Litigation Services Handbook
Chapter 30 – Securities Finance Disputes
Complex financing strategies are typical in the sector of the investment market populated by traders, hedge funds and their prime brokers, agent banks, and securities lenders. Such complexity can lead to contractual disputes involving any of these parties. This chapter focuses on the resolution of disputes involving securities that prime brokers borrow from an agent custodian bank for the benefit of their hedge fund and institutional customers. In the simplest form of securities finance, a broker locates and borrows stocks or bonds to enable its customers to engage in various trading strategies. The customers need the borrowed securities because they wish to sell them but do not possess or control these securities at the time of sale. They must therefore borrow the securities to complete the trade. Customers hope to profit from the trade, while brokers, banks, and the owners of the securities earn interest and fees from arranging to lend the securities.
From the Litigation Services Handbook, 6th Edition. Copyright © 2017 by John Wiley & Sons, Inc. Reprinted by permission of John Wiley & Sons, Inc.