The Rights of Account Holders
Elgar Financial Law series
Chapter 10: Commodity account relationships
The organization of back-end systems for the holding of commodity accounts is similar to that of securities and funds. All of them are pyramid-modeled with a central entity at the top and a network of relationships among intermediaries and account holders forming the lower tiers of the pyramid holding structure. However, a number of differences in terms of relationships and functions can be identified. For instance, clearing is an important function performed by central securities settlement systems yet it is less important in RTGS payment systems. The organization of central clearinghouses for commodity accounts systems is similar to that of securities settlement systems. Yet as examined below many differences exist between the two. At the top of the commodity accounts holding system sits a commodity clearinghouse. Similar to securities clearing and LVFTSs, only authorized intermediaries may access the commodity clearinghouse. Membership is a privilege and license that is typically non-transferable. Individual investors establish commodity accounts with intermediaries, which either directly or through other intermediaries, known as clearing brokers, have access to the clearinghouse. Accordingly, two types of intermediaries participate in commodity accounts systems: 1) clearing members who have direct access to the clearinghouse and 2) non-clearing members who do not deal directly with the clearinghouse. Clearing members have an account relationship with the commodity clearinghouse. Non-clearing members may enter into a standard clearing agreement with a clearing member with whom they also have an account relationship.
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