1 The author is grateful to Ferdisha Snagg of Freshfields Bruckhaus Deringer for her invaluable help with this chapter. When finalizing this chapter the author had sight of chapters in this volume on ‘The Management and Distribution of Client Assets in the LBIE Administration’ by D Ereira OBE; K Caputo, W Giddens, and C Kiplok ‘The Liquidation of Lehman Brothers Inc, the New York Brokerage of the Lehman Global Enterprise’, and H Anderson, ‘Extended Liens’. These have provided invaluable insights for which the author is grateful, and enabled her to correct a number of errors. Any remaining errors are of course her own.
2 Re Hallett’s Estate [1874–80] All ER Rep 793.
3 It would be compatible with a subordinate security interest.
4 More accurately, the entirety of the title of the collateral giver. If this is equitable title, the collateral taker will acquire equitable title. The key is that the collateral taker retains no residual property right.
5 eg Beckett v Lower Assets Co Ltd (1891), British Railway Traffic v Kahn (1921), and Chow Yoong Hong (1961). More recently see the recognition of elaborate TTCA structures in Pearson v Lehman Brothers Finance SA  EWHC 2914 (Ch), AC  EWCA Civ 1544 (RASCALS).
6 See section IX.C on the recognition of TTCA.
7 Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements (OJ L 168/43).
8 See for example the Securities Financing Transactions Regulation, EU Regulation No 548/2012, article 3(12).
11 This involves the purchase of securities for the client with money loaned by the prime broker.
14 Typically, legal title is held through a nominee or sub-custodian.
15 No formalities are required to establish a trust (not over land), provided there is certainty of intention, asset, and beneficiary. Knight v Knight (1840) 3 Beav 148; 49 ER 58.
16 In re LBIE  EWHC 2545 (‘MCF litigation’).
18 There is no merger of interests, as the beneficiary’s interest under a trust is not the same as the debt of the trustee. See also Re BCCI (No 8)  3 All ER 565,  2 All ER 121 (no merger of interests in charge back).
19 In re LBIE  EWHC 2545 (‘MCF litigation’).
20 ibid, para 39. See also para 64.
21 Having the same International Securities Identification number (ISIN).
22 In re LBIE  EWHC 2545 (‘MCF litigation’) per Briggs J, para, 38.
24 ie from its own house account.
25 Usually from another client who has granted an agency securities lending mandate to the prime broker.
26 Re Hallett’s Estate (1880); Re Diplock  Ch. 465 at 566.
28 FCAR 16(3), first provision.
29 Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (‘MiFID II’), OJ L 173/349; see section V.C.
31 Unless, unusually, only one client holds the relevant type of securities.
32 ie undertaken on a batch basis.
33 Commission Delegated Directive (EU) C(2016) 2031 final of 7.4.2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council with regard to safeguarding of financial instruments and funds belonging to clients, product governance obligations and the rules applicable to the provision or reception of fees, commissions or any monetary or non-monetary benefits (‘MiFID II Delegated Directive’) art 5(2).
34 FSA, Reforming Conduct of Business Regulation, 16.4.2(2), implementing MiFID I Level 2 Directive 2006/73/EC art 43(2)(b).
35 As discussed in section V below.
36 MiFID II Delegated Directive of 7.4.16 on safeguarding client assets, product governance and fees and commissions, art 5(2).
37 £126 million, reduced by 30 per cent as the firms agreed to settle early.
40 MiFID II Delegated Directive of 7.4.16 on safeguarding client assets, product governance and fees and commissions, art 5.
43 See Tenth Joint Administrators’ Report, p 6.
44 Fourteenth Joint Administrators’ Report, p 8 (Omnibus Trust and other client assets).
45 Thirteenth Joint Administrators’ Report, p 25.
46 Fifteenth Joint Administrators’ Report, p 8.
47 An open-ended fund has redeemable units.
48 See FSA, Client Assets Regime: EMIR, Multiple Pools and the Wider Review, CP 12/22, 4.23 and 4.29.
51 MiFID II Level 1 (Directive 2014/65/EC) art 16(8).
52 Such as segregation, reconciliations, and records.
53 Provided the transaction whereby the property interest was acquired is not voidable under the insolvency regime, eg as a transaction at an undervalue, and provided also that there is no shortfall in the assets held.
54 Lomas v RAB Market Cycles (Master) Fund Limited  EWHC 2545 (Ch), per Briggs J, para 67.
55 To be precise, long client securities positions, ie holdings.
56 Financial Services and Markets Act 2000 s 137B(1) and CASS 5.3.2.
57 To the consternation of US lawyers.
58 This is understood to be partly due to US regulatory sensitivities concerning fiduciaries.
59 Trust estate is discussed in 3 sections in later reports: Omnibus Trust (recovered from LBI), other client assets and client money estate.
60 Administrators’ First Progress Report, p 34.
61 Administrators’ Third Report, p 30.
64 ibid ie the holding of the like securities of different clients in a single pool.
66 ibid. Clients are entitled to the return of securities of the same type and number as those originally placed with the prime broker, but not the same ones.
67 ibid para 61. The prime broker has the option of returning the market value of the rehypothecated securities.
68 ibid. The prime broker is not obliged to implement the client’s delivery instructions.
69 ibid. Per Briggs J at para 52.
82 ibid para 63; see also para 64.
90 First Administrators’ Progress Report, p 31. See also generally Chapter 8.
91 F W Maitland, The Forms of Action at Common Law, (ed.) A H Chaytor and W J Whittaker (Cambridge University Press 1997). (First published 1909).
92 Lomas v RAB Market Cycles (Master) Fund Limited  EWHC 2545 (Ch).
95 In re LBIE  EWHC 2545 (‘MCF litigation’) per Briggs J, para, 15.
96 RAB Capital Plc v Lehman Brothers International (Europe),  EWHC 2335.
97 ibid per Morgan J, para 4.
101 Under the ‘extended lien’, client assets secured the claims of associates of the prime broker as well as those of the prime broker. See generally Chapter 7.
102 Particularly Lehman Brothers Inc in New York and Lehman Brothers Hong Kong in Hong Kong.
104 By The Investment Bank Special Administration Regulations 2011, SI 2011/245.
105 ibid Regulation 10(1).
106 ibid Regulation 10(1)(a).
107 This provides, very broadly, that a proposed arrangement between an insolvent company and its creditors, which is approved by 75 per cent in value of creditors may be sanctioned by the Court, and if so will be binding on all creditors: s 899.
108 In re LBIE  EWHC 2141 (Ch).
109 Re LBIE (no 2)  EWCA Civ 1161. The Client Asset Scheme was also rejected in Hong Kong: Administrators’ second report, p 28.
110 The argument that the status of clients as both creditors and trust beneficiaries brought client assets within the scope of the regime, was rejected. Accordingly the Court lacked jurisdiction to approve the proposal.
111 Administrators’ Second Progress Report, p 21.
112 See Administrators’ Third Report, p 46.
113 Client money entitlement.
114 Twelfth Joint Administrators’ Report, p 24. See also See also Eleventh Joint Administrators’ Report, p 6.
117 Barlow Clowes International Ltd (in liq) v Vaughan  BCLC 910.
118 Re LBIE Supreme Court  UKSC 6.
119 First instance: Re LBIE (Briggs Judgment)  EWHC 3228; Appeal Court: CRC Credit Fund Ltd & ORs v GLG Investments  EWCA Civ 917.
120 CASS 7.13.54G–7.13.69G. Very broadly, client money is received into the house account, and then segregated the next business day following reconciliation.
121 Very broadly, the failure of the firm. CASS 7A.2.
122 Ninth Joint Administrators’ Report, p 28.
123 Very broadly, the failure of an entity holding client money for the firm, such as a client money bank. CASS 7A.3.
124 Client money segregation protects clients of the firm in the firm’s insolvency, but not in the insolvency of the client money bank.
125 Whether money received in respect of them is held in the house account pending segregation under the alternative approach, or whether the practice is never to segregate their money, as with LBIE affiliates.
126 Who would not be obliged to share the client money pool with unsegregated clients.
129 Note however the post-LBIE restrictions on the use of the alternative approach.
130 Tenth Joint Administrators’ Report, p 6.
131 Eleventh Joint Administrators’ Report, p 28.
133 Eleventh Joint Administrators’ Report, p 27.
134 Twelfth Joint Administrators’ Report, p 24.
135 Joint Administrators’ Fifteenth Progress Report, p 10.
137 But see the later case of Heis v Attestor Value Master Fund LP and Solid Financial Services Ltd  EWHC 2556, which confirmed that a contractual claim ran in parallel to the beneficial claim. But while a client could prove as a creditor for a client money distribution shortfall (para 69), they could not claim for a higher close-out sum (para 85).
138 Tenth Joint Administrators’ Report, p 26.
139 ‘There are … more than 12,500 lines of stock owned by one or more claimants …’ Joint Administrators’ Third Progress Report, p 48.
140 Or failed settlement: see Joint Administrators’ First Progress Report, p 34.
141 See Lomas v RAB Market Cycles (Master) Fund Limited  EWHC 2545 (Ch).
142 ‘Valuing Client Assets is a complex task, both operationally and legally. There is significant variation in valuation dates which affect clients’ rights to Client Assets…’ see Joint Administrators’ First Progress Report, p 34.
143 See Joint Administrators’ First Progress Report, p 34.
144 ‘There are 570 Client Asset claimants… This is a volume-intensive exercise’ Joint Administrators’ Third Progress Report, p 48.
145 See Joint Administrators’ First Progress Report, p 34. Also, ‘The effects of termination are not legally clear in all cases.’ Ibid.
146 Lomas v JFB Firth Rixson, Inc  EWHC 3372 (Ch).
147 FSA, ‘Client Assets Regime: EMIR, Multiple Pools and the Wider Review’, CP 12/22, 4.14.
148 Joint Administrators’ First Progress Report, p 31.
149 Joint Administrators’ Fourth Progress Report, p 36.
150 Joint Administrators’ Second Report, p 26.
151 Joint Administrators’ Seventh Progress Report, p 27.
152 Joint Administrators’ Third Report, p 47. See also Fourth Report, p 39.
153 Joint Administrators’ Eighth Progress Report, p 26.
154 Joint Administrators’ Third Report, p 47.
155 Joint Administrators’ Fourth Progress Report, p 38.
156 Joint Administrators’ Fourth Report, p 38.
157 See Joint Administrators’ Seventh Progress Report, p 24.
158 See eg Joint Administrators’ Fifth Report, p 23.
159 Joint Administrators’ Sixth Progress Report, p 24.
160 Joint Administrators’ Second Report, p 27.
161 Joint Administrators’ Third Report, p 47.
162 Joint Administrators’ Sixth Progress Report, p 22. This claim was subsequently withdrawn: see Joint Administrators’ Seventh Report, p 24.
163 Joint Administrators’ Fifth Report, p 21.
164 Ninth Joint Administrators’ Report, p 29. This was later resolved.
165 See Thirteenth Joint Administrators’ Report, p 24.
166 Twelfth Joint Administrators’ Report, p 22.
167 Eleventh Joint Administrators’ Report, p 8.
169 Joint Administrators’ Seventh Progress Report, p 26.
170 Joint Administrators’ Sixth Report, p 24.
171 Joint Administrators’ Fifth Progress Report, p 23.
172 Joint Administrators’ Sixth Progress Report, p 22.
173 See Joint Administrators’ Third Progress Report, p 48.
174 See generally Chapter 7.
175 Joint Administrators’ Fourth Progress Report, p. 37.
176 ibid; see also Joint Administrators’ Third Progress Report, p 48.
177 See Joint Administrators’ Fifth Progress Report, p 23.
178 Ninth Joint Administrators’ Report, p 26.
179 Twelfth Joint Administrators’ Report, p 23.
180 Ninth Joint Administrators’ Report, p 13.
181 Twelfth Joint Administrators’ Report, p 6. See also Eleventh Joint Administrators’ Report, p 5.
182 And also assets, although the wide definition of secured assets does not seem to have been a major problem in the administration.
183 Some hedge funds clients are understood to have claimed that they did not understand this. Subsequent regulatory reforms require very clear disclosures.
184 Under the Financial Collateral regime.
185 More specifically, the client’s rights in relation to the securities is reduced from a property interest (under a custody trust) to a personal right of equivalent delivery against the prime broker.
186 ‘… the vast majority of Over-Claims appear to be for amounts already provided for by LBIE, albeit as unsecured claims and typically for rehypothecated assets.’ Joint Administrators’ Sixth Progress Report, p 22.
187 ‘These over-claims total c. £7.3bn…’ Joint Administrators’ Fourth Progress Report, p 37.
188 ibid. See also Fifth Progress Report, p 22.
189 Joint Administrators’ Sixth Progress Report, p 22.
190 Anecdotally, certain clients sought to withdraw rehypothecation rights as LBIE slid towards administration, and it became unclear what rights of rehypothecation remained at the relevant time.
191 Joint Administrators’ Fourth Progress Report, p 37. All overclaims were finally resolved by March 2015 (Thirteenth Joint Administrators’ Report, p 7.) and late overclaims did not relate to rehypothecation: Twelfth Joint Administrators’ Report, p 23.
192 It is understood that under SIPA a client’s net equity claim includes rights in respect of rehypothecated securities.
193 Joint Administrators’ Third Report, p 48. See also the Joint Administrators’ Eighth Progress Report p 29.
194 These were estimated as at 14 September 2013 to be between $0.24 billion and $0.08 billion. See eg Tenth Joint Administrators’ Report p 39.
195 Ninth Joint Administrators’ Report p 26.
197 ‘The vast majority of [ordinary unsecured] creditors have been repaid their unsecured claims in full…’ Joint Administrators’ Fifteenth Progress Report, p 5.
198 ‘The Surplus will be generated after payment in full of [ordinary unsecured creditor claims…and after return in full of Client Assets and post-Administration Client money…’ Fourteenth Joint Administrators’ Report, p 5.
199 In relation to the Omnibus Trust, as at 14 September 2014: ‘…106% of Best Claim values has now been paid to Omnibus Trust beneficiaries…’. Twelfth Joint Administrators’ Report, p 5. As at 14 March 2016, a client money surplus was anticipated, to be transferred to house estate, of between $830 million and $1.020 billion. Joint Administrators’ Fifteenth Progress Report, p 10.
200 A surplus between c £6.57 billion and c £7.79 billion is anticipated after payment of ordinary unsecured creditors: Joint Administrators’ Fifteenth Progress Report, p 5.
202 The author is grateful to Professor Charles Mooney for this point.
203 And also that of MF Global clients: ‘Following the introduction of the SAR and the developments in the client assets regime there was an expectation of significantly improved speed of return of client assets. However, in the case of MF Global Ltd the UK regime has at times, rightly or wrongly, been compared unfavourably to the US regime where, for example, nearly all securities customers of MF Global Inc. received 60% or more of their account value within a month of the firm’s insolvency.’ FSA, ‘Client Assets Regime: EMIR, Multiple Pools and the Wider Review, CP 12/22, 4.15.
204 See generally Chapter 2.
205 ‘Early in the LBI case the Trustee began to pursue the transfer of many of its customer accounts to other broker-dealers. …LBHI (as debtor in possession), LBI, as Seller, and Barclays Capital Inc., as Purchaser, entered into an Asset Purchase agreement pursuant to which LBI would sell, and Barclays would buy, most of the assets that formed LBI’s investment banking and capital market business. …As the Trustee reported: “Seamlessly, as far as virtually all PIM [Private Asset Management] customers were concerned, the LBI account holders became Barclays account holders, and all assets from their PIM accounts appeared on their Barclays accounts statements.” …eight months after the liquidation case was commenced…98% of the securities related to the PIM accounts had been transferred to Barclays.’ C. Mooney and G. Morton, ‘Harmonizing Insolvency Law for Intermediated Securities: Principles for an Ideal Regime’, in T Keijser (ed), Transnational Securities Law (Oxford University Press, 2014) para 8.62.
206 ‘… the PB Protocol provided … a voluntary process for the transfer of portions of the PBA assets to operating broker-dealers. Sorting out the accounts that could be transferred was a complex procedure inasmuch as, for example, some PBA assets were subject to liens and potential claims of other Lehman entities. Under the PB Protocol… the Trustee transferred approximately 300 PBAs valued at more than US$3.4 billion as of the filing date. The transfers were subject to letter agreements allowing the Trustee a clawback right if assets were transferred to which the transferee was not entitled or which were subject to another entity’s superior claim.’ C. Mooney and G. Morton, ‘Harmonizing Insolvency Law for Intermediated Securities: Principles for an Ideal Regime’, in T Keijser (ed), Transnational Securities Law (Oxford University Press, 2014) para 8.65.
209 J Benjamin, ‘The Law and Regulation of Custody Securities; Cutting the Gordian Knot’, Capital Markets Law Journal (2014) 9(3): 208–326.
210 ie from the fund clients as opposed to the sell side, or custodian/prime broker service provider.
211 Directive 2011/61/EU, article 21(4)(b) (prime broker not to act as depositary, unless functional and hierarchical separation of functions and management of conflicts).
212 No later than close on the next business day to which it relates: CASS9.2R(2).
224 ‘Financial Intermediaries should provide sufficient disclosure to clients in relation to re-hypothecation of assets so that clients can understand their exposures in the event of a failure of the intermediary.’, Recommendation 7, first paragraph, p 16. See also p 15: ‘This could include, daily, the cash value of: the maximum amount of assets that can be re-hypothecated, the assets that have been re-hypothecated and assets that cannot be re-hypothecated, …’ Note the additional recommendation concerning reporting requirements for fund manages to end-users (Recommendation 5).
225 ‘In jurisdiction where client assets may be re-hypothecated for the purpose of financing client long positions and covering short positions, they should not be re-hypothecated for the purpose of financing the own-account activities of the intermediary; …’ Recommendation 7, second paragraph, p 16.
226 ‘Only entities subject to adequate regulation of liquidity risk should be allowed to engage in the re-hypothecation of client assets.’ Recommendation 7, third paragraph, p 16.
227 Recommendation 6. See the discussion of cash collateral reinvestment in section VI.A.14 below.
228 ‘An appropriate expert group on client asset protection should examine possible harmonisation of client asset rules with respect to re-hypothecation, taking account of the systemic risk implications of the legal, operational, and economic character of re-hypothecation. Recommendation 8, p 16.
239 ibid art 16(10): ‘An investment firm shall not conclude title transfer financial collateral arrangements with retail clients for the purpose of securing or covering present or future, actual or contingent or prospective obligations of clients.’
240 MiFID Delegated Directive of 7.4.16 on safeguarding client assets, product governance and fees and commissions. <ec.europa.eu/finance/securities/docs/isd/mifid/160407-delegated-directive_en.pdf>.
242 ibid art 6(2)(a): ‘whether there is only a very weak connection between the client’s obligation to the firm and the use of title transfer collateral arrangements, including whether the likelihood of a clients’ liability to the firm is low or negligible’.
243 ibid art 6(2)(b): ‘whether the amount of client funds or financial instruments subject to title transfer collateral arrangements far exceeds the client’s obligation, or is even unlimited if the client has any obligation at all to the firm’. Note that in the aftermath of LBIE, clients became reluctant to over-collateralize.
244 ibid art 6(2)(c): ‘whether all clients’ financial instruments or funds are made subject to title transfer collateral arrangements, without consideration of what obligation each client has to the firm’.
246 Directive 2011/61/EU on Alternative Investment Fund Managers.
247 ibid art 14.3: ‘Where the AIFM on behalf of an AIF uses the services of a prime broker, …any possibility of transfer and reuse of AIF assets shall be provided for in [the contract with the prime broker] and shall comply with the AIF rules or instrument of incorporation.’
250 Regulation (EU) No. 231/2013.
253 Directive 2014/91/EU amending Directive 2009/65/EC.
254 ‘Reuse comprises any transaction of assets held in custody including, but not limited to, transferring, pledging, selling and lending.’ ibid art 22(7), first paragraph, second sentence.
255 ‘The assets held in custody by the depositary shall not be reused by the depositary, or by any third party to which the custody function has been delegated, for their own account.’ ibid art 22(7), first paragraph, first sentence.
256 ‘The assets held in custody by the depositary are allowed to be reused only where’ ibid art 22(7), second paragraph.
257 ‘the reuse of the assets is executed for the account of the UCITS’. ibid art 22(7)(a).
258 ‘the depositary is carrying out the instructions of the management company on behalf of the UCITS’. ibid art 22(7)(b).
259 ‘the reuse is for the benefit of the UCITS and in the interest of the unit holders’. ibid art 22(7)(c).
260 ‘the transaction is covered by high-quality and liquid collateral received by the UCITS under a title transfer arrangement.’ ibid art 22(7)(d).
261 ‘The market value of the collateral shall, at all time, amount to at least the market value of the reused assets plus a premium.’ ibid art 22(7), final paragraph. The term ‘market value’ is not defined in the UCITS Directive as amended.
262 Regulation No 648/2012/EU on OTC derivatives, central counterparties and trade repositories.
264 Final Draft Regulatory Technical Standards on risk-mitigation techniques for OTC-derivative contracts not cleared by a CCP, 8.3.16.
265 ‘The collecting counterparty shall not re-hypothecate, re-pledge nor otherwise re-use the collateral collected as initial margin.’ ibid art 34(1). Reinvestment in cash is however permitted: ibid art 34(2).
266 Level 1, ibid art 39(8).
267 ibid arts 39(8) and 47.
269 EU Regulation 2014/909 on securities settlement.
272 ibid. The definition of reuse, and therefore the reuse requirements, apply only to financial instruments, and not commodities (unlike the SFTR definition and associated reporting requirements).
273 ibid art 3(12) final paragraph.
275 ibid art 15(1)(a). This relates to risks and consequences of either a FCAD right of use coupled with a security collateral arrangement or of a TTCA.
276 ibid art 15(1) final paragraph.
280 ibid art 15(2)(b). Or, in the case of third country counterparties, by either transfer from the account of the collateral giver or by appropriate means. See also Explanatory Memorandum, p 7: Further, hypothecation ‘should be appropriately reflected in the securities accounts. The counterparty receiving financial instruments as collateral will be allowed to rehypothecate them only … after having them transferred to its own account.’
283 See section IX.C below.
284 These include demographic pressures of an ageing population for pension funds and life insurers.
285 These include tougher prudential regulation for insurers.
286 These include competitive short term pressure on funds managers.
287 For example, the discussion omits important transaction categories, including the use of securities lending and repos by settlement systems to provide securities and cash lending to and the involvement of securitization vehicles as issuers of repo collateral, and also as repo borrowers in CDO squared structures (although such markets have been much less active since the crisis).
288 See also the discussion of returns on cash collateralized securities below in this section.
289 A short position is (broadly) the contractual obligation to deliver assets that one does not hold at the time the obligation is assumed.
290 A long/short fund hedges its exposures to market movements by holding pairs of correlated positions, one short and one long, so that it can profit in both rising and falling markets.
291 A bear trader goes short in order to profit from anticipated falling prices.
292 Of a type other than the loaned securities.
293 Collateral management includes marking to market, substitution, and handling manufactured income.
294 These are highly liquid short term debt instruments, also known as near cash.
295 This was the experience of LBIE clients whose cash collateral was invested in the shares of associated money market funds.
296 Swaps are the dominant category of derivatives transaction in the international financial markets.
298 FSA, ‘The Turner Review’, 2009, available at: <http://www.fca.org.uk/static/pubs/guidance/fg12-06.pdf> p 53: ‘Because of these specific characteristics many of the most important challenges in banking regulation are systemic rather than idiosyncratic. One of the key deficiencies problems of the past approach, not only in the UK but in many other countries, was that it did not reflect this reality. There was inadequate focus on the analysis of systemic risk and of the sustainability of whole business models: and a failure to design regulatory tools to respond to emerging systemic risks.’
299 In the case of a collateralized swap, it may act as both, as its swap position moves in and out of the money.
301 The term ‘corporate’ is used in the financial markets to mean a commercial company that is not a financial institution.
302 See above section V.C.
303 eg the US Troubled Asset Relief Program that formed part of the bailout.
304 See Credit Suisse First Boston (Europe) Ltd v MLC (Bermuda) Ltd  1 All ER (Comm) 237, a hedge raised a large part of the purchase price of Russian debt by repoing the purchased securities to an affiliate of its prime broker. Sadly, the arrangements unravelled five months later when the Russian default rendered the bonds worthless, the hedge fund failed to meet a repo margin call, and then failed to pay the repurchase price (which was presumably payable because the counterparty declined to roll the trade in the circumstances). On default, the value of the bonds fell short of the purchase price, and complex international litigation ensued.
305 In the UK settlement system CREST, under DBV arrangements, a repo of purchased securities collateralizes the purchase price provided by settlement banks.
306 Under the ISDA Credit Support Annex (CSA) and Credit Support Deed (CSD) respectively.
307 Depending on clearing house rules.
308 Final Draft Regulatory Technical Standards on risk-mitigation techniques for OTC-derivative contracts not cleared by a CCP, 8.3.16.
309 See generally C Kindleberger, Manias, Panics, and Crashes. A History of Financial Crises, (4th edn, Wiley 2000).
312 Certain master agreements include default under other agreements or financial obligations as an event of default.
315 ibid Recommendation 1.
316 ibid Recommendation 2.
317 ibid Recommendation 3.
318 ibid Recommendation 4.
319 ibid Recommendation 7, point 3. This requirement applies to the rehypothecation of client assets, but also has a systemic element.
320 ibid Recommendation 9.
321 ibid Recommendation 10.
322 ibid Recommendation 11.
323 ibid. However, minimum haircuts are applicable for derivatives under EMIR.
325 Known as the ‘once a mortgage, always a mortgage rules’. Noakes v Rice  AC 24 per Lord Davey at 32.
326 2002/47/EC as amended.
327 Article 5 of the FCAD that protects contractual rights of use, in respect of financial collateral provided under security interest within the scope of the Directive. Equivalent provisions are contained in regulation 16 of the FCAR.
328 Existing position under English law, law recognized outright collateral transfers (eg Beckett v Lower Assets Co Ltd (1891), British Railway Traffic v Kahn (1921), and Chow Yoong Hong (1961). More recently see AC Pearson v Lehman Brothers Finance SA  EWHC 2914 (Ch),  EWCA Civ 1544 (RASCALS).
329 In article 6(1). There is no equivalent in the UK FCAR, because none was needed.
330 For the courts’ approach to recharacterization see In re Spectrum Plus Ltd (in liquidation)  2 AC 710 per Lord Walker at 725, 726.
331 Whether taking the form of security interests or title transfer collateral arrangements.
333 Contrast the duty of the SIPA trustee to act in the interests of clients. Potential conflicts of interest are required to be managed by the AIFMD. See Madeleine Yates, ‘Custody, Prime Brokerage and Right of Use: A Problematic Coalition?’ (2010) 7 Journal of International Banking and Financial Law 397, for a discussion of the importance of client understanding the exact terms and implications of any right of rehypothecation.
335 ‘Subject only but crucially to confidence in their soundness, banks extend credit by simply increasing the borrowing customer’s current account, which can be paid away to wherever the borrower wants by the bank writing a cheque on itself ’. This “money creation” process is  constrained by their need to manage the liquidity risk… to which it exposes them.’ (Paul Tucker, Executive Director and Member of the Monetary Policy Committee of the Bank of England, ‘Money and Credit – Banking and the Macroeconomy’ (Speech at the Monetary Policy and the Markets Conference, London, 13 December 2007), 9–10, available at: <http://www.bis.org/review/r071217f.pdf>).