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The Law of Financial Advice, Investment Management, and Trading by van Setten, Lodewijk (14th February 2019)

3 Safeguarding Financial Assets

From: The Law of Financial Advice, Investment Management, and Trading

Lodewijk van Setten

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2015. All Rights Reserved.date: 17 September 2019

Subject(s):
Default and credit — Debt — Central counterparty (CCP) — Investment business — Netting

This chapter examines the legal requirements for safeguarding money, book-entry securities, and central counterparty (CCP) cleared contracts. It first considers the duty of banks and investment firms to safeguard proprietary interests in account-based assets before discussing the equitable character of the investor’s interest in client assets received in trust by investment firms. In particular, it explains amounts owed as a bank and netting in current account versus amounts owed not as a bank but as an investment firm; creation of account-based securities entitlements through immobilisation or dematerialisation in the hands of central securities depositories (CSDs); safeguarding of proprietary rights throughout the custody chain; and settlement of the trust on a common fund of client securities. The chapter also analyses the safeguarding of contracts cleared through a CCP system, along with collateralisation and netting techniques used in mitigating default risk.

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