Within financial markets, a contractual arrangement known as a Liquidity Services and Custody Agreement may sometimes be used. This type of contract sets out arrangements for the management and safeguarding of financial assets, frequently involving a custodian institution and a client.
Such an agreement outlines the specifics of how the custodian institution will hold assets, handle transactions, and potentially provide liquidity support for the client. This, in turn, will help ensure the efficient management of investments and the timely flow of funds.
What are the key components of this type of agreement?
The overriding purpose of a Liquidity Services and Custody Agreement is to protect and manage the client’s assets, making sure they are handled in accordance with agreed-upon terms and applicable regulations.
Various aspects of asset management are typically covered by this kind of agreement, encompassing safekeeping, the settlement of transactions, and the potential liquidation of assets.
Here is a breakdown of the main components of such a contract:
- Custody services
This part of the agreement relates to the safekeeping and administration of financial assets – such as securities or cash – by the custodian such as a bank, on behalf of the client.
The custodian will typically be required to hold the assets securely, manage settlements, and potentially provide additional services such as recordkeeping, reporting, and/or handling corporate actions, such as interest payments or dividends.
- Liquidity services
Under this section of the contract, the bank or financial institution will typically provide cash management and liquidity provision services for the client.
The goal of such liquidity services is to ensure the timely availability of funds. This may be achieved through the provision of a liquidity facility or other mechanisms to support investment operations.
- Agreement details
It can be expected that any given Liquidity Services and Custody Agreement will specify the parties involved. Alongside this, information is typically given on the scope of services, fee arrangements, termination procedures, and liability clauses.
A Liquidity Services and Custody Agreement combines the aforementioned functions under a single framework, with one or multiple parties providing liquidity and custodial services, covering both market-making and the safekeeping of assets.
Is a UK process agent service normally needed for this type of agreement?
The fact that Liquidity Services and Custody Agreements are common in cross-border financial transactions, might raise the question for you of whether a UK-based process agent will need to be appointed as part of such an arrangement.
After all, a process agent is an appointed representative in a particular jurisdiction (such as the UK) who receives legal documents, notices, or court proceedings on behalf of a party that lacks a physical presence in the given jurisdiction.
So, to answer that question: yes, if a particular Liquidity Services and Custody Agreement involves parties from multiple jurisdictions (such as a US-based client, a liquidity provider in Dubai, and a UK-based custodian), and the agreement is governed by English law, a UK-based process agent may well be required. This would help ensure compliance with English law and a more streamlined legal process, in the event of a dispute between the parties occurring later.
Ultimately, if a party to such an agreement does require a UK process agent to be appointed as part of the contract, the counterparty won’t have a choice in this matter; they will need to agree to a process agent being appointed if they wish to enter into the agreement.
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