When the securities held through a financial intermediary are not segregated from the intermediary's own assets, the interest holder may be treated as having a general contractual claim against the intermediary, instead of traceable property rights in individual securities. For example, under general principles of law in most civil-law countries, a person with an interest in unsegregated securities is generally treated as having an "irregular deposit". Irregular securities deposits are treated like general money deposits-the deposited securities become the property of the intermediary and the interest holder becomes a general creditor of the intermediary. The legal result is generally the same in common law countries. This would expose investors and secured creditors to the insolvency risk of their intermediaries and potentially, lead to systemic risk in the market in the event of insolvency of a sizeable intermediary.

The segregation of securities on the books of the depository into proprietary accounts and customer accounts is important from investor protection perspective. Failure by a nominee to earmark customers' assets should not, however, convert the securities into the property of the nominee. Unfortunately, failure to properly segregate may substantially reduce the degree of practical protection from third-party claims which the system provides to customers.

In all the participating countries with a CDS, the investor holds his securities through accounting records maintained by one or more tiers of intermediaries institutions. The assets of the investor are only segregated legally from those of other investors in accounts maintained by the nominee. This makes it even more important for there to be proper segregation of securities on the books of the broker and the depository into proprietary accounts and customer accounts. In the said countries, securities are held on trust for investors, so that even if the registered holder is not the ultimate owner of the securities, they are still protected from the claims of creditors of the CDS in the event of insolvency of a broker. In most of the countries, the registrar keeps a record of the depositors in order to ascertain actual ownership of the securities.