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Status: You are viewing the version of the handbook as on 2009-03-31.

CASS 7.5 Transfer of client money to a third party

CASS 7.5.1G

This section sets out the requirements a firm must comply with when it transfers client money to another person without discharging its fiduciary duty owed to that client. Such circumstances arise when, for example, a firm passes client money to a clearing house in the form of margin for the firm's obligations to the clearing house that are referable to transactions undertaken by the firm for the relevant clients. They may also arise when a firm passes client money to an intermediate broker for contingent liability investments in the form of initial or variation margin on behalf of a client. In these circumstances, the firm remains responsible for that client's equity balance held at the intermediate broker until the contract is terminated and all of that client's positions at that broker closed. If a firm wishes to discharge itself from its fiduciary duty, it should do so in accordance with the rule regarding the discharge of a firm's fiduciary duty to the client (CASS 7.2.15 R).

CASS 7.5.2R

A firm may allow another person, such as an exchange, a clearing house or an intermediate broker, to hold or control client money, but only if:

  1. (1)

    the firm transfers the client money:

    1. (a)

      for the purpose of a transaction for a client through or with that person; or

    2. (b)

      to meet a client's obligation to provide collateral for a transaction (for example, an initial margin requirement for a contingent liability investment); and

  2. (2)

    in the case of a retail client, that client has been notified that the client money may be transferred to the other person.

CASS 7.5.3G

A firm should not hold excess client money in its client transaction accounts with intermediate brokers, settlement agents and OTC counterparties; it should be held in a client bank account.