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'''[[Cash]] [[margin]]''': Note that it is legally impossible to separate possession and ownership of [[cash]]. Any person holding [[cash]] is, against all other persons in the world, its outright owner: a payee can therefore assume a payer has good title to any [[cash]] it pays. This guarantees commercial certainty for [[cash]] and preserves its status as an abstract token of value and not an asset. | {{a|brokerage|}}'''[[Cash]] [[margin]]''': Note that it is legally impossible to separate possession and ownership of [[cash]]. Any person holding [[cash]] is, against all other persons in the world, its outright owner: a payee can therefore assume a payer has good title to any [[cash]] it pays. This guarantees commercial certainty for [[cash]] and preserves its status as an abstract token of value and not an asset. | ||
*'''Payment by client directly to [[broker]]''': (described as “money as [[bank]]er”, or “[[title transfer]]”). Client pays [[margin]] in [[cash]] directly to the [[broker]]. There is no purported [[client money]] regime or any insolvency protection: The [[broker]]’s obligation to return initial [[margin]] at the end of the transaction is a debt claim in the client’s hands. | *'''Payment by client directly to [[broker]]''': (described as “money as [[bank]]er”, or “[[title transfer]]”). Client pays [[margin]] in [[cash]] directly to the [[broker]]. There is no purported [[client money]] regime or any insolvency protection: The [[broker]]’s obligation to return initial [[margin]] at the end of the transaction is a debt claim in the client’s hands. | ||
**'''Client risk to [[broker]]'''? '''{{font colour|red|Yes}}'''. | **'''Client risk to [[broker]]'''? '''{{font colour|red|Yes}}'''. | ||
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***Clients have full [[credit risk]] to the [[client money]] [[bank]]. | ***Clients have full [[credit risk]] to the [[client money]] [[bank]]. | ||
***A [[client money]] [[bank]] is not in scope for the [[broker]]’s [[LER]] calculations. | ***A [[client money]] [[bank]] is not in scope for the [[broker]]’s [[LER]] calculations. | ||
**'''Client risk to [[intermediary|intermediaries]]''': [TO CHECK | **'''Client risk to [[intermediary|intermediaries]]''': [TO CHECK]<br> | ||
Non-[[cash]]/Securities [[margin]]''': securities are not an abstract token of value but a representation of a financial right to or over something. It is possible to hold a security without being its owner, and deliver a security to another person without. This means that, unlike [[cash]], one can hold a non-[[cash]] asset as a [[fiduciary]] on behalf of another person. | '''Non-[[cash]]/Securities [[margin]]''': securities are not an abstract token of value but a representation of a financial right to or over something. It is possible to hold a security without being its owner, and deliver a security to another person without. This means that, unlike [[cash]], one can hold a non-[[cash]] asset as a [[fiduciary]] on behalf of another person. | ||
*'''[[Title transfer]]''': client delivers asset by outright [[title transfer]] to [[broker]]. There is no purported custody arrangement: The [[broker]]’s obligation, to return an equivalent asset at the end of the transaction, is a debt claim in the client’s hands. As it owns them outright, there are no restrictions in what the [[broker]] can do with the assets (it can, but need not, post them to [[intermediary|intermediaries]]). Note – there is a minor risk to loss of assets in the hands of the [[custodian]]. | *'''[[Title transfer]]''': client delivers asset by outright [[title transfer]] to [[broker]]. There is no purported custody arrangement: The [[broker]]’s obligation, to return an equivalent asset at the end of the transaction, is a debt claim in the client’s hands. As it owns them outright, there are no restrictions in what the [[broker]] can do with the assets (it can, but need not, post them to [[intermediary|intermediaries]]). Note – there is a minor risk to loss of assets in the hands of the [[custodian]]. | ||
**'''Client risk to [[broker]]'''? '''{{font colour|red|Yes}}'''. | **'''Client risk to [[broker]]'''? '''{{font colour|red|Yes}}'''. | ||
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****If there is [[limited recourse]] language then '''{{font colour|red|Yes}}''', because the [[broker]] does not have to pass on amounts it does not receive from the [[intermediary]]. | ****If there is [[limited recourse]] language then '''{{font colour|red|Yes}}''', because the [[broker]] does not have to pass on amounts it does not receive from the [[intermediary]]. | ||
****If there is no [[limited recourse]] language, then '''{{font colour|green|No}}''', because the right to redelivery of the assets is a debt obligation of the [[broker]] irrespective of the performance of the [[intermediary]]. | ****If there is no [[limited recourse]] language, then '''{{font colour|green|No}}''', because the right to redelivery of the assets is a debt obligation of the [[broker]] irrespective of the performance of the [[intermediary]]. | ||
[[intermediary|intermediaries]] | '''[[intermediary|intermediaries]]''' <br> | ||
*'''Client risk to [[intermediary|intermediaries]]''': Depends on comprehensive [[limited recourse]] in client documentation. It must be more than [[force majeure]]: must make the [[broker]]’s obligation to pay amounts to client conditional on the [[broker]] receiving those amounts from the [[intermediary]]. | *'''Client risk to [[intermediary|intermediaries]]''': Depends on comprehensive [[limited recourse]] in client documentation. It must be more than [[force majeure]]: must make the [[broker]]’s obligation to pay amounts to client conditional on the [[broker]] receiving those amounts from the [[intermediary]]. | ||
*[[broker]] risk to [[intermediary|intermediaries]]''': Depends on comprehensive [[limited recourse]] in client documentation. If the client has it, the [[broker]] won’t have it! | *'''[[broker]] risk to [[intermediary|intermediaries]]''': Depends on comprehensive [[limited recourse]] in client documentation. If the client has it, the [[broker]] won’t have it! | ||
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|Depends on [[limited recourse]]. | |Depends on [[limited recourse]]. | ||
{{tablebottom}} | {{tablebottom}} | ||