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| ===“[[Delegation]]” versus “[[sub-contract]]ing”===
| | #redirect[[template:delegate vs subcontractor]] |
| Delegation, according to a natural definition, means “''to entrust (a task or responsibility) to another person, typically one who is less senior than oneself.''”<ref>{{google2|Define|Delegation}}</ref>.
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| For example a [[despositary]] ''delegating'' its safekeeping responsibility to a [[prime broker]] means (to the [[Jolly Contrarian]], at any rate) that it will not be the [[depositary]] who holds your assets, kind sir, but the [[prime broker]]. Your custody arrangement, and your claim, will be against the [[PB]] directly (though, if the delegation happened under the auspices of [[21(11) - AIFMD Provision|AIFMD]] or [[UCITS]], you may still have a pop at the Depositary if the [[PB]] proves to be a dolt.
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| Why does this happen? Because a [[prime broker]] needs the assets. To use them.
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| :“Hold on,” says the PB. “If the [[depositary]] holds the assets, then I can hardly [[rehypothecate]] them, can I, and we know how important [[rehypothecation]] is to my business model, don’t we?” | |
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| :The [[depositary]] shrugs. “So, I'll make you my [[sub-custodian]],” he says, “There: re-hypothecate to your heart's content.”
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| :“No can do,” says the [[PB]]. “I can only rehypothecate against [[indebtedness]], and you don't owe me anything. Only the fund does. And besides, as a [[sub-custodian]] I only see an omnibus account. I don't know who owns what. For [[rehypo]] to work, I have to have a direct contractual relationship with the Fund. That's the deal.”
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| Contrast that with a [[custodian]] who ''sub-contracts'' his responsibility to a [[sub-custodian]]. This is not a delegation in the same way: the [[custodian]] stays liable the whole time, whatever the [[sub-custodian]] does, and unless the contract says otherwise<fref>Okay, I grant you: this is a big ''unless''.</ref> the client has not [[privity|direct claim]] against the subcustodian at all.
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