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Often [[triparty agent]]s are behemoth banks like JPMorgan, Bank of New York Mellon, or clearing systems like Euroclear. | Often [[triparty agent]]s are behemoth banks like JPMorgan, Bank of New York Mellon, or clearing systems like Euroclear. | ||
===How it works=== | |||
See handy diagram over yonder ==>. | |||
The triparty agent acts as a [[custodian]]. It opens separate accounts in the name of a {{gmslaprov|borrower}} (usually a [[broker]] looking to “upgrade” securities in its equities and [[prime brokerage]] businesses, optimising its funding position for [[margin loan]]s it has made) and {{gmslaprov|lender}} — typically a large wealth manager whose clients have lots of government bonds and other high-quality securities they want to earn some extra yield), and transfers {{tag|collateral}} between them at their joint instruction, in satisfaction of [[margin]] obligations under the stock loan between the lender and borrower, which will be documented under a separate [[master agreement]]. A {{gmsla}} or something similar. So very popular with [[agent lender]]s and [[agent lending]] participants as a handy way of managing collateral received from [[broker]]s who are borrowing their securities to of their [[prime brokerage]] desk, as this handy diagram purports to illustrate. | |||
The | The [[triparty agent]] acts as {{tag|custodian}} and has legal title to securities which it holds as trustee for the [[broker]], so at first [[broker]] is the beneficial owner. When the securities are transferred to a lender as collateral, the triparty custodian effects this in its own books and records by debiting [[broker]]’s account – whereupon [[broker]] ceases to have any legal or [[beneficial interest]] in the securities – and credits them to the {{gmslaprov|Lender}}, whereupon the {{gmslaprov|Lender}} holds the beneficial interest. | ||
At all times while the securities are in the triparty system, the [[triparty custodian]] owns legal title. It moves securities by book entry in its own records – there is no physical movement of actual securities once they’re in the triparty system. The [[broker]] can credit and debit securities from its long box account more or less at will (as long as it keeps a sufficient collateral balance in there) in order to meet its own requirements for hedging (and its PB clients’ interests in rehypothecated custody assets) | At all times while the securities are in the triparty system, the [[triparty custodian]] owns legal title. It moves securities by book entry in its own records – there is no physical movement of actual securities once they’re in the triparty system. The [[broker]] can credit and debit securities from its long box account more or less at will (as long as it keeps a sufficient collateral balance in there) in order to meet its own requirements for hedging (and its PB clients’ interests in rehypothecated custody assets) |