Custody chain
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The concatenation of contracts and arrangements whereby one can trace one’s beneficial ownership of one’s security all the way from one’s depositary, prime broker (or other custodian) who tells you daily that it holds it, down through impermeable layers of global sub-custodians, local market sub-custodians, clearing systems, central securities depositaries, common depositaries and registrars, all the way back to the security’s issuer.)
Made all the more complicated in a crazy interconnected globe, by different title and ownership models in different jurisdictions. The Anglo Saxon world relies heavily on trusts and the clever distinction between “beneficial” and “legal” interests in these securities (at their various layers of abstraction) to make the idea of custody work; the continentals do not, though you might ask what they think a fiduciary contract is if it isn’t a trust.
Like the ultimate nature of money, the custody chain is part of the deep metaphysical lore of the market; part of the founding myth. This dismays practical types who have no love of arid philosophical debates, and, since those who inhabit custody functions tend to be just such practical types, few people genuinely understand who actually, legally owns a given registered security when it could be so many different people at once. In peacetime, it really doesn’t matter. In times of war, of course, as flak rains on your bunker and people are losing their heads, spending the time discovering how a custody chain works can be rather bracing.
The question of whether one delegates or sub-contracts ones custody function to agents and sub-custodians is one that generates less attention and confusion than, in the JC’s opinion, it should.
“Less confusion?” you say.
Quite so: given how counter-intuitive it is, people thinking clearly about it should be confused. The fact that they tend not to be suggests something worse: they’re mistaken.