DVP exemption - CASS Provision: Difference between revisions
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{{anat|cass|}}The [[DVP exemption]] allows a firm a waiver from the full rigours of the CASS [[safe custody]] and [[client money]] rules for money or assets delivered to the firm when settling a [[delivery versus payment]] transaction. | {{anat|cass|}}The [[DVP exemption]] allows a firm a waiver from the full rigours of the CASS [[safe custody]] and [[client money]] rules for money or assets delivered to the firm when settling a [[delivery versus payment]] transaction. | ||
The first thing to note is this covers money and financial instruments ''belonging to the client'' (see CASS [[6.1.1 - CASS Provision|6.1.1]]. There must be some kind of agency or trust arrangement here. If your [[broker]] acts as a [[riskless principal]], as most do, moneys and assets in its hands are amounts it [[owes]] the client under a transaction. That is to say these are the broker’s liabilities; it is not holding assets or money under some kind of [[bailment]] arrangement. | |||
There is a limited case where there | There is a limited case where there may be a kind of bailment: where the client has expressly pre-funded the broker with its own cash or assets so the broker can make a DVP transaction as its [[agent]] with the street, and when it has done so the broker is holding the resulting cash or assets on the client’s behalf. In this case the broker is not in the contractual flow, is not owed the assets or money, so can only be holding the assets as trustee (or — cough — banker). | ||
As long as the transaction takes place through a [[commercial settlement system]], is intended to settle within one business day of the client's payment or delivery, and actually does settle within the “[[DVP window]]” (a period from the intended settlement date to the close of business on the third business day thereafter). | As long as the transaction takes place through a [[commercial settlement system]], is intended to settle within one business day of the client's payment or delivery, and actually does settle within the “[[DVP window]]” (a period from the intended settlement date to the close of business on the third business day thereafter). |
Revision as of 14:13, 29 October 2019
CASS Anatomy™
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The DVP exemption allows a firm a waiver from the full rigours of the CASS safe custody and client money rules for money or assets delivered to the firm when settling a delivery versus payment transaction.
The first thing to note is this covers money and financial instruments belonging to the client (see CASS 6.1.1. There must be some kind of agency or trust arrangement here. If your broker acts as a riskless principal, as most do, moneys and assets in its hands are amounts it owes the client under a transaction. That is to say these are the broker’s liabilities; it is not holding assets or money under some kind of bailment arrangement.
There is a limited case where there may be a kind of bailment: where the client has expressly pre-funded the broker with its own cash or assets so the broker can make a DVP transaction as its agent with the street, and when it has done so the broker is holding the resulting cash or assets on the client’s behalf. In this case the broker is not in the contractual flow, is not owed the assets or money, so can only be holding the assets as trustee (or — cough — banker).
As long as the transaction takes place through a commercial settlement system, is intended to settle within one business day of the client's payment or delivery, and actually does settle within the “DVP window” (a period from the intended settlement date to the close of business on the third business day thereafter).
The changes wrought by PS14/9
The DVP exemption was tightened up by the FCA in the great CASS overhaul following its market position paper PS14/9 because the FCA was concerned about a lack of clarity/creative looseness as to:
- what a "commercial settlement system" is in practice, as it was not defined. Reaction: define it.
- when the DvP window actually starts, so it was "stretched" beyond what was intended - in some cases for months.
The amended rules provide that:
- in respect of a client's purchase the DVP window starts from the date of the client's fulfillment of its payment obligation to the firm (provided the firm intends for the asset in question to be due to the client within one business day following fulfillment) and closes when the transaction settles (or, failing that on the third business day following fulfillment);
- in respect of a client's sale, the DvP window starts from the date of fulfillment of dlievery and closes when the transaction settles (or, failing that on the third business day following fulfillment);
Banking exemption
If your institution counts as an approved bank consider whether this amounts to a whole hill of beans anyway because you have an exemption from the requirement to hold client money in relation to designated investment business in the first place: CASS 7.10.16 R and 7.10.18 G. Update to {{anat|cass}}
See also
- 7.11.14 - client money DVP exemption.
- 6.1.12 - custody DVP exemption.