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Custody chains and remoteness: disconnecting investors from issuers

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  • Micheler, Eva

Abstract

This paper shows that the current market infrastructure systemically prevents investors, both shareholders and bondholders, from exercising their rights against issuers. Equity and debt securities are now normally held through a chain of custodians. These custodians are connected with each other through contract law. There also exists legislation determining the relationship between custodians and their clients. It will be shown in the paper that custody chains have become independent from investors and issuers. Neither issuers nor investors are able to control the length of the chain or the content of the legal arrangements that governs the custody chain. Custodians are connected through a series of bilateral links that are independent of each other. This erodes the rights of investors. The paper will illustrate this by reference to the liability of custodians for their services and by reference to the ability of custodians to contract with sub-custodians on terms that are independent from the terms that they have entered into with their customers.

Suggested Citation

  • Micheler, Eva, 2014. "Custody chains and remoteness: disconnecting investors from issuers," LSE Research Online Documents on Economics 59293, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:59293
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    File URL: http://eprints.lse.ac.uk/59293/
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    Cited by:

    1. Droll, Thomas & Podlich, Natalia & Wedow, Michael, 2016. "Out of sight, out of mind? On the risk of sub-custodian structures," Journal of Banking & Finance, Elsevier, vol. 68(C), pages 47-56.

    More about this item

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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