Furthermore there should be legislative provision to ensure the disapplication of insolvency laws in respect of securities transactions that are cleared through a central clearing agency. There are several common law principles of insolvency law that may affect or create uncertainty over the operations of CSDs:

1. Set-off and netting of transactions which permit the netting of credits and debits in the event of insolvency of a broker only if there are mutual dealings between the parties. This means that potentially, the operations of a central clearing house could be challenged as trade netting is independent of any requirement of mutual dealings between brokers and clients.

2. Doctrine of relation back which provides that the commencement of insolvency can relate back to an earlier time or event prior to the insolvency of a broker. In the event of insolvency of a broker, the operations of the clearing house , exchange and depository in respect of settled and unsettled trades could be rendered unlawful.

3. Notice of insolvency and proof of debts which limits a person's right to prove for a debt in an insolvency if he has notice of insolvency at the time the debt is created. In the event of insolvency of a broker, the clearing house's ability to prove a debt in relation to netted transactions may be limited.

4. Avoidance of certain dispositions of property which allows the liquidator to set aside certain dispositions of property after the commencement of the insolvency of a broker.

5. Disclaimer of onerous property which allows the liquidator to disclaim onerous transactions. This may cause the liquidator to "cherry pick" by only affirming profitable contracts to the insolvent broker.

The disapplication of insolvency laws in respect of clearance and settlement arrangements of the clearing house and the settlement arrangements of the depository will ensure that the operations of those organisations are not subject to legal challenge in the event of insolvency of the other market participants.

There appears to be several different approaches in the ways the participating countries addressed this issue of protection of investors' rights in the event of insolvency of either the broker or the clearing house. In Malaysia for example, certain provisions of the bankruptcy laws have been disapplied in the event of insolvency of the broker or clearing house. This ensures that the deposited securities cannot be attached by the liquidator or creditors as being part of the property of the insolvent broker or clearing house.

In Thailand, there is a difference in approach depending on the circumstances. In the event of insolvency of the broker, securities held in the account of the broker, on behalf of the client could be seized by the liquidator and held until the client proves that he is in fact the actual owner of the securities. In the event of insolvency of the clearing house however, securities held in the name of the clearing house are presumed to be held on behalf of the depositor and will not be attached by the liquidator.

In Sri Lanka, there are no specific laws governing bankruptcy and insolvency at all. However, due to the modest size of trades settlement there have been no major problems that have been experienced as yet.