Treatment of shortfalls - CASS Provision: Difference between revisions

Treatment of shortfalls - CASS Provision (view source)

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 ''Here is {{ps14/9}}, which explains much of the [[great CASS rewrite]].''
-The following is being introduced to the CASS rules as of 1 June 2015 - essentially, upon a shortfall arising a custodian or prime broker must set aside “{{fcaprov|applicable assets}}” in a custody account to cover the potential loss each client would suffer if it were to go insolvent before resolving the shortfall.
+Upon a shortfall arising a [[custodian]] or [[prime broker]] must set aside “{{fcaprov|applicable assets}}” in an [[omnibus]] custody account to cover the potential loss each client would suffer if the [[custodian]] were to go [[insolvent]] before resolving the shortfall.
+===And this could happen how, exactly?===
+Given typical [[omnibus]] structure where:
+*a counterparty to a hedge fund fails to settle an open trade into that HF's {{tag|prime broker}}; while simultaneously
+*the {{tag|prime broker}} delivers a quantity of the same security to the market on behalf of a different hedge fund customer, relying to do so on that first purchase trade settling as intended ..
+*there may be a temporary [[shortfall]] in the prime broker’s omnibus client custody account, pending resolution of the [[fail]].
-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 3-5 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.
+Usually the [[fail]] will be quickly remedied, but if it isn’t the [[PB]] must take action to reduce its customers’ credit exposure as a result of the shortfall. It does this by putting its own assets (or money) aside, on trust for the affected clients.
 {{nuts|CASS|6.6.54}}
+==={{cassprov|Qualifying money market fund}}s to fulfill the shortfall?===
+Setting aside cash can be expensive init so vigilant [[prime broker]]s may wish to deploy [[money market funds]]. This they can do if they comply with the particular rules as to {{cassprov|qualifying money market fund}}s, including (casasprov|7.13.28}} the client having the right to say no to such an arrangement.
 {{seealso}}
 *The [[great CASS rewrite]]
 *{{ps14/9}}