Template:Delegate vs subcontractor

Delegate versus sub-contractor

Being delegated a custody function - where you agree to act as main custodian to a fund on behalf of the depositary whom the fund has appointed to carry out that function — quite common for AIFs, whose local depositary is obliged to be nominal custodian, but whose prime broker is usually very keen to have custody of fund assets it has lent against, so it can rehypothecate them — is a different thing from the depositary (or, for that matter, the prime broker) appointing another entity as a sub-custodian.

• A delegating depositary won't hold the assets at all: it will pass that responsibility to the prime broker, who will record the end client's interests in the custody assets directly in its books and records. It may have to report this all to the depositary, but the depositary will not carry record of the client’s assets in its own books and records.
• A subcustodian is an entity who stands behind the main custodian and holds the custodian's client assets in a single omnibus account, in the custodian's name but marked as "client assets" and therefore unavailable for the prime broker's creditors. A sub-custodian won’t know who the custodian's clients are, let alone which assets are attributable to which clients, much less have a contractual relationship with those clients, and won’t be in a position to rehypothecate any assets it holds.