DVP exemption - CASS Provision: Difference between revisions

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{{anat|cass|}}
{{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 DVP exemption allows a firm a waiver from the full rigours of the CASS safe custody and [[client money]] rules or the client money rules for money or assets delivered to the firm when settling a [[delivery versus payment]] transaction. 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 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 brokerage functions as [[riskless principal]], as many do, moneys and assets in the hands of the [[broker]] [[owes]] the client assets of money under a transaction; in the settlement period before it delivers them it is not holding assets or money under some kind of [[bailment]] arrangement.
 
There is a limited case where there is a kind of bailment: where the client has expressly pre-funded the broker with 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.
 
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 changes wrought by [[PS14/9]]===

Revision as of 14:09, 29 October 2019

CASS Anatomy™


IMPORTANT: CASS changed quite a bit after MiFID II. This resource therefore may well be out of date, even if it was accurate once, which it might not have been. This is an article about the FCA’s custody and client money rules — client assets — and is fondly known by its chapter in the FCA SourcebookTable of Contents | 1 | 1A | 3 | 5 | 6 (custody rules) | 7 (client money rules) | 7A | 8 | 9 (PBDA) | 10

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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 brokerage functions as riskless principal, as many do, moneys and assets in the hands of the broker owes the client assets of money under a transaction; in the settlement period before it delivers them it is not holding assets or money under some kind of bailment arrangement.

There is a limited case where there is a kind of bailment: where the client has expressly pre-funded the broker with 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.

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:

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