Template:Delegate vs subcontractor: Difference between revisions

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>. So:

:''Dear Sir/Madam: Let me introduce you to my glamorous assistant, Igor, who will carry out this work for you under my supervision. while your day-to-day interaction will be with Igor, I remain your loyal servant, and shall be answerable to you for Igor’s timely and competent performance.''

*'''Delegate''': A delegating [[depositary]] won’t hold the assets ''at all'': it will pass that responsibility to the [[delegate]] — usually a [[prime broker]] with designs on a spot of [[rehypothecation]] — who will record the end-client’s interests in the [[custody asset]]s directly in its books and records — that is, the [[delegate]] itself, and not the [[depositary]], will be “at the first level of the [[custody chain]]”. The [[delegate]] may have to report everything to the [[depositary]], but the [[depositary]] will not carry the “golden source” record of the client’s assets in its own books and records. It might ''copy'' the [[delegate]]’s report, but the [[delegate]]’s books will be what count. Nopte that teh delegate can see the ultimate client and, should it have lent money to that end client, it has enough information about and control over that client’s assets to (i) take security over them, and (ii) defray its financing costs by [[rehypothecating]] them. For someone in the business of [[margin lending]] — say, a [[prime broker]] — these are pretty fundamental abilities, so expect [[prime broker]]s to be ''very'' enthusiastic about being [[Delegate|delegated]] a [[depositary]]’s [[safekeeping]] function.

*'''Subcontractor''': A [[subcustodian]], by contrast, stands ''behind'' the “first level” [[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 [[main custodian]]’s creditors. If the main custodian were not obliged to tell you about its sub-custodians, you would not even know they were there. A [[sub-custodian]] holds assets for the main [[custodian]], only ''sees'' the [[main custodian]], and won’t know who its individual clients even are, let alone which assets it holds for the main custodian belong to which clients, much less have a direct interpersonal or contractual relationship with those clients. Since it doesn’t know to whom they belong, a sub-custodian won’t be in a position to take security over or [[rehypothecate]] any assets it holds<ref>Except to cover its own direct custody costs.</ref> — hence it ought to be happy enough signing a [[no lien letter]].