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5 Formalities and Control

Edited By: Matthias Haentjens

From: Financial Collateral: Law and Practice

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2022. All Rights Reserved.date: 19 August 2022

Money market securities — Collateral agreement — International financial system — International monetary conduct

This chapter focuses on the creation of a collateral transaction. It looks at two issues: (i) which formalities must be fulfilled in order to create a collateral transaction, or, more specifically, to validly provide collateral? And (ii) to what extent must the collateral taker have 'possession' or 'control' for a valid provision of collateral? These two issues seem to be especially problematical in the jurisdictions of the EU Member States. The problems follow from the implementation of the Collateral Directive into EU Member States laws, where both issues required derogations of, or at least amendments of, their national (property) laws. More specifically, the Collateral Directive aims to dis-apply formal requirements for collateral transactions to be validly created, i.e. for collateral to be validly provided. Examples of such formal requirements are the registration of a security interest with a public register and the execution of a specific document in a mandatory way. Meanwhile, general US property law requires the collateral taker to be in control of the collateralized assets as a means of perfecting a security interest.

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