Treatment of shortfalls - CASS Provision
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 “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.
Given typical omnibus segregation, where counterparty to a prime brokerage customer fails to settle into the prime broker while simultaneously the 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.
CASS Anatomy™
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