The banking exemption - CASS Provision: Difference between revisions

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(Replaced content with "{{casssnap|7.10.16}} {{client money and cash brokerage}} ====Discussion==== This is a transliteration, verbatim, of the old CASS {{cassprov|7.1.8A}}. {{cassanatomy}}")
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should an investment manager ask an {{tag|executing broker}} bank to offer it {{tag|client money}} protection, consider the following:
{{client money and cash brokerage}}
*regulated credit institutions are not required to hold customer cash as client money under the CASS rules (CASS {{cassprov|7.10.16}}) – banks hold "as banker" and not as trustee for their clients.
*If a bank were to treat cash as client money (it could in theory do this, though it doesn't make a lot of sense):
**The bank would have to deposit the cash with ''another'' bank.
**The client would still, ultimately, have some exposure to one or more banksl just not the immediate one.
*Brokers generally settle cash equities transactions [[delivery versus payment]] under their terms of business. Clients will not pay any money in advance receiving their settlement securities. Therefore the client's payment obligation is in discharge of its contractual liability to the broker, so is not a “client money” obligation in the first place (see CASS {{cassprov|7.11.25}});
*when an {tag|investment manager}} instructs a broker to execute an order for a client you do so as agent for the client, but in the client’s name own name. The broker will book the order against the client directly and not against “investment manager as trustee for Client XYZ”. Therefore, at the moment when the manager pays the “client money” to the broker, the investment manager ceases to hold it as client money at all. (Again, see CASS {{cassprov|7.11.25}}) The IM pays the cash to discharge the client’s obligation to the broker.
 
====Discussion====
====Discussion====
This is a transliteration, verbatim, of the old CASS {{cassprov|7.1.8A}}.
This is a transliteration, verbatim, of the old CASS {{cassprov|7.1.8A}}.


{{cassanatomy}}
{{cassanatomy}}

Revision as of 13:56, 22 April 2016

Template:CASS Section 7.10.16

(View Template)

Client money and cash brokerage

Should an investment manager ask an executing broker bank to offer it client money protection, consider the following:

  • regulated credit institutions (Banks, to you and me) are not required to hold customer cash as client money under the CASS rules (CASS 7.10.16) – banks hold “as banker” and not as trustee for their clients.
  • If a bank were to treat cash as client money (it could in theory do this, though it doesn't make a lot of sense):
    • The bank would have to deposit the cash with another bank — in practice a diversified network of them — cue operational mayhem.
    • The client would still, ultimately, be exposed to those other banks, just not the immediate one. Cash is always presents a credit risk to whoever holds it for the time being.
  • Brokers generally settle cash equities transactions delivery versus payment under their terms of business. Clients will not pay any money in advance receiving their settlement securities. Therefore the client’s payment obligation is in discharge of its contractual liability to the broker, so is not a “client money” obligation in the first place (see CASS 7.11.25);
  • When an investment manager instructs a broker to execute an order for a client it does so as agent for the client, but in the client’s own name.

Discussion

This is a transliteration, verbatim, of the old CASS 7.1.8A.

Update to {{anat|cass}}

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