What “allocated and segregated” actually means.
A structural distinction, not a marketing adjective. The contractual difference between specific bars designated to a client and a fractional claim against a pooled inventory determines what survives stress events — and what does not.
Sourced. Structural. Not predictive. No allocation advice.
Three custody modes. Three different things you actually own.
Across the institutional precious-metals custody framework — the LBMA-clearing London market, the COMEX-aligned New York market, and the major non-bank depositories — three custody modes are in active use. They are not synonyms. The structural difference between them determines what the client actually owns and what survives a stress event at the depository.
- Unallocated. A paper claim against a pooled inventory. The depository owes the client a stated weight of metal; no specific bars are designated. The client is, contractually, an unsecured creditor of the depository.
- Allocated. Specific metal held on the depository’s books in the client’s name — but commingled with other clients’ allocated metal of the same type, in shared vault space.
- Segregated and allocated. Specific metal physically separated — in the client’s own compartment, bin, or vault — and identified at the bar-serial level on the depository’s records. The institutional standard.
Marketing copy in the retail-metals space sometimes uses these terms interchangeably. They are not interchangeable. The rest of this note walks the structural difference and the failure modes the difference protects against.
The default in the LBMA market. The structural counterpart of a bank deposit.
The standard institutional-account form in the London bullion market is the unallocated account. The client buys, sells, and transfers gold by the ozt on the books of an LBMA-clearing bank without any specific bars being identified. The metal is held in the bank’s pooled inventory. The client’s claim is a credit balance.
This structure is convenient for cleared institutional flows — it is the form that powers most of the cleared-volume turnover at LBMA — and it is the structural counterpart of a bank deposit. The unallocated client is, in the event of the LBMA bank’s insolvency, an unsecured creditor of the bank’s estate. There is no specific metal that belongs to that client; there is a claim for a stated weight of metal that ranks alongside the bank’s other unsecured obligations.
Many retail metals platforms quote “ounces” or “grams” to the client without making clear which custody mode is in use. A pooled-inventory product — whether described as “backed by metal,” “held at the vault,” or with similar phrasing — that does not name the specific bars and the client’s designation against them is, in structural terms, an unallocated account. The marketing language and the legal structure can diverge.
Title to specific metal — but commingled in shared space, with shared exposures.
An allocated account is a meaningful structural improvement over an unallocated account. The depository identifies specific bars (by serial number, weight, fineness, refiner) on its records as belonging to the client; those bars are not part of the depository’s balance sheet and do not enter the depository’s estate in the event of insolvency. The metal is the client’s metal.
The limit of allocated, without segregation, is the physical handling. In most allocated arrangements, bars belonging to different clients of the same custody mode are stored together in shared vault space. That is acceptable in normal operations — the bar-level recordkeeping is the legal protection — but it has implications under stress.
Three implications, in order of seriousness.
First, recordkeeping integrity is the protection. The client’s legal claim to specific bars depends on the depository’s records being correct, contemporaneously maintained, and reconcilable. A recordkeeping failure — whether through error, fraud, cyber compromise, or operational stress — can introduce ambiguity about which bars belong to which client.
Second, the audit path runs through the depository. Verification that the bars listed on the depository’s records still exist, are still where the records say they are, and have not been rehypothecated or transferred without authorization, requires either audited reporting from the depository or a physical inspection. The client can pay for either; many clients pay for neither.
Third, the depository’s operational health still matters. The metal does not vanish if the depository fails — allocated metal is the client’s property — but the operational pathway to re-establish access, identify the bars, and physically remove or transfer them runs through the depository’s administration, which can take weeks or months and can be costly.
Specific bars, in the client’s own physical space, named on the records.
Segregated-and-allocated is the standard the Office uses in every brief unless a client’s specific situation requires a different posture — in which case the deviation is named and justified in the brief. The structural definition:
- Specific bars, identified at the bar-serial level (or, for product not individually serialized, at the lot/weight/fineness level), are assigned to the client on the depository’s records.
- Those bars are physically held in a compartment, bin, or vault assigned to the client — not commingled with other clients’ holdings in shared space.
- The arrangement is documented in a depository storage agreement that names the client (or the client’s entity or trust), the bars or lots, the storage location, the insurance arrangement, and the access and audit rights.
The third bullet does most of the work in stress. The depository storage agreement is the document that turns the position from a bookkeeping entry into a property right that survives the depository’s operational difficulties. An agreement signed by the named depository, with the named bars (or lots), the named insurance, and the named access rights, is the artifact a household’s counsel would expect to see — not because the Office said so but because that is what an institutional auditor would expect the document to look like.
The reason the words on the contract matter is what happens when a counterparty fails.
The reason custody mode matters is not visible in calm markets; in normal operations, every mode delivers the metal as expected. The reason matters in default. The two clearest documented precedents:
Re Lehman Brothers International (Europe), 2008–2014. When Lehman’s London prime-brokerage subsidiary entered administration in September 2008, hedge-fund and institutional clients with “allocated” client-asset claims discovered that the operational reality of the segregation differed materially from the contract language. Significant volumes of client-marked positions had been rehypothecated under the prime-brokerage agreement; the recordkeeping in the days before the failure was incomplete; client-asset returns took years to litigate through the UK courts. The lesson the institutional community drew is the one this note carries: custody-mode protection is the contract plus the operational reality, not one or the other.
MF Global, October 2011. When MF Global Holdings filed for bankruptcy in October 2011, an estimated $1.6 billion of segregated futures-customer funds were found to be missing from the customer-segregated account — transferred to firm operations in the firm’s last days of liquidity stress. Most of the missing funds were ultimately recovered, but recovery took years and involved multiple jurisdictions. “Segregated” had the wrong meaning in the operational reality of the firm’s last seventy-two hours.
Neither precedent involved precious-metals depositories directly, and neither implies that the major institutional precious-metals depositories are at comparable operational risk — the major depositories run audited operations under specific regulatory oversight regimes. The precedents are cited because they make the structural argument concrete: the difference between custody modes is not a difference of feature, it is a difference of what survives a stress event. The Office’s position is that the difference matters and should be written down.
The custody mode is the reserve’s contract with reality. Read it before, not after.
The Office holds to the same standard an institutional auditor would.
The Office’s standard for client engagements is segregated-and-allocated custody at a named institutional facility, under a depository storage agreement that names the client (or the client’s entity or trust), identifies the holdings at the lot or bar-serial level, names the insurance arrangement, and defines access and audit rights. Anything less is named in the brief as a deviation, with the reasoning written down.
Storage at the three institutional facilities the Office uses — the Utah-based Precious Metals Vault, Brinks, and IDS — is offered on this basis, with the agreement-level documentation provided by the depository at the time of acquisition. The Office reads the agreements alongside the household’s counsel before any acquisition is executed.
“The point of segregation is not paranoia. The point is that the difference between segregated and pooled is the difference between a property right and a credit claim. Those are different things. They survive different events. A reserve is built for the events that don’t happen often. If the form of the position only works when nothing goes wrong, the form of the position is wrong.”
Eric Roach · Co-founder
Custody mode, depository, agreement, insurance — every line on its own line.
The Strategy Brief’s §03 Custody architecture is the section where the custody-mode decision is recorded. It names the depository, the custody mode, the agreement, the insurance arrangement, and the audit rights. None of those nouns are decorative. Each of them is the kind of line item an institutional auditor would expect to see written down in a reserve-allocation document — and the Office writes them down at household scale on the same logic.
The brief is, in this respect, a discipline as much as a deliverable. It forces the question of what is in writing to be answered before the acquisition is executed. The discipline is the part that protects the household; the deliverable is the form the discipline takes.
“An auditor reading the custody section of an institutional brief expects to see the depository named, the agreement referenced, the insurance certificate summary, and the bar list (or lot list, where the product is not individually serialized). They expect to see the audit rights, the access rights, and the termination provisions. None of that is exotic. It is the standard institutional-auditor checklist. The reason to write it down at household scale is the same reason an auditor wants to see it at institutional scale — because in any event other than normal operations, the document is what is left.”
Jose Gomez · Co-founder
Primary sources for an advisor or counsel reviewing the custody architecture.
- LBMA member custodial-agreement standards. The London Bullion Market Association publishes the institutional reference for the unallocated, allocated, and segregated structures used in the cleared market. The vocabulary used in this note is taken from that reference.
- Re Lehman Brothers International (Europe), administration proceedings. UK High Court of Justice and Court of Appeal decisions, 2008–2014. The body of decisions defining the operational reality of “allocated” client-asset claims under the LBIE prime-brokerage agreement. Cited here for the operational-reality vs. contract-language distinction.
- MF Global Inc. trustee filings, US Bankruptcy Court for the Southern District of New York. Trustee James W. Giddens’s reports on the customer-segregated funds shortfall, the recovery program, and the litigation outcomes. The authoritative public-record source on the “segregated”-name failure mode.
- CFTC and SEC custody-rule frameworks. US regulatory references for futures and securities customer-asset segregation. The structural counterpart (different asset class, same conceptual question) of the precious-metals custody question.
- Depository storage agreement templates. Available through the named institutional facilities the Office uses. Reviewed by the Office and the household’s counsel at the time of engagement; treated as the operative artifact, not the marketing material.
The final note steps back to the system.
Office Note 07 is the guide to the five public-facts dimensions tracked on the quarterly /signal page — ETF concentration, authorized-participant structure, central-bank purchasing, IMF COFER reserve composition, LBMA cleared-metal structure. What each one says structurally, and how to read them together.
The reviewed Physical Reserve Strategy Brief is delivered within five business days of intake. The brief is the document that takes the custody-architecture argument above and applies it to your situation specifically.
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