2 Financial Collateral, How It Is Held and Transferred

This chapter discusses the use of securities, cash, and credit claims as collateral in finance transactions. To understand any interest in collateralized securities, cash, and credit claims, it is important to consider the concept of asset segregation and the way securities, cash, and credit claims are held. Of these types of collateral, the more difficult legal issues arise in the context of securities. Therefore, the largest part of the chapter is concerned with the custody of securities and the legal treatment, under different national laws, of the transfer and creation of security interests in securities. The challenges regarding the custody and administration of securities mainly follow from differences in the treatment, under different national laws, of the proprietary relationship between the 'owner' of securities and the securities themselves. This relationship is highly relevant, as the manner to provide financial collateral - both practically and legally, and either by way of title transfer or by way of creating a security interest - will be determined by this relationship. Consequently, differences in the treatment of 'owning' securities significantly add to the complexity of providing collateral in an international context.