CUSTODY AND ROOT OF TITLE INTERNATIONALLY
One of the interesting features of securities trading internationally is the diverse approach to defining and establishing ownership of securities. Although the United States may have a comprehensive scheme, other jurisdictions vary widely in their legal concepts as to the holdings of securities through intermediaries.
Root of title is essentially the means by which a person holding securities establishes a link to the underlying security in which formal legal (as opposed to beneficial or economic) title exists. Intermediated holdings are holdings of securities where the account holder does not directly hold legal title himself but has a claim (usually a beneficial or economic interest—although it may be only a contractual interest in certain jurisdictions) against the person who maintains, keeps up, or operates the account recording his interest.
In common law jurisdictions, an account holder would establish a right by means of a claim as beneficiary against the person operating or maintaining such security account in his name. This would not give the account holder a similar right or claim against the next intermediary in the chain. In the example shown in Figure 7.1, A (the investor) has a claim as beneficiary against B (the intermediary) holding in trust for him. B, in turn, has a claim on the basis of a subtrust against C (the custodian), who holds legal title by virtue of his (C’s) name appearing on a register of legal title. A has ...