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CASS 7A.2 Primary pooling events

Failure of the authorised firm: primary pooling event

CASS 7A.2.1G
  1. (1)

    A firm can hold client money in a general client bank account, a designated client bank account or a designated client fund account.

  2. (2)

    A firm holds all client money in general client bank accounts for its clients as part of a common pool of money so those particular clients do not have a claim against a specific sum in a specific account; they only have a claim to the client money in general.

  3. (3)

    A firm holds client money in designated client bank accounts or designated client fund accounts for those clients that requested their client money be part of a specific pool of money, so those particular clients do have a claim against a specific sum in a specific account; they do not have a claim to the client money in general unless a primary pooling event occurs. A primary pooling event triggers a notional pooling of all the client money, in every type of client money account, and the obligation to distribute it.

  4. (4)

    If the firm becomes insolvent, and there is (for whatever reason) a shortfall in money held for a client compared with that client's entitlements, the available funds will be distributed in accordance with the client money distribution rules.

CASS 7A.2.2R

A primary pooling event occurs:

  1. (1)

    on the failure of the firm;

  2. (2)

    on the vesting of assets in a trustee2 in accordance with an 'assets requirement' imposed under section 55P(1)(b) or (c) (as the case may be) of the Act;

    2
  3. (3)

    on the coming into force of a requirement for all client money held by the firm; or

  4. (4)

    when the firm notifies, or is in breach of its duty to notify, the FCA, in accordance with CASS 7.15.33 R 4 (Notification requirements), that it is unable correctly to identify and allocate in its records all valid claims arising as a result of a secondary pooling event.

    4
CASS 7A.2.3R

CASS 7A.2.2R (4) does not apply so long as:

  1. (1)

    the firm is taking steps, in consultation with the FCA, to establish those records; and

  2. (2)

    there are reasonable grounds to conclude that the records will be capable of rectification within a reasonable period.

CASS 7A.2.3AR

4If a primary pooling event occurs in circumstances where the firm had, before the primary pooling event, reduced its margined transaction requirement by utilising approved collateral under CASS 7.16.33 R 4 , it must immediately liquidate this approved collateral and place the proceeds in a client bank account.

4
CASS 7A.2.3BR

4CASS 7A.2.7 R (Client money received after the failure of the firm) does not apply to the proceeds under CASS 7A.2.3A R.

CASS 7A.2.3CG

4The proceeds of the assets realised under CASS 7A.2.3A R:

  1. (1)

    will form part of the notional pool of client money (see CASS 7A.2.4 R (Pooling and distribution); and

  2. (2)

    must be distributed in accordance with this chapter.

Pooling and distribution

CASS 7A.2.4R

If a primary pooling event occurs, then4:

  1. (1)
    1. (a)

      in respect of a sub-pool,4 the following is treated as a single notional pool of client money for the beneficiaries of that pool:45

      1. (i)

        any client money held in a client bank account of the firm relating to that sub-pool; and5

      2. (ii)

        any client money held in a client transaction account of the firm relating to that sub-pool, except for client money held in a client transaction account at an authorised central counterparty3 or a clearing member which is, in either case, held as part of a 4regulated clearing arrangement;5

    2. (b)

      in respect of the general pool, the following is treated as a single notional pool of client money for the beneficiaries of the general pool:5

      1. (i)

        any client money held in any client bank account of the firm;5

      2. (ii)

        any client money held in a client transaction account of the firm, except for client money held in a client transaction account at an authorised central counterparty, or a clearing member which is, in either case, held as part of a regulated clearing arrangement; and5

      3. (iii)

        any client money identifiable in any other account held by the firm into which client money has been received;5

      except, in each case, for client money relating to a sub-pool which falls under (1)(a)(i) or (ii).5

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  2. (2)

    the firm must :4

    4
    1. (a)

      4distribute client money comprising a notional pool in accordance with CASS 7.17.2 R 4 , so that each client who is a beneficiary of that pool receives a sum which is rateable to the client money entitlement calculated in accordance with CASS 7A.2.5 R; or

      4
    2. (b)

      4(where applicable) transfer client money comprising a sub-pool to effect or facilitate porting of positions held for the clients who are beneficiaries of that sub-pool; and

  3. (3)

    1if, in connection with a regulated clearing arrangement, client money is remitted directly to the firm 3either from an authorised central counterparty3 or from a clearing member, then:

    1. (a)

      any such remittance in respect of a client transaction account that is an individual client account must be distributed to the relevant client subject to CASS 7.17.2R (4) 4 ;

      4
    2. (b)

      subject to (3)(c) and (d)4, any such remittance in respect of a client transaction account that is an omnibus client account must form part of the notional pool 4 under CASS 7A.2.4R (1) and be subject to distribution in accordance with CASS 7A.2.4R (2);

      4
    3. (c)

      any such remittance in respect of a client transaction account that is an omnibus client account must be distributed to the3 relevant clients for whom that omnibus client account is held if:

      1. (i)

        no client money in excess of the amount recorded in that omnibus client account is held by the firm as margin in relation to the positions recorded in that omnibus client account; and4

      2. (ii)

        the amount of such remittance attributable to each client of the omnibus client account is readily apparent from information provided to the firm 4 by the authorised central counterparty3 or, in the case of indirect clients, the clearing member;

        4

      in which case the amount of such remittance must be distributed to each such client in accordance with the information provided by the authorised central counterparty 3or clearing member subject to CASS 7.17.2R (4) 4 ; and4

      4
    4. (d)

      4any such remittance in respect of a client transaction account that is a net margined omnibus client account in respect of which the firm maintains a sub-pool must form part of such sub-pool to be distributed in accordance with CASS 7A.2.4R (2)(a).

CASS 7A.2.4AG
  1. (1)

    1Under EMIR, where a firm that is a clearing member 4 of an authorised central counterparty defaults, the authorised central counterparty may:

    4
    1. (a)

      port client positions where possible; and

    2. (b)

      after the completion of the default management process:

      1. (i)

        return any balance due directly to those clients for whom the positions are held, if they are known to the authorised central counterparty; or

      2. (ii)

        remit any balance to the firm for the account of its clients if the clients are not known to the authorised central counterparty.

  2. (1A) 3

    Under the EMIR L2 Regulation, where a firm acting in connection with a regulated clearing arrangement for a client (who is also an indirect client) defaults, the clearing member with whom the firm has placed client money of the indirect client, may, in accordance with the EMIR L2 Regulation:

    1. (a)

      transfer the positions and assets either to another clearing member of the relevant authorised central counterparty or to another firm willing to act for the indirect client; or

    2. (b)

      liquidate the assets and positions of the indirect clients and remit all monies due to the indirect clients.

  3. (1B)

    For the avoidance of doubt, 'relevant clients' in the case of CASS 7A.2.4R (3)(a) and CASS 7A.2.4R (3)(c) includes a client who is also an indirect client.

  4. (2)

    Where any balance remitted from an authorised central counterparty 3or, in the case of indirect clients, a clearing member, to a firm is client money, CASS 7A.2.4R (3) provides for the distribution of remittances from either an individual client account or an omnibus client account.

  5. (3)

    Remittances received by the firm falling within CASS 7A.2.4R (3)(a) and CASS 7A.2.4R (3)(c) should not be pooled with client money held in any client bank account operated by the firm at the time of the primary pooling event. Those remittances should be segregated and promptly distributed to each client on whose behalf the remittance was received.

  6. (4)

    For the avoidance of doubt,3 in respect of a regulated clearing arrangement, any client money remitted by the authorised central counterparty3 or, in the case of indirect clients, the clearing member, to the firm pursuant to CASS 7A.2.4R (3) should not be treated as client money received after the failure of the firm under CASS 7A.2.7 R.

  7. (5)

    4The firm's obligation to its client in respect of client money held in a sub-pool is discharged to the extent that the firm transfers that client money to facilitate porting in accordance with CASS 7.11.34R (8) 4 .

    4
CASS 7A.2.5R
  1. (-1)

    1Each client's client equity balance must be reduced by:

    1. (a)

      any amount paid by:

      3
      1. (i)

        an authorised central counterparty to a clearing member other than the firm in connection with a porting arrangement in accordance with CASS 7.11.34R (6) 4 in respect of that client;

        4
      2. (ii)

        a clearing member to another clearing member or firm (other than the firm) in connection with a transfer in accordance CASS 7.11.34R (8);4

        4
    2. (b)

      any amount paid by:

      3
      1. (i)

        an authorised central counterparty directly to that client, in accordance withCASS 7.11.34R (7);4 and

        4
      2. (ii)

        3a clearing member directly to an indirect client in accordanceCASS 7.11.34R (9);4 and

        4
    3. (c)

      any amount that must be distributed to that client by the firm in accordance with CASS 7A.2.4R (3)(a) or (c).

  2. (1)

    When, in respect of a client who is a beneficiary of a pool4, there is a positive individual client balance 4 and a negative client equity balancein relation to that pool4, the credit for that pool 4must be offset against the debit reducing the individual client balance 4 for that client.

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  3. (2)

    When, in respect of a client who is a beneficiary of a pool4, there is a negative individual client balance 4 and a positive client equity balance in relation to that pool4, the credit for that pool 4must be offset against the debit for that pool 4reducing the client equity balance for that client.

CASS 7A.2.6G

[deleted]1

1

Client money received after the failure of the firm

CASS 7A.2.7R

Client money received by the firm after a primary pooling event in respect of a pool4 must not be pooled with client money held in any client money account operated by the firm either in respect of that pool or any other pool 4at the time of the primary pooling event. It must be placed in a client bank account that has been opened after that event and must be handled in accordance with the client money rules, and returned to the relevant client without delay, except to the extent that:

  1. (1)

    it is client money relating to a transaction that has not settled at the time of the primary pooling event; or

  2. (2)

    it is client money relating to a client, for whom the client money entitlement, calculated in accordance with CASS 7A.2.5 R, shows that money is due from the client to the firm at the time of the primary pooling event.

CASS 7A.2.7AG

4If a firm opens a client bank account after a primary pooling event, it must comply with CASS 7.18.15R6 regarding acknowledgement letters.

CASS 7A.2.8G

Client money received after the primary pooling event relating to an unsettled transaction should be used to settle that transaction. Examples of such transactions include:

  1. (1)

    an equity transaction with a trade date before the date of the primary pooling event and a settlement date after the date of the primary pooling event; or

  2. (2)

    a contingent liability investment that is 'open' at the time of the primary pooling event and is due to settle after the primary pooling event.

CASS 7A.2.9R

If a firm receives a mixed remittance after a primary pooling event, it must:

  1. (1)

    pay the full sum into the separate client bank account opened in accordance with CASS 7A.2.7 R; and

  2. (2)

    pay the money that is not client money out of that client bank account into a firm's own bank account within one business day of the day on which the firm would normally expect the remittance to be cleared.

CASS 7A.2.10G

Whenever possible the firm should seek to split a mixed remittance before the relevant accounts are credited.

CASS 7A.2.11R

If both a primary pooling event and a secondary pooling event occur, the provisions of this section relating to a primary pooling event apply.