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CASS 7.19 Clearing member client money sub-pools

CASS 7.19.1G
  1. (1)

    1Under CASS 7.17.2R(2)2, a firm acts as trustee for all client money received or held by it for the benefit of the clients for whom that client money is held, according to their respective interests in it.

  2. (2)

    A firm that is also a clearing member of an authorised central counterparty may wish to segregate client money specifically for the benefit of a group of clients who have chosen to clear positions through a net margined omnibus client account maintained by the firm with that authorised central counterparty, where that segregation might facilitate the porting of client positions recorded in that net margined omnibus client account. To segregate client money (that would otherwise be held in the general pool) for a specific group of clients clearing positions through a particular net margined omnibus client account, a clearing member firm may, in accordance with these rules, create a sub-pool of client money.

  3. (3)

    Upon the occurrence of a primary pooling event, the client money for:

    1. (a)

      the general pool, should be distributed in accordance with CASS 7A to the clients for whom the firm receives or holds client money in that general pool; and

    2. (b)

      a sub-pool, should either be:

      1. (i)

        transferred to facilitate porting; or

      2. (ii)

        distributed to the clients who are beneficiaries of that sub-pool, according to their respective interests under CASS 7A.2.4R (2)(a).

  4. (4)

    All client money is received or held by the firm as trustee for the clients of the firm. However, a clearing member of an authorised central counterparty who clears client positions through a net margined omnibus client account may organise its affairs (with the consent of the relevant clients) in such a way that those clients need not share in the general pool of client money following a primary pooling event, save to the extent that such clients otherwise have an interest in the general pool.

CASS 7.19.2R

Where a firm creates a sub-pool for a particular net margined omnibus client account, it must not clear positions through that omnibus client account for clients who are not beneficiaries of that sub-pool.

Internal controls

CASS 7.19.3R

A firm wishing to establish a sub-pool must establish and maintain adequate internal controls necessary to comply with the firm's obligations under CASS 7 for the general pool and each sub-pool that it may establish.

Records

CASS 7.19.4R

Where a firm establishes one or more sub-pools, CASS 7.15 1 (Records, accounts and reconciliations) shall be read as applying separately to the firm's general pool and each sub-pool.

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CASS 7.19.5G

A firm that establishes one or more sub-pools must establish and maintain adequate internal controls and records in accordance with CASS 7.15 1 (Records, accounts and reconciliations) to conduct internal and external reconciliations for each sub-pool and the general pool individually.

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CASS 7.19.6R
  1. (1)

    The records maintained for a sub-pool under CASS 7.19.4 R must identify all the client beneficiaries of that sub-pool.

  2. (2)

    The beneficiaries of each sub-pool are those clients:

    1. (a)

      from whom the firm has received a signed sub-pool disclosure document in accordance with CASS 7.19.11 R;

    2. (b)

      for whom the firm maintains, previously maintained or is in the process of establishing a margined transaction(s) in the relevant net margined omnibus client account at the authorised central counterparty; and

    3. (c)

      to whom any client equity balance or other client money is required to be segregated for the client by the firm in respect of the margined transactions under (2)(b) from that sub-pool.

CASS 7.19.7R
  1. (1)

    For each sub-pool that the firm establishes, it must maintain a record of:

    1. (a)

      the name of the sub-pool;

    2. (b)

      the particular net margined omnibus client account at an authorised central counterparty to which the sub-pool relates;

    3. (c)

      each client bank account and each client transaction account (other than the net margined omnibus client account) maintained for the sub-pool, including the unique identifying reference or descriptor under CASS 7.19.13 R (2); and

    4. (d)

      the applicable sub-pool disclosure document for the sub-pool.

CASS 7.19.8R

The firm must maintain an up-to-date list of all the sub-pools it has created.

Sub-pool disclosure document

CASS 7.19.9R
  1. (1)

    A firm wishing to establish a sub-pool must prepare a sub-pool disclosure document for each sub-pool.

  2. (2)

    The sub-pool disclosure document for each sub-pool must:

    1. (a)

      identify the sub-pool by name, as stated in its records under CASS 7.19.7 R, the net margined omnibus client account and the authorised central counterparty to which the sub-pool disclosure document relates;

    2. (b)

      contain a statement that the client consents to the firm receiving and holding the client's client money in the sub-pool;

    3. (c)

      contain a statement that, in the event of the failure of the firm, the firm is directed by the client to use any client money held by the firm in the sub-pool to facilitate the porting of the positions recorded in that net margined omnibus client account; and

    4. (d)

      a statement reminding the client that, in the event of the failure of the firm, if porting is not effected or if porting is effected but any money in the sub-pool is not used to facilitate porting, the client beneficiaries of the sub-pool will be entitled to a distribution of any client money held for that sub-pool in line with CASS 7A. However, the client beneficiaries will not have a claim on any other pool of client money, except to the extent that the client is a beneficiary of another pool.

CASS 7.19.10G

In preparing a sub-pool disclosure document under CASS 7.19.9 R (1), a firm may use the template in CASS 7 Annex 6.

CASS 7.19.11R
  1. (1)

    Before receiving or holding client money for a client for a sub-pool, a firm must:

    1. (a)

      provide to the client a copy of the sub-pool disclosure document applicable to that sub-pool; and

    2. (b)

      obtain a signed copy of that sub-pool disclosure document from the client.

  2. (2)

    A firm must provide the beneficiary of a sub-pool with a copy of its signed sub-pool disclosure document applicable to that sub-pool upon the beneficiary's request.

Segregation and operation of sub-pools

CASS 7.19.12R

Where a firm establishes one or more sub-pools, CASS 7.132 (Segregation of client money) is to2 be read as applying separately to the firm's general pool and each sub-pool.

CASS 7.19.13R
  1. (1)

    A firm must not hold client money for a sub-pool in a client bank account or a client transaction account used for holding client money for any other sub-pool or the general pool.

  2. (2)

    A firm that establishes a sub-pool must ensure that the name of each client bank account and each client transaction account (other than the net margined omnibus client account) maintained for that sub-pool includes a unique identifying reference or descriptor that enables the account to be identified with that sub-pool.

  3. (3)

    Where a client of the firm is a beneficiary of the general pool and wishes to become a beneficiary of a sub-pool, the client in question shall become a beneficiary of the relevant sub-pool when :

    1. (a)

      the firm has obtained the signed sub-pool disclosure document from that client in accordance with CASS 7.19.11 R (1); and

    2. (b)

      the firm has either:

      1. (i)

        transferred the relevant amount of client money for that client from a client bank account maintained for the general pool to a client bank account maintained for the relevant sub-pool; or

      2. (ii)

        if the firm is not making a transfer of client money from the general pool, when it has received that client's money in a client bank account maintained for the relevant sub-pool.

  4. (4)

    Where a client of the firm is a beneficiary of the general pool and wishes to become a beneficiary of a sub-pool, the firm must ensure that it does not transfer client money from a client bank account maintained for the general pool to a client bank account maintained for a sub-pool in accordance with CASS 7.19.13 R (3)(b)(i), unless the amount of client money held for the general pool is sufficient, immediately after that transfer, to satisfy the firm's client money obligations to the remaining beneficiaries of the general pool.

  5. (5)

    A client of the firm who is a beneficiary of a sub-pool ceases to be a beneficiary of that sub-pool when:

    1. (a)

      the firm has settled the amount owing to that client for all of the margined transactions cleared through the related net margined omnibus client account and no longer holds any client money for that client in that sub-pool, and so CASS 7.19.6 R (2)(b) and CASS 7.19.6 R (2)(c) no longer apply for that client; or

    2. (b)

      the firm has complied with (i) or (ii), and in either case (iii):

      1. (i)

        the firm has received a written instruction from the client stating that the client no longer wishes to have its positions cleared through the net margined omnibus client account or its client money held in that sub-pool, or the firm has notified the client under CASS 7.19.18 R that it is making a material change to a sub-pool; or

      2. (ii)

        the firm has closed or moved that client's positions to an account other than the net margined omnibus client account referable to that sub-pool; and

      3. (iii)

        the firm has either transferred the relevant amount of client money for that client from a client bank account maintained for the relevant sub-pool to a client bank account maintained by the firm for the general pool (or, if applicable, another sub-pool), or transferred the amount owing to that client for all of the margined transactions cleared through the related net margined omnibus client account and no longer holds any client money for that client in that sub-pool.

  6. (6)

    In relation to the transfer of client money under CASS 7.19.13 R (5)(b)(iii), a firm must ensure that it does not transfer client money from a client bank account maintained for a sub-pool, unless the amount of client money held for the sub-pool is sufficient, immediately after that transfer, to satisfy the firm's client money obligations to the remaining beneficiaries of that sub-pool.

CASS 7.19.14R

1Save to the extent permitted under CASS 7.13.70 G a1 firm that receives client money to be credited in part to the general pool or one sub-pool and in part to another sub-pool must:

1
  1. (1)

    take the necessary steps to ensure that the full sum is paid directly into a client bank account maintained for the general pool; and

  2. (2)

    promptly, and in any event no later than one business day after receipt, pay the money that is not client money for the general pool out of that client bank account and into a client bank account maintained for the appropriate sub-pool.

CASS 7.19.15G
  1. (1)

    If a primary pooling event occurs before client money is transferred from a client bank account maintained for the general pool to a client bank account maintained for the appropriate sub-pool in accordance with CASS 7.19.14 R (2), the amount in question will not form part of that sub-pool, including for the purposes of CASS 7A.2.4R (1).

  2. (2)

    If a primary pooling event occurs before client money is transferred from a client bank account maintained for a sub-pool to a client bank account maintained for the general pool or another sub-pool in accordance with CASS 7.19.13 R (5), the amount in question will not form part of the general pool or that other sub-pool, including for the purposes of CASS 7A.2.4R (1), but will remain part of the original sub-pool.

CASS 7.19.16R

A client for whom a firm receives or holds client money for a sub-pool has no claim to or interest in client money received or held for the general pool or any other sub-pool unless:

  1. (1)

    that client is a beneficiary of that other sub-pool; or

  2. (2)

    the firm receives or holds client money for that client for other business which does not relate to any sub-pool (and thus the client is a beneficiary of the firm's general pool).

CASS 7.19.17R

A client for whom a firm receives or holds client money in more than one pool as described in CASS 7.19.16 R (1) and/or CASS 7.19.16 R (2) has an interest in a distribution from each such pool, and each interest is separate and distinct.

Material changes to sub-pools

CASS 7.19.18R

Before making a material change to a sub-pool, a firm must:

  1. (1)

    notify the then current beneficiaries of that sub-pool in writing, not less than two months before the date on which the firm intends the change to take effect; and

  2. (2)

    include in the notification an explanation of the consequences for the beneficiaries of the proposed change and the options available to them, such as the option of a beneficiary of the affected sub-pool to cease to be a beneficiary of that sub-pool and to become a beneficiary of the firm's general pool or, if applicable, another sub-pool.

CASS 7.19.19G

A firm should keep in mind its obligations under CASS 7.19.11 R (1)(b) (before receiving or holding client money for a client in a sub-pool, a firm must obtain a signed copy of the sub-pool disclosure document from the client) when making a material change to a sub-pool. A firm is also reminded of the conditions under CASS 7.19.13 R (5)(b) (when a client of the firm who is a beneficiary of a sub-pool ceases to be a beneficiary of that sub-pool) if a material change proposed to a sub-pool results in a client ceasing to be a beneficiary of that sub-pool.

CASS 7.19.20G

The FCA would normally consider the dissolution of a sub-pool, such that the firm no longer operates the sub-pool or no longer uses the relevant net margined omnibus client account or transfers the business to another authorised central counterparty, to be examples of material changes to a sub-pool.

CASS 7.19.21R

Before materially changing a sub-pool, a firm must provide a copy of the notice provided to clients under CASS 7.19.18 R R to the FCA not less than two months before the date on which the firm intends the change to take place.

Notifications

CASS 7.19.22R

A firm that wishes to establish a sub-pool of client money must notify the FCA in writing not less than two months before the date on which the firm intends to receive or hold client money for that sub-pool.

CASS 7.19.23R

Upon request, a firm must deliver to the FCA a copy of the sub-pool disclosure document for any sub-pool established by the firm.

CASS 7.19.24R

A firm must inform the FCA in writing, without delay, if it has not complied, or is unable to comply with the requirements in CASS 7.19.11 R or the requirements in CASS 7.19.18 R.

Record-keeping

CASS 7.19.25R

The records maintained under this section, including the sub-pool disclosure documents, are a record of the firm that must be kept in a durable medium for at least five years following the date on which client money was last held by the firm for a sub-pool to which those records or the sub-pool disclosure document applied.