Financial transactions by institutional investors

12 important questions on Financial transactions by institutional investors

What is the undivided property model?

The CSD is just the register, has no legal interest in the securities. The intermediaries don't have property rights either. Beneficiary has all the property rights. The whole model is based on the presumption that the securities are with the intermediary in the account of the beneficial owner. 

What is the pooled property model?

Its basis is a revindication right. Direct claim on the CSD. Maintaining the pool of securities at the CSD itself. There is a duty on the intermediaries to protect the owners.

What is the transparent model?

No intermediaries involved, just the CSD. The investor has his account directly in the CSD. The banks are not intermediaries because they're not holding securities for someone else. They facilitate the ownership of the beneficial owner at the CSD by providing their systems and their capabilities.
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What's the problem if all the parts in the chain are located in another country and governed by different laws?

You have all different kid of ownership titles in this chain.

Does insolvency cause a loss?

No, insolvency just stops the clock. Insolvency crystallizes the situation.

What is the biggest problem right now?

Cross border insolvency issues.

How do you know which law applies in these settings?

PRIMA --> Place of the Relevant InterMediary Approach.

Which two ways are there to apply PRIMA?

As agreed between the parties contractually (US/Canada/Switzerland) or the place where the securities account is maintained (civil law countries).

How can you buy shares Microsoft?

Basically by entering into a fund. Either direct or via your broker or bank.

The fund is distributed to the shareholders. Why is t his causing problems?

A lot of regulators think the chain of distribution is custody. The transfer agent maintains the share register. the parts of the chain have contractual relationships with each other. The register is the agent of the issuer. There is no duty to the shareholder.

How can you transfer an intermediary security?

By negotiation.
By assignment.
By novation.

Which one isi best?

Securities aren't a negotiable instrument. there is no need to negotiate. Negotiation is not possible. Assignment requires a written instrument. In writing and you need the consent of the obligor, whcih is the issuer. Practical problems. Novation is left.

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