The banking exemption - CASS Provision

Template:CASS Section 7.10.16 (View Template)

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

• regulated credit institutions 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.
  • 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 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 7.11.25) The IM pays the cash to discharge the client’s obligation to the broker.

Discussion

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

Update to {{anat|cass}}