Article 38(6) CSDR Participant Disclosure

1. Introduction

The purpose of this document is to disclose the levels of protection associated with the different levels of segregation that Brown Brothers Harriman & Co. (BBH or we), provides in respect of securities that we hold directly for clients with Central Securities Depositories within the EEA (CSDs), including a description of the main legal implications of the respective levels of segregation offered and information on the insolvency law applicable. This disclosure is required under Article 38(6) of the Central Securities Depositories Regulation (CSDR) in relation to CSDs in the EEA.

Under CSDR, the CSDs of which we are a direct participant (see glossary) have their own disclosure obligations and we include links to those disclosures in this document.

This document is not intended to constitute legal or other advice and should not be relied upon as such. Clients should seek their own legal advice if they require any guidance on the matters discussed in this document.  Nothing in this document shall be construed as to amend the terms of any custody agreement between BBH and each of its clients.

2. Background

We record each client’s individual entitlement to securities that we hold for that client in one or more client securities accounts established and maintained for such client in our own books and records pursuant to the terms of the custodial services agreement between the client and us. We also open accounts with the CSDs in our own (or in our nominee’s) name in which we hold clients’ securities. We currently make two types of accounts with the CSDs available to clients: Individual Client Segregated Accounts (ISAs) and Omnibus Client Segregated Accounts (OSAs).

An ISA is used by us to hold the securities of a single client and therefore the client’s securities are held separately from the securities of other clients and our proprietary securities.

An OSA is used to hold the securities of a number of clients on a collective basis. However, we do not hold our own proprietary securities in OSAs.

3. Main legal implications of levels of segregation


Clients’ legal entitlement to the securities that we hold for them directly with the CSDs would not be affected by our insolvency, whether those securities were held in ISAs or OSAs.

The distribution of the securities in practice on insolvency would depend on a number of factors, the most relevant of which are discussed below.

Application of U.S. insolvency law

As a private bank licensed in the State of New York, we would be resolved under the New York Banking Law in the unlikely event of our insolvency.  That law provides for the New York State Department of Financial Services (NYDFS) to serve as receiver of an insolvent private banker under a set of state insolvency laws that are substantially similar to those that apply when the Federal Deposit Insurance Corporation (FDIC) acts as receiver of an insured depository institution.

Article 8 of the UCC provides that the financial assets held by a securities intermediary (e.g., global custodian) for the benefit of its clients  are “not property of the securities intermediary.” 1  Under New York law, “[t]o the extent necessary for a securities intermediary to satisfy all security entitlements with respect to a particular financial asset, all interests in that financial asset held by the securities intermediary are held by the securities intermediary for the entitlement holders, are not property of the securities intermediary, and are not subject to claims of creditors of the securities intermediary [...].” 2

Additionally, Section 617 of the New York Banking Law provides procedures for the NYDFS to notify owners of assets that are being held in the custody or possession of a banking organization (e.g., a Private Bank) as bailee or depositary and for the redelivery of such assets to such owners.3  Such Section 617 provides that “the [S]uperintendent may, after he has taken possession of any banking organization, cause to be mailed to each person … appearing upon the books of such organization to be … the owner of any personal property in the custody or possession of such banking organization as bailee or depositary for hire or otherwise” notice with respect to such personal property.4 Such Section 617 further specifies that the personal property of the specific owner includes Securities held in custody: “As used herein the phrase 'personal property in the custody or possession of such banking organization as bailee or depositary for hire or otherwise' shall include, without limitation, securities, whether held in custody directly or in book-entry form by such banking organization, its nominee, subcustodian, clearing corporation or similar entity.” 5

Under New York law, “[t]o the extent necessary for a securities intermediary to satisfy all security entitlements with respect to a particular financial asset, all interests in that financial asset held by the securities intermediary are held by the securities intermediary for the entitlement holders, are not property of the securities intermediary, and are not subject to claims of creditors of the securities intermediary.

Nature of clients’ interests

Although our clients’ securities are recorded in our name at the relevant CSD, we hold them on behalf of our clients, who are considered as a matter of law to have a beneficial ownership interest in those securities. This is in addition to any contractual right a client may have against us to have the securities delivered to them.

This applies both in the case of ISAs and OSAs. However, the nature of clients’ interests in ISAs and OSAs is different. In relation to an ISA, each client is beneficially entitled to all of the securities held in the ISA. In the case of an OSA, as the securities are held collectively in a single account, each client is normally considered to have an undivided beneficial interest in all securities in the account proportionate to its holding of securities as recorded in our books and records.

Our books and records constitute evidence of our clients’ beneficial interests in the securities. The ability to rely on such evidence would be particularly important on our insolvency. In the case of either an ISA or an OSA, an insolvency practitioner may require a full reconciliation of the books and records in respect of all securities accounts prior to the release of any securities from those accounts.

We are subject to the New York Banking Law and the supervisory guidance of NYSDFS for the provision of custody services (Custody Services Guidance), which contain detailed requirements as to the maintenance of accurate books and records and the reconciliation of our records against those of the CSD with which accounts are held. We are also subject to regular examinations (in the US) and audits (in the branch jurisdictions) in respect of our compliance with those requirements. Subject to the maintenance of books and records in accordance with the Custody Services Guidance, clients should receive the same level of regulatory protection on insolvency from both ISAs and OSAs.


If there were a shortfall between the number of securities that we are obliged to deliver to clients and the number of securities that we hold on their behalf in either an ISA or an OSA, this could result in fewer securities than clients are entitled to being returned to them on our insolvency. The way in which a shortfall could arise would be different as between ISAs and OSAs (see further below).

How a shortfall may arise

We do not permit clients to make use of or borrow securities belonging to other clients for intra-day settlement purposes, even where the securities are held in an OSA, in order to reduce the chances of a shortfall arising as a result of the relevant client failing to meet its obligation to reimburse the OSA for the securities used or borrowed.

Where we have been requested to settle a transaction for a client and that client has insufficient securities held with us to carry out that settlement, in the case of both an ISA and an OSA, we only carry out the settlement once the client has delivered to us the securities needed to meet the settlement obligation.

However, a shortfall could arise as a result of inadvertent administrative error or operational issues.

Nothing in this paragraph should be construed to override any obligation that the client owes us in respect of any irrevocable payment or delivery obligations which we incur in settling that client's trades.

Treatment of a shortfall

In the case of an ISA, the whole of any shortfall on the relevant account would be attributable to the client for whom the account is held and would not be shared with other clients for whom we hold securities. Similarly, the client would not be exposed to a shortfall on an account held for another client or clients.

In the case of an OSA, the shortfall generally would be shared among the clients with an interest in the OSA, pro rata in accordance with the amounts of their respective interests. Therefore, a client may be exposed to a shortfall even where securities have been lost in circumstances which are completely unrelated to that client.

If a shortfall arose for which we are liable to clients, and we do not set aside our own cash or securities to cover the shortfall, the clients may have a claim against us for any loss suffered. If we were to become insolvent prior to covering a shortfall, clients would rank as general unsecured creditors for any amounts owing to them in connection with such a claim. Clients would therefore be exposed to the risks of our insolvency, including the risk that they may not be able to recover all or part of any amounts claimed.   Notwithstanding the foregoing, with respect to those deposits placed with BBH (including our branches), New York depositor preference legislation covering “private banks” such as BBH, provides that claims for money on deposit with the bank or “delivered for transmission” are preferred against general creditors in respect of assets that are shown on the books of the bank (or by other legal evidence) to have been derived from the investment of such moneys, or from the investment of permanent capital.6

In these circumstances, clients could be exposed to the risk of loss on our insolvency. If securities were held in an ISA, the entire loss (equal to the shortfall) would be borne by the client for whom the relevant account was held. If securities were held in an OSA, each of the clients with an interest in that account would bear a loss generally equal to the client's pro rata share of the shortfall.

In order to calculate clients’ shares of any shortfall in respect of an OSA, each client’s entitlement to securities held within that account would need to be established as a matter of law and fact based on our books and records. Any shortfall in a particular security held in an OSA would then be allocated among all clients with an interest in that security in the account. It is likely that this allocation would be made ratably between clients with an interest in that security in the OSA, although arguments could be made that in certain circumstances a shortfall in a particular security in an OSA should be attributed to a particular client or clients. It may therefore be a time-consuming process to confirm each client’s entitlement. This could give rise to delays in returning securities and initial uncertainty for a client as to its actual entitlement on an insolvency. Ascertaining clients’ entitlements could also give rise to the expense of litigation, which could be paid out of clients’ securities.

Security interests

Security interest granted to a third party other than a CSD

Security interests granted over clients’ securities could have a different impact in the case of ISAs and OSAs.

Where the client purports to grant a security interest over its interest in securities held by us in an OSA and the security interest was asserted against the CSD with which the account was held, there could be a delay in the return of securities from that account to all clients holding securities in the relevant account, including those clients who had not granted a security interest, and a possible shortfall in the account. However, in practice, we would expect that the beneficiary of a security interest over a client’s securities would perfect its security by notifying us rather than the relevant CSD and would seek to enforce the security against us rather than against such CSD, with which it had no relationship. We would also expect the CSDs to refuse to recognize a claim asserted by anyone other than ourselves as account holder.

Security interest granted to CSD

Where the CSD benefits from a security interest over securities held for a client, there could be a delay in the return of securities to a client (and a possible shortfall) in the event that we failed to satisfy our obligations to the CSD and the security interest was enforced. This applies whether securities are held in an ISA or an OSA. However, in practice we would expect that a CSD would first seek recourse to any securities held in our own proprietary accounts to satisfy our obligations and only then make use of securities in client accounts. We would also expect a CSD to enforce its security ratably across client accounts held with it.

4. CSD disclosures 

Where available, set out below are links to the disclosures which have been made by the CSDs in which we are participants as of the date of this document.

These disclosures have been provided by the relevant CSDs. We have not investigated or performed due diligence on the disclosures and clients rely on the CSD disclosures at their own risk.

Clearstream Banking SA

Euroclear Bank SA/NV

5. Cost Disclosures

This Cost Disclosure is intended to give a high-level overview of costs associated with account structures described in section 2. Should further discussions be required on account structures and related fee schedules, please contact your relationship manager.

BBH costs

There are multiple factors which can influence the fee structure when it comes to setting up and maintaining an account at the CSD. These include:

  • A setup fee based on the account type, whether ISA or OSA;
  • Fixed maintenance fees charged per account;
  • The number of markets in which accounts should be opened; and
  • The number of accounts needed to be opened
In addition, there can be further fees which would not be variable when choosing between ISA or OSA models. Examples of these are not limited to:
  • Custody and Safekeeping fees;
  • Asset Servicing fees;
  • Fees associated with administrative changes such as name changes or address changes;
  • Once-off transactional fees to support activity such as cancellation or dormancies;
  • Tax reclaims fees;
  • Specific taxation or registration change fees; and
  • Out of pocket expenses
Furthermore there can be potential enhancement or development applied to account maintenance and opening. Related fees may be applied as charges when agreed.

CSD Costs

Further to BBH costs, each CSD may charge additional costs based on increased overhead and administration for them.  As a general rule, CSDs tend to use the OSA model as a standard, which gives an understanding that ISAs have a higher cost structure than OSAs due to the additional effort needed for account opening, maintenance and so on. Fees to be paid for account maintenance can also vary depending on the account model – with the ISA approach, a client will bear all the fees directly, while with the OSA model, the fees would be shared between holders of the assets within the account.

There can also be once off fees levied by CSDs. These should not be dependent on whether the client chooses an ISA or OSA model. Examples of such fees could be registration fees, corporate actions fees or similar and would be expected to be passed on as incurred.

This cost disclosure is built based on the CSD structure and related charging as of the date of this disclosure. As CSDs are able to change their charging structure from time to time, we would advise referencing the website of the CSD in question to view applicable and up-to-date CSD fees and charges.


Central Securities Depository or CSD is an entity which records legal entitlements to dematerialized securities and operates a system for the settlement of transactions in those securities.

Central Securities Depositories Regulation or CSDR refers to EU Regulation 909/2014 which sets out rules applicable to CSDs and their participants.

direct participant means an entity that holds securities in an account with a CSD and is responsible for settling transactions in securities that take place within a CSD. A direct participant should be distinguished from an indirect participant, which is an entity, such as a global custodian, which appoints a direct participant to hold securities for it with a CSD.

EEA means the European Economic Area.

1 N.Y. U.C.C. Law § 8-503(a).
2 Id.
N.Y. Banking Law § 617.
6 Article 4, §166 of the New York Banking Law

The Communication has been prepared for information purposes only in connection with Article 38(6) of CSDR. The information provided does not constitute legal, tax, financial or investment advice and is not intended as: (i) an offer to sell or a solicitation to buy securities or investment products, (ii) an offer of services, or (iii) a recommendation to invest or not invest in any country. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code or for promotion, marketing or recommendation to third parties. This information: (i) has been obtained from sources believed to be reliable, (ii) has not been independently verified, and (iii) is inherently subject to change. BBH does not make any representation or warranty as to the accuracy or completeness of the information provided and will not be responsible for any loss or damage (direct, indirect or consequential) incurred as a result of any reliance on this information. Any information provided and/or opinions expressed are subject to change without notice. Unauthorized use or distribution without the prior written permission of BBH is prohibited. Clients should seek the advice of their own compliance or legal counsel and form their own views. BBH is a service mark of Brown Brothers Harriman & Co., registered in the United States and other countries.

©Brown Brothers Harriman & Co. 2021.  All rights reserved.


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