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Capital Markets Law Journal Advance Access originally published online on June 19, 2009
Capital Markets Law Journal 2009 4(3):311-322; doi:10.1093/cmlj/kmp014
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© The Author (2009). Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

Restatement of the law relating to client securities

James Smethurst and Joanna Benjamin*
* James Smethurst is a partner in the Financial Institutions Group of Freshfields Bruckhaus Deringer. Joanna Benjamin is a reader in Law at the London School of Economics and a consultant at Freshfields Bruckhaus Deringer.

The first 150 words of the full text of this article appear below.


Key points

  • The administration of Lehman Brothers International (Europe) (LBIE) has focused attention on the protections provided by English law for securities held in custody.
  • This article reviews the law applicable to securities held in custody by custodians and prime brokers.
  • Clients of custodians and prime brokers will typically enjoy property rights as trust beneficiaries. Such rights protect clients’ assets from the claims of the custodian's or prime broker's creditors (the ‘custody ring fence’).
  • Where clients have consensually granted a right of use then these property rights will cease upon exercise of that right of use.
  • The difficulties experienced by many clients of LBIE in recovering securities held in custody result from the operational complexity faced by the administrators in establishing clients’ entitlements and from the fact that many clients had granted a right of use.
  • However, these difficulties do not demonstrate a defect in the legal protections afforded by . . . [Full Text of this Article]

 

   1. Background
 
Nature and purpose of restatement
Intermediaries

   2. Intermediary services
 
Global custody
Prime brokerage

   3. Credit exposures and collateralization
 

   4. Right of use
 

   5. Nature of client's rights
 
Cash
Derivatives
Investment securities
Custody trust
Sub-Custodians
Pooling
Used securities
Consensual reduction of Trust Asset
Allocation of used securities to clients
Shortfalls

   6. Conclusion
 

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