Indirectly Held Securities and Intermediary Risk

Abstract

In a previous article ("Intermediary Risk in a Global Economy," 50 Duke Law Journal 1541 (2001)), I observed that intermediaries in a wide range of international dealings now hold assets in which they, as well as investors, share beneficial rights. The sharing of these rights creates significant uncertainty as to whether the intermediary's creditors can look to all those assets, or merely to the intermediary's interest therein, for repayment. This "intermediary risk" not only affects individual investors and increases transaction costs but also can be systemic. The present article focuses on this risk in the context of the indirect holding system used worldwide for trading of securities. It concludes that a uniform rule is needed to regulate this risk, and examines how such a rule should be implemented in an international law context.