Attorney Bennett Cohen returns this week to continue his examination on control agreements for pledged securities accounts. This is part six in our eight part series on the topic of control agreements. To start from the beginning, please see the first post, Examining Issues with Control Agreements for Pledged Securities Accounts.

Does the control agreement govern if it conflicts with any of the customer agreements between Pledgor and Broker?

Control Agreements photoSome control agreements fail to provide that if there is a conflict between the control agreement and the other customer agreements between Pledgor and Broker, that the control agreement will govern.  It is important for the Lender that the control agreement govern any such conflict, since the customer agreements will most likely conflict with, and be adverse to, the Lender’s rights. It should further be noted that a Charles Schwab’s control agreement form we recently reviewed provided exactly the opposite (i.e., that any conflict with the control agreement will be governed by Charles Schwab’s other customer agreements), and for this reason such provision was objectionable.


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