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Treatment of shortfalls - CASS Provision: Difference between revisions
Treatment of shortfalls - CASS Provision (view source)
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Given typical omnibus segregation, where counterparty to a prime brokerage customer fails to settle into the {{tag|prime broker}} while simultaneously the {{tag|prime broker}} delivers a quantity of the same security out on behalf of a different customer, but in reliance on the purchased asset coming in, a shortfall will happen. Usually it will be quickly remediated, but where not (probably 5-10 business days) the PB will, under the new rules, need to take some action to mitigate the credit exposure its customers have to it as a result of the shortfall. | Given typical omnibus segregation, where counterparty to a prime brokerage customer fails to settle into the {{tag|prime broker}} while simultaneously the {{tag|prime broker}} delivers a quantity of the same security out on behalf of a different customer, but in reliance on the purchased asset coming in, a shortfall will happen. Usually it will be quickly remediated, but where not (probably 5-10 business days) the PB will, under the new rules, need to take some action to mitigate the credit exposure its customers have to it as a result of the shortfall. | ||
{{box| in a {{nutshell}}: | |||
<blockquote> | |||
CASS {{cassprov|6.6.54}} R applies where there is an unresolved {{fcaprov|shortfall}}.<br> | |||
:(1) Until it is resolved, the {{fcaprov|firm}} must either: | |||
::(a) hold enough {{fcaprov|applicable assets}} to cover the {{fcaprov|shortfall}} for the relevant {{fcaprov|client}}s so that their liquidation proceeds are available to them upon the {{fcaprov|firm}}’s failure and, in doing so: <br> | |||
:::(i) separate the {{fcaprov|applicable assets}} from the {{fcaprov|firm}}’s own property, recording them in its {{fcaprov|client-specific safe custody asset record}} as being held for the relevant {{fcaprov|client}}; <br> | |||
:::(ii) keep a record of the actions it has taken, including a description of the {{fcaprov|shortfall}}, the relevant {{fcaprov|client}}s, and the {{fcaprov|applicable assets}} the {{fcaprov|firm}} has appropriated; and <br> | |||
:::(iii) update that record whenever the discrepancy is resolved; or | |||
::(b) hold enough money to cover the {{fcaprov|shortfall}}, for the relevant {{fcaprov|client}} as {{fcaprov|client money}} and, in doing so: <br> | |||
:::(i) ensure it is segregated and recorded as being held for the relevant {{fcaprov|client}}; <br> | |||
:::(ii) keep a record of the actions it has taken, including a description of the {{fcaprov|shortfall}}, the relevant {{fcaprov|client}}s, and amount of money the {{fcaprov|firm}} has appropriated; and <br> | |||
:::(iii) update that record whenever the discrepancy is resolved; or | |||
::(c) a combination of the two. | |||
:(3) If another {{fcaprov|person}} is responsible for the discrepancy then the {{fcaprov|firm}} must take all reasonable steps to quickly resolve the situation. Until it is resolved the {{fcaprov|firm}} must consider whether it should notify the affected {{fcaprov|client}}s, and may take steps under (2) for the treatment of {{fcaprov|shortfall}}s until that discrepancy is resolved. <br> | |||
</blockquote> | |||
}} | |||
{{casssnap|6.6.54}} | {{casssnap|6.6.54}} | ||
{{anat|cass}} | {{anat|cass}} | ||