Elgar Financial Law and Practice series
Chapter 19: USE OF BOOK ENTRY SECURITIES AS COLLATERAL
The vast majority of non-UK traded bonds, equities and investment funds are held through indirect holding systems such as the two International Central Securities Depositories (‘ICSDs’) operated by Euroclear Bank S.A./N.V. (‘Euroclear Bank’) and Clearstream Banking S.A. (‘Clearstream Banking’), respectively. Many (but not all) national central securities depositories outside the UK (‘CSDs’) are also indirect holding systems. Latest published statistics show the value of securities held by Euroclear Bank as €12.4 trillion and the daily average value of securities held under custody by Clearstream Banking as €12.2 trillion. Unlike CREST, which is a direct holding system in relation to domestic securities, there is no direct relationship between the issuer of the underlying securities and the investor in an indirect holding structure. One or more intermediaries stand between the issuer and the investor so as to break the legal relationship between issuer and investor. The investor does not hold legal title to the underlying securities and is not entitled, as against the issuer, to exercise the rights attached to the securities and to receive directly the income payable on them. Instead, the rights of the investor are generally exercisable solely against his direct intermediary (a ‘direct intermediary’) on whose books the account recording the investor’s interest in the securities is kept.
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