form of legend for global securities?
A form of legend for global securities refers to a statement or notice that is placed on a physical or electronic certificate of a security to indicate certain restrictions or conditions related to its transfer or ownership. Specifically, for global securities—which are securities issued in a book-entry form and traded electronically—the legend typically includes information about the security’s transfer restrictions, including limitations on selling or transferring the security under certain conditions, such as compliance with securities laws, regulations, or contractual terms.
The purpose of a legend is to provide clear disclosure to investors about the status or specific legal conditions associated with the security. For example, a security might have a legend indicating that it cannot be transferred unless certain conditions are met, such as registration under applicable securities laws, or unless it is in compliance with specific regulations related to foreign ownership or restrictions.
Why is a form of legend for global securities important?
The form of legend for global securities is important because it provides legal clarity regarding the ownership and transferability of a security. It ensures that all investors and market participants are aware of any limitations on the security’s transfer and the legal requirements for compliance. Without such a legend, there could be misunderstandings or violations of securities laws, potentially leading to legal disputes, penalties, or invalid transactions.
For issuers, the legend helps prevent unintended violations of securities regulations, particularly with respect to global securities that are often subject to international or jurisdictional restrictions. It serves as a protective measure to ensure that securities are not transferred in violation of these restrictions.
Understanding form of legend for global securities through an example
A company issues global bonds that are traded electronically in the international market. These bonds are subject to regulations that restrict their transfer to certain jurisdictions or require them to be registered before being sold to U.S. investors. To inform investors about these restrictions, the company includes a legend on the bonds, stating that they cannot be transferred unless certain legal requirements, such as registration under U.S. securities laws, are met.
For example, if the bonds were issued under Regulation S of the U.S. Securities Act of 1933, the legend would likely indicate that the bonds cannot be transferred to U.S. persons during the first 40 days after issuance, unless they are registered or qualify for an exemption. This prevents securities from being offered in violation of U.S. securities laws.
An example of form of legend for global securities clause
Here’s how a form of legend for global securities might appear on a securities certificate or in a contract:
“The securities represented by this certificate are global securities within the meaning of the indenture referred to herein and, except as otherwise provided in the indenture, are not transferable except in compliance with the securities act of 1933, as amended, and the laws of the jurisdiction in which the securities were offered. These securities may not be transferred or exchanged except in accordance with applicable law and the provisions of the indenture.”
Conclusion
A form of legend for global securities is a critical component for maintaining legal compliance in the issuance, transfer, and ownership of securities, particularly when they are issued in book-entry form and traded globally. The legend serves as a notice to investors and market participants about any restrictions, such as compliance with securities laws or contractual obligations, that govern the security’s transferability. By including such a legend, issuers ensure that their securities comply with regulations and protect both the issuer and investors from potential legal issues.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.