Worldwide financial markets increasingly depend on structures that reduce risk by interposing intermediaries between investors and the companies obligated to pay them. This reduction of risk may be offset, however, by the risk that an intermediary will fail, and its creditors then will claim against assets held by the intermediary for the benefit of investors. If the intermediary holds assets solely in a custodial capacity, this risk traditionally is addressed by agency and trust law. What is novel, however, is that intermediaries in a wide range of domestic and international dealings—including the trading of investment securities, the sale of loan participations, and securitization transactions—now hold assets in which they, as well as investors, share beneficial rights. The sharing of these rights creates significant uncertainty as to whether the intermediary’s creditors can look to all Copyright © 2001 by Steven L. Schwarcz. † Professor of Law, Duke University School of Law; Faculty Director, Duke University Global Capital Markets Center; and Professor of Business Administration, Fuqua School of Business (by courtesy). E-mail: schwarcz@law.duke.edu. The author thanks Joanna Benjamin, Carl S. Bjerre, Michael Byers, Deborah DeMott, Francisco Garcimartin, Roy Goode, Kenneth C. Kettering, Kon Sik Kim, Eva Micheler, Richard Potok, James Steven Rogers, Paul M. Shupack, Joseph Sommer, and Todd J. Zywicki, and the participants in faculty workshops at the George Mason University and Washington and Lee University Schools of Law, for helpful comments on drafts of this Article. The Article also benefitted from discussions with Eric Bergsten and Ian F. Fletcher. Finally, the author thanks Amy S. June, Youngmin Kim, Adam D. Munson, Mark D. Rambler, and Don Suh for research assistance and Kristi Bowman for editorial assistance. SCHWARCZ.DOC 06/08/01 1:46 PM 1542 DUKE LAW JOURNAL [Vol. 50:1541 those assets, or merely to the intermediary’s interest therein, for repayment. This “intermediary risk” not only affects individual investors and increases transaction costs but also can be systemic: the failure of an intermediary may trigger a chain reaction of failures of investing institutions that contract with the intermediary. Moreover, the problem of intermediary risk raises innovative legal issues that blur the boundaries between commercial law and property. This Article analyzes how legal systems worldwide should respond to this risk. It concludes that a uniform rule is needed to regulate intermediary risk in cross-border commercial and financial transactions, and it examines how such a rule should be implemented in an international law context.