Custody model
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Prime Brokerage Anatomy™
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How one goes about holding assets in safekeeping differs according to your jurisdiction and yea, even the legal tradition from which your basic system of law sprang.
On the one hand, there are those (er, ... us) crazy Commonwealth folk, all still to some degree tethered to the emotional apron strings of mother England[1] with their common law and its bonkers notions of precedent, the separation of legal and beneficial interests
On the other, those tiresomely sensible continentals with their romanesque belief in order, straight roads, principled-based rule-making and the primacy of legislation that hasn’t just been made up on the hoof by some guy in a horse-hair wig. Curiously they have arrived at very different models of custody of freely transferable securities.
English law custody model
The standard English law custody model is a trust arrangement. That means legal title to securities is owned by the custodian, but the beneficial interest is held by the client. As against the rest of the world, the custodian owns the assets, but its contract with its client obliges it to follow the client’s instructions when dealing with custody assets.
Because of the trust, the custody assets do not form part of the custodian’s insolvency estate and (subject to any amounts owing to the custodian that secured by lien or security interest over the custody assets) they not available to the custodian’s creditors and are returned to the client. The Lehman insolvency showed that untangling the custodian’s books and records is a trial in itself, and navigating security interests a whole other ball of wax. Hence the CASS cutody rules (CASS 6) have been tightened, and the FCA (and hence, your own firm’s CF10A) takes an extraodinarily dim view of lax book keeping.
New York law custody model
Notwithstanding its foundation in common law, the US custody model has morphed to be something more like the continental one: Template:Continental custody model