Introduction

In chapters 2 and 3, the rules governing securities transfers were analysed. The aim of these chapters was to determine the procedural rules according to which, and the point in time at which, the buyer became the owner of the securities she purchased. The analysis was based on two assumptions. The first was that the securities concerned had been validly issued. The second was that the seller had authority to sell the securities. In chapters 5 and 6, the rules that apply when these preconditions are not satisfied will be examined. Defective issues will be analysed first and then in chapter 6 the rules governing unauthorised transfers.

Securities are issued under a contractual arrangement between the issuer and the person buying the securities from the issuer. It is possible for this buyer to keep the securities throughout the issuer's existence or until the securities have reached their maturity and are reimbursed. This, however, will not happen in many cases. Securities are issued to circulate in the market; investors buy them precisely because they want to be able to sell them at any given point in time.

Because securities issues have a contractual basis, it is possible for the contract underlying the issue to be defective. This can result in the issuer having equities that it can raise against the buyer of the securities.