Client money rules

Part

CASS Client Assets Sourcebook

Chapter

Client money rules

Printed on: 07/11/2024

Rulebook at: 06/04/2010

CASS 7

Client money rules

CASS 7.1

Application and Purpose

01/11/2007

Application

CASS 7.1.1

This chapter (the client money rules) applies to a firm that receives money from or holds money for, or on behalf of, a client in the course of, or in connection with:

(1) [deleted]

(a) [deleted]
(b) [deleted]

(2) [deleted]
(3) its MiFID business; and/or
(4) its designated investment business, that is not MiFID business in respect of any investment agreement entered into, or to be entered into, with or for a client;

unless otherwise specified in this section.

01/01/2009

Opt-in to the client money rules

CASS 7.1.3

(1) A firm that receives or holds money to which this chapter applies in relation to:

(a) its MiFID business; or
(b) its MiFID business and its designated investment business which is not MiFID business;

and holds money in respect of which CASS 5 applies, may elect to comply with the provisions of this chapter in respect of all such money and if it does so, this chapter applies as if all such money were money that the firm receives and holds in the course of, or in connection with, its MiFID business.
(1A) [deleted]
(1B) A firm that receives or holds money to which this chapter applies solely in relation to its designated investment business which is not MiFID business and receives or holds money in respect of which the insurance client money chapter applies, may elect to comply with the provisions of this chapter in respect of all such money and if it does so, this chapter applies as if all such money were money that the firm receives and holds in the course of or in connection with its designated investment business.
(2) A firm must make and retain a written record of any election it makes under this rule, including the date from which the election is to be effective. The firm must make the record on the date it makes the election and must keep it for a period of five years after ceasing to use it.

01/01/2009

CASS 7.1.4

The opt-in to the client money rules inthis chapter does not apply in respect of money that a firm holds outside of the scope of the insurance client money chapter.

(2) relevant cash deposit ISA wrapper;

01/01/2009

CASS 7.1.5

If a firm has opted to comply with this chapter, the insurance client money chapter will have no application to the activities to which the election applies.

01/01/2009

CASS 7.1.6

A firm that is only subject to the insurance client money chapter may not opt to comply with this chapter.

01/01/2009

Money that is not client money: 'opt outs' for any business other than insurance mediation activity

CASS 7.1.7B

CASS 7.1.7C G to CASS 7.1.7I G do not apply to a firm in relation to money held in connection with its MiFID business to which this chapter applies or in relation to money for which the firm has made an election under CASS 7.1.3R (1).

01/01/2009

Professional client opt-out

CASS 7.1.7C

The 'opt out' provisions provide a firm with the option of allowing a professional client to choose whether their money is subject to the client money rules (unless the firm is conducting insurance mediation activity).

01/01/2009

CASS 7.1.7D

Subject to CASS 7.1.7F R, money is not client money when a firm (other than a sole trader) holds that money on behalf of, or receives it from, a professional client, other than in the course of insurance mediation activity, and the firm has obtained written acknowledgement from the professional client that:

(1) money will not be subject to the protections conferred by the client money rules;
(2) as a consequence, this money will not be segregated from the money of the firm in accordance with the client money rules and will be used by the firm in the course of its own business; and
(3) the professional client will rank only as a general creditor of the firm.

01/01/2009

'Opt-outs' for non-IMD business

CASS 7.1.7E

For a firm whose business is not governed by the Insurance Mediation Directive, it is possible to 'opt out' on a one-way basis. However, in order to maintain a comparable regime to that applying to MiFID business, all 'MiFID type' business undertaken outside the scope of MiFID, should comply with the client money rules or be 'opted out' on a two-way basis.

01/01/2009

CASS 7.1.7F

Money is not client money if a firm, in respect of designated investment business which is not an investment service or activity, an ancillary service, a listed activity or insurance mediation activity:

(1) holds it on behalf of or receives it from a professional client who is not an authorised person; and
(2) has sent a separate written notice to the professional client stating the matters set out in CASS 7.1.7DR (1) to CASS 7.1.7DR (3).

01/01/2009

CASS 7.1.7G

When a firm undertakes a range of business for a professional client and has separate agreements for each type of business undertaken, the firm may treat client money held on behalf of the client differently for different types of business; for example, a firm may, under CASS 7.1.7D R or CASS 7.1.7F R, elect to segregate client money in connection with securities transactions and not segregate (by complying with CASS 7.1.7D R or CASS 7.1.7F R) money in connection with contingent liability investments for the same client.

01/01/2009

CASS 7.1.7H

When a firm transfers client money to another person, the firm must not enter into an agreement under CASS 7.1.7D R or CASS 7.1.7F R with that other person in relation to that client money or represent to that other person that the money is not client money.

01/01/2009

CASS 7.1.7I

CASS 7.1.7H R prevents a firm, when passing client money to another person under CASS 7.5.2 R (transfer of client money to a third party), from making use of the 'opt out' provisions under CASS 7.1.7D R or CASS 7.1.7F R.

01/01/2009

Credit institutions and approved banks

CASS 7.1.8

The client money rules do not apply to a BCD credit institution in relation to deposits within the meaning of the BCD held by that institution.

[Note: article 13(8) of MiFID and article 18(1) of the MiFID implementing Directive]

01/11/2007

CASS 7.1.9

If a credit institution that holds money as a deposit with itself is subject to the requirement to disclose information before providing services, it should, in compliance with that obligation, notify the client that:

(1) money held for that client in an account with the credit institution will be held by the firm as banker and not as trustee (or in Scotland as agent); and
(2) as a result, the money will not be held in accordance with the client money rules.

06/04/2010

CASS 7.1.10

Pursuant to Principle 10 (Clients' assets), a credit institution that holds money as a deposit with itself should be able to account to all of its clients for amounts held on their behalf at all times. A bank account opened with the firm that is in the name of the client would generally be sufficient. When money from clients deposited with the firm is held in a pooled account, this account should be clearly identified as an account for clients. The firm should also be able to demonstrate that an amount owed to a specific client that is held within the pool can be reconciled with a record showing that individual's client balance and is, therefore, identifiable at any time. Similarly, where that money is reflected only in a firm's bank account with other banks (nostro accounts), the firm should be able to reconcile amounts owed to that client within a reasonable period of time.

(1) it should be able to account to all of its clients sums held for them at all times; and
(2) that money should, pursuant to Principle 10, be allocated to the relevant client promptly. This should be done no later than ten business days after the firm has received the money.

01/11/2007

CASS 7.1.11

A credit institution is reminded that the exemption for deposits is not an absolute exemption from the client money rules.

01/11/2007

CASS 7.1.11A

(1) This rule applies to a firm which is an approved bank but not a BCD credit institution.
(2) The client money rules do not apply to money held by the approved bank if it is undertaking business which is not MiFID business but only when the money is held in an account with itself, in which case the firm must notify the client in writing that:

(a) money held for that client in an account with the approved bank will be held by the firm as banker and not as trustee (or in Scotland as agent); and
(b) as a result, the money will not be held in accordance with the client money rules.

01/01/2009

Affiliated companies - MiFID business

CASS 7.1.12

A firm that holds money on behalf of, or receives money from, an affiliated company in respect of MiFID business must treat the affiliated company as any other client of the firm for the purposes of this chapter.

01/11/2007

Affiliated companies - non-MiFID business

CASS 7.1.12A

A firm that holds money on behalf of, or receives money from, an affiliated company in respect of designated investment business which is not MiFID business must not treat the money as client money unless:

(1) the firm has been notified by the affiliated company that the money belongs to a client of the affiliated company; or
(2) the affiliated company is a client dealt with at arm's length; or
(3) the affiliated company is a manager of an occupational pension scheme or is an overseas company; and

(a) the money is given to the firm in order to carry on designated investment business for or on behalf of the clients of the affiliated company; and
(b) the firm has been notified by the affiliated company that the money is to be treated as client money.

01/01/2009

Coins

CASS 7.1.14

The client money rules do not apply with respect to coins held on behalf of a client if the firm and the client have agreed that the money (or money of that type) is to be held by the firm for the intrinsic value of the metal which constitutes the coin.

01/11/2007

Solicitors

CASS 7.1.15

(1) An authorised professional firm regulated by the Law Society (of England and Wales), the Law Society of Scotland or the Law Society of Northern Ireland must comply with the following rules of its designated professional body and, where relevant paragraph (3), and if it does so, it will be deemed to comply with the client money rules.
(2) The relevant rules are:

(a) if the firm is regulated by the Law Society (of England and Wales):

(i) the Solicitors' Accounts Rules 1998; or
(ii) where applicable, the Solicitors Overseas Practice Rules 1990;

(b) if the firm is regulated by the Law Society of Scotland, the Solicitors' (Scotland) Accounts, Accounts Certificate, Professional Practice and Guarantee Fund Rules 2001; and
(c) if the firm is regulated by the Law Society of Northern Ireland, the Solicitors' Accounts Regulations 1998.

(3) If the firm in (1) is a MiFID investment firm that receives or holds money for, or on behalf of a client in the course of, or in connection with its MiFID business, it must also comply with the MiFID client money (minimum implementing) rules in relation to that business.

01/01/2009

Long term insurers and friendly societies

CASS 7.1.15A

This chapter does not apply to the permitted activities of a long-term insurer or a friendly society, unless it is a MiFID investment firm that receives money from or holds money for or on behalf of a client in the course of, or in connection with, its MiFID business.

01/01/2009

Contracts of insurance

CASS 7.1.15B

This chapter does not apply to client money held by a firm which:

(1) receives or holds client money in relation to contracts of insurance; but which
(2) in relation to such client money elects to act in accordance with the insurance client money chapter.

01/01/2009

CASS 7.1.15C

A firm should make and retain a written record of any election which it makes under CASS 7.1.15B R.

01/01/2009

Life assurance business

CASS 7.1.15D

(1) A firm which receives and holds client money in respect of life assurance business in the course of its designated investment business that is not MiFID business may:

(a) under CASS 7.1.3R (1B) elect to comply with the client money chapter in respect of such client money and in doing so avoid the need to comply with the insurance client money chapter which would otherwise apply to the firm in respect of client money received in the course of its insurance mediation activity; or
(b) under CASS 7.1.15B R, elect to comply with the insurance client money chapter in respect of such client money.

(2) These options are available to a firm irrespective of whether it also receives and holds client money in respect of other parts of its designated investment business. A firm may not however choose to comply with the insurance client money chapter in respect of client money which it receives and holds in the course of any part of its designated investment business which does not involve an insurance mediation activity.

01/01/2009

Trustee firms (other than trustees of unit trust schemes)

CASS 7.1.15E

A trustee firm which holds money in relation to its designated investment business which is not MiFID business to which this chapter applies, must hold any such client money separate from its own money at all times.

01/01/2009

CASS 7.1.15F

Only the client money rules listed in the table below apply to a trustee firm in connection with money that the firm receives, or holds for or on behalf of a client in the course of or in connection with its designated investment business which is not MiFID business.

Reference

Rule

CASS 7.1.1 R to CASS 7.1.6 G, and CASS 7.1.8 R to CASS 7.1.14 R

Application

CASS 7.1.15E R and CASS 7.1.15F R

Trustee firms (other than trustees of unit trust schemes)

CASS 7.1.16 G

General principle

CASS 7.7.2 R to CASS 7.7.4 G

Requirement

CASS 7.4.1 R to CASS 7.4.6 G

Depositing client money

CASS 7.4.7 R to CASS 7.4.13 G

A firm's selection of credit institution, bank or money market fund

CASS 7.6.6 G to CASS 7.6.16 R

Reconciliation of client money balances

01/01/2009

General purpose

CASS 7.1.16

(1) Principle 10 (Clients' assets) requires a firm to arrange adequate protection for clients' assets when the firm is responsible for them. An essential part of that protection is the proper accounting and treatment of client money. The client money rules provide requirements for firms that receive or hold client money, in whatever form.
(2) The client money rules also, where relevant, implement the provisions of MiFID which regulate the obligations of a firm when it holds client money in the course of its MiFID business.

06/04/2010

CASS 7.2

Definition of client money

01/11/2007

Title transfer collateral arrangements

CASS 7.2.3

Where a client transfers full ownership of money to a firm for the purpose of securing or otherwise covering present or future, actual or contingent or prospective obligations, such money should no longer be regarded as client money.

[Note: recital 27 to MiFID]

01/11/2007

CASS 7.2.4

A title transfer financial collateral arrangement under the Financial Collateral Directive is an example of a type of transfer of money to cover obligations where that money will not be regarded as client money.

01/11/2007

CASS 7.2.5

Where a firm has received full title or full ownership to money under a collateral arrangement, the fact that it has also taken a security interest over its obligation to repay that money to the client would not result in the money being client money. This can be compared to a situation in which a firm takes a charge or other security interest over money held in a client bank account, where that money would still be client money as there would be no absolute transfer of title to the firm. However, if that security interest includes a "right to use arrangement", under which the client agrees to transfer all of its rights to money in that account to the firm upon the exercise of the right to use, the money may cease to be client money, but only once the right to use is exercised and the money is transferred out of the account to the firm.

01/11/2007

CASS 7.2.6

Firms are reminded of the client's best interest rule, which requires a firm to act honestly, fairly and professionally in accordance with the best interests of its clients when structuring its business particularly in respect of the effect of that structure on firms' obligations under the client money rules.

01/11/2007

CASS 7.2.7

Pursuant to the client's best interests rule, a firm should ensure that where a retail client transfers full ownership of money to a firm:

(1) the client is notified that full ownership of the money has been transferred to the firm and, as such, the client no longer has a proprietary claim over this money and the firm can deal with it on its own right;
(2) the transfer is for the purposes of securing or covering the client's obligations;
(3) an equivalent transfer is made back to the client if the provision of collateral by the client is no longer necessary; and
(4) there is a reasonable link between the timing and the amount of the collateral transfer and the obligation that the client owes, or is likely to owe, to the firm.

01/11/2007

Money in connection with a "delivery versus payment" transaction

CASS 7.2.8

Money need not be treated as client money in respect of a delivery versus payment transaction through a commercial settlement system if it is intended that either:

(1) in respect of a client's purchase, money from a client will be due to the firm within one business day upon the fulfilment of a delivery obligation; or
(2) in respect of a client's sale, money is due to the client within one business day following the client's fulfilment of a delivery obligation;

unless the delivery or payment by the firm does not occur by the close of business on the third business day following the date of payment or delivery of the investments by the client.

01/11/2007

CASS 7.2.8A

The exclusion from the client money rules for delivery versus payment transactions under CASS 7.2.8 R is an example of an exclusion from the client money rules which is permissible by virtue of recital 26 of MiFID.

01/01/2009

CASS 7.2.8B

Money need not be treated as client money in respect of a delivery versus payment transaction, for the purpose of settling a transaction in relation to units in a regulated collective investment scheme, if:

(1) the authorised fund manager receives it from a client in relation to the authorised fund manager's obligation to issue units, in an AUT or to arrange for the issue of units in an ICVC, in accordance with COLL, unless the price of those units has not been determined by the close of business on the next business day:

(a) following the date of the receipt of the money from the client; or
(b) if the money was received by an appointed representative of the authorised fund manager, in accordance with CASS 7.4.24 G, following the date of receipt at the specified business address of the authorised fund manager; or

(2) the money is held in the course of redeeming units where the proceeds of that redemption are paid to a client within the time specified in COLL; when an authorised fund manager draws a cheque or other payable order within these time frames the provisions of CASS 7.2.17 R and CASS 7.2.9R (2) will not apply.

01/01/2009

Money due and payable to the firm

CASS 7.2.9

(1) Money is not client money when it becomes properly due and payable to the firm for its own account.
(2) For these purposes, if a firm makes a payment to, or on the instructions of, a client, from an account other than a client bank account, until that payment has cleared, no equivalent sum from a client bank account for reimbursement will become due and payable to the firm.

01/11/2007

CASS 7.2.10

Money held as client money becomes due and payable to the firm or for the firm's own account, for example, because the firm acted as principal in the contract or the firm, acting as agent, has itself paid for securities in advance of receiving the purchase money from its client. The circumstances in which it is due and payable will depend on the contractual arrangement between the firm and the client.

01/11/2007

CASS 7.2.11

When a client's obligation or liability, that is secured by that client's asset, crystallises, and the firm realises the asset in accordance with an agreement entered into between the client and the firm, the part of the proceeds of the asset to cover such liability that is due and payable to the firm is not client money. However, any proceeds of sale in excess of the amount owed by the client to the firm should be paid over to the client immediately or be held in accordance with the client money rules.

01/11/2007

Commission rebate

CASS 7.2.12

When a firm has entered into an arrangement under which commission is rebated to a client, those rebates need not be treated as client money until they become due and payable to the client in accordance with the terms of the contractual arrangements between the parties.

01/11/2007

CASS 7.2.13

When commission rebate becomes due and payable to the client, the firm should:

(1) treat it as client money; or
(2) pay it out in accordance with the rule regarding the discharge of a firm's fiduciary duty to the client (see CASS 7.2.15 R);

unless the firm and the client have entered into an arrangement under which the client has agreed to transfer full ownership of this money to the firm as collateral against payment of future professional fees (see CASS 7.2.3 R (Title transfer collateral arrangements)).

01/11/2007

Interest

CASS 7.2.14

Unless a firm notifies a retail client in writing whether or not interest is to be paid on client money and, if so, on what terms and at what frequency, it must pay that client all interest earned on that client money. Any interest due to a client will be client money.

01/11/2007

Discharge of fiduciary duty

CASS 7.2.15

Money ceases to be client money if it is paid:

(1) to the client, or a duly authorised representative of the client; or
(2) to a third party on the instruction of the client, unless it is transferred to a third party in the course of effecting a transaction, in accordance with CASS 7.5.2 R (Transfer of client money to a third party); or
(3) into a bank account of the client (not being an account which is also in the name of the firm); or
(4) to the firm itself, when it is due and payable to the firm (see CASS 7.2.9 R (Money due and payable to the firm)); or
(5) to the firm itself, when it is an excess in the client bank account (see CASS 7.6.13R (2) (Reconciliation discrepancies)).

01/11/2007

CASS 7.2.16

When a firm wishes to transfer client money balances to a third party in the course of transferring its business to another firm, it should do so in a way which it discharges its fiduciary duty to the client under this section.

01/11/2007

CASS 7.2.17

When a firm draws a cheque or other payable order to discharge its fiduciary duty to the client, it must continue to treat the sum concerned as client money until the cheque or order is presented and paid by the bank.

01/11/2007

Allocated but unclaimed client money

CASS 7.2.18

The purpose of the rule on allocated but unclaimed client money is to allow a firm, in the normal course of its business, to cease to treat as client money any balances, allocated to an individual client, when those balances remain unclaimed.

01/11/2007

CASS 7.2.19

A firm may cease to treat as client money any unclaimed client money balance if it can demonstrate that it has taken reasonable steps to trace the client concerned and to return the balance.

01/11/2007

CASS 7.2.20

(1) Taking reasonable steps should include:

(a) entering into a written agreement, in which the client consents to the firm releasing, after the period of time specified in (b), any client money balances, for or on behalf of that client, from client bank accounts;
(b) determining that there has been no movement on the client's balance for a period of at least six years (notwithstanding any payments or receipts of charges, interest or similar items);
(c) writing to the client at the last known address informing the client of the firm's intention of no longer treating that balance as client money, giving the client 28 days to make a claim;
(d) making and retaining records of all balances released from client bank accounts; and
(e) undertaking to make good any valid claim against any released balances.

(2) Compliance with (1) may be relied on as tending to establish compliance with CASS 7.2.19 R.
(3) Contravention of (1) may be relied on as tending to establish contravention of CASS 7.2.19 R.

01/11/2007

CASS 7.2.21

When a firm gives an undertaking to make good any valid claim against released balances, it should make arrangements authorised by the firm's relevant controllers that are legally enforceable by any person with a valid claim to such money.

01/11/2007

CASS 7.3

Organisational requirements: client money

01/11/2007

Requirement to protect client money

CASS 7.3.1

A firm must, when holding client money, make adequate arrangements to safeguard the client's rights and prevent the use of client money for its own account.

[Note: article 13(8) of MiFID]

01/11/2007

Requirement to have adequate organisational arrangements

CASS 7.3.2

A firm must introduce adequate organisational arrangements to minimise the risk of the loss or diminution of client money, or of rights in connection with client money, as a result of misuse of client money, fraud, poor administration, inadequate record-keeping or negligence.

[Note: article 16(1)(f) of the MiFID implementing Directive]

01/11/2007

CASS 7.4

Segregation of client money

01/11/2007

CASS 7.4.1

A firm, on receiving any client money, must promptly place this money into one or more accounts opened with any of the following:

(1) a central bank;
(2) a BCD credit institution;
(3) a bank authorised in a third country;
(4) a qualifying money market fund.

[Note: article 18(1) of the MiFID implementing Directive]

01/11/2007

CASS 7.4.2

An account with a central bank, a BCD credit institution or a bank authorised in a third country in which client money is placed is a client bank account.

01/11/2007

Qualifying money market funds

CASS 7.4.3

Where a firm deposits client money with a qualifying money market fund, the units in that fund should be held in accordance with CASS 6.

[Note: recital 23 to the MiFID implementing Directive]

01/01/2009

CASS 7.4.4

A firm that places client money in a qualifying money market fund should ensure that it has the permissions required to invest in and hold units in that fund and must comply with the rules that are relevant for those activities.

01/11/2007

CASS 7.4.5

A firm must give a client the right to oppose the placement of his money in a qualifying money market fund.

[Note: article 18(3) of the MiFID implementing Directive]

01/11/2007

CASS 7.4.6

If a firm that intends to place client money in a qualifying money market fund is subject to the requirement to disclose information before providing services, it should, in compliance with that obligation, notify the client that:

(1) money held for that client will be held in a qualifying money market fund; and

(2) as a result, the money will not be held in accordance with the client money rules but in accordance with the custody rules.

06/04/2010

A firm's selection of a credit institution, bank or money market fund

CASS 7.4.7

A firm that does not deposit client money with a central bank must exercise all due skill, care and diligence in the selection, appointment and periodic review of the credit institution, bank or qualifying money market fund where the money is deposited and the arrangements for the holding of this money.

[Note: article 18(3) of the MiFID implementing Directive]

01/11/2007

CASS 7.4.8

When a firm makes the selection, appointment and conducts the periodic review of a credit institution, a bank or a qualifying money market fund, it must take into account:

(1) the expertise and market reputation of the third party; and
(2) any legal requirements or market practices related to the holding of client money that could adversely affect clients' rights.

[Note: article 18(3) of the MiFID implementing Directive]

01/11/2007

CASS 7.4.9

In discharging its obligations when selecting, appointing and reviewing the appointment of a credit institution, a bank or a qualifying money market fund, a firm should also consider, together with any other relevant matters:

(1) the need for diversification of risks;
(2) the capital of the credit institution or bank;
(3) the amount of client money placed, as a proportion of the credit institution or bank's capital and deposits, and, in the case of a qualifying money market fund, compared to any limit the fund may place on the volume of redemptions in any period;
(4) the credit rating of the credit institution or bank; and
(5) to the extent that the information is available, the level of risk in the investment and loan activities undertaken by the credit institution or bank and affiliated companies.

01/11/2007

CASS 7.4.10

A firm must make a record of the grounds upon which it satisfies itself as to the appropriateness of its selection of a credit institution, a bank or a qualifying money market fund. The firm must make the record on the date it makes the selection and must keep it from the date of such selection until five years after the firm ceases to use the third party to hold client money.

01/11/2007

Client bank accounts

CASS 7.4.11

A firm must take the necessary steps to ensure that client money deposited, in accordance with CASS 7.4.1 R, in a central bank, a credit institution, a bank authorised in a third country or a qualifying money market fund is held in an account or accounts identified separately from any accounts used to hold money belonging to the firm.

[Note: article 16(1)(e) of the MiFID implementing Directive]

01/11/2007

CASS 7.4.12

A firm may open one or more client bank accounts in the form of a general client bank account, a designated client bank account or a designated client fund account (see CASS 7A.2.1 G (Failure of the authorised firm: primary pooling event).

06/04/2010

CASS 7.4.13

A designated client fund account may be used for a client only where that client has consented to the use of that account and all other designated client fund accounts which may be pooled with it. For example, a client who consents to the use of bank A and bank B should have his money held in a different designated client fund account at bank B from a client who has consented to the use of banks B and C.

01/11/2007

Payment of client money into a client bank account

CASS 7.4.14

Two approaches that a firm can adopt in discharging its obligations under the client money segregation requirements are:

(1) the 'normal approach'; or
(2) the 'alternative approach'.

01/01/2009

CASS 7.4.15

A firm that does not adopt the normal approach must first send a written confirmation to the FSA from the firm's auditor that the firm has in place systems and controls which are adequate to enable it to operate another approach effectively.

01/11/2007

CASS 7.4.16

The alternative approach would be appropriate for a firm that operates in a multi-product, multi-currency environment for which adopting the normal approach would be unduly burdensome and would not achieve the client protection objective. Under the alternative approach, client money is received into and paid out of a firm's own bank accounts; consequently the firm should have systems and controls that are capable of monitoring the client money flows so that the firm can comply with its obligations to perform reconciliations of records and accounts (see CASS 7.6.2 R). A firm that adopts the alternative approach will segregate client money into a client bank account on a daily basis, after having performed a reconciliation of records and accounts of the entitlement of each client for whom the firm holds client money with the records and accounts of the client money the firm holds in client bank accounts and client transaction accounts to determine what the client money requirement was at the close of the previous business day.

01/11/2007

CASS 7.4.17

Under the normal approach, a firm that receives client money should either:

(1) pay it promptly, and in any event no later than the next business day after receipt, into a client bank account; or
(2) pay it out in accordance with the rule regarding the discharge of a firm's fiduciary duty to the client (see CASS 7.2.15 R).

01/11/2007

CASS 7.4.18

Under the alternative approach, a firm that receives client money should:

(a) pay any money to or on behalf of clients out of its own account; and
(b) perform a reconciliation of records and accounts required under CASS 7.6.2 R (Records and accounts), and where relevant SYSC 4.1.1 R (General requirements) and SYSC 6.1.1 R (Compliance), adjust the balance held in its client bank accounts and then segregate the money in the client bank account until the calculation is re-performed on the next business day; or

(2) pay it out in accordance with the rule regarding the discharge of a firm's fiduciary duty to the client (see CASS 7.2.15 R).

06/04/2010

CASS 7.4.19

A firm that adopts the alternative approach may:

(1) receive all client money into its own bank account;
(2) choose to operate the alternative approach for some types of business (for example, overseas equities transactions) and operate the normal approach for other types of business (for example, contingent liability investments) if the firm can demonstrate that its systems and controls are adequate (see CASS 7.4.15 R); and
(3) use an historic average to account for uncleared cheques (see paragraph 4 of CASS 7 Annex 1).

01/11/2007

CASS 7.4.20

Pursuant to the client money segregation requirements, a firm should ensure that any money other than client money deposited in a client bank account is promptly paid out of that account unless it is a minimum sum required to open the account, or to keep it open.

01/01/2009

CASS 7.4.21

If it is prudent to do so to ensure that client money is protected, a firm may pay into a client bank account money of its own, and that money will then become client money for the purposes of this chapter.

01/11/2007

Automated transfers

CASS 7.4.22

Pursuant to the client money segregation requirements, a firm operating the normal approach that receives client money in the form of an automated transfer should take reasonable steps to ensure that:

(1) the money is received directly into a client bank account; and
(2) if money is received directly into the firm's own account, the money is transferred into a client bank account promptly, and in any event, no later than the next business day after receipt.

01/01/2009

Mixed remittance

CASS 7.4.23

Pursuant to the client money segregation requirements, a firm operating the normal approach that receives a mixed remittance (that is part client money and part other money) should:

(1) pay the full sum into a client bank account promptly, and in any event, no later than the next business day after receipt; and
(2) pay the money that is not client money out of the client bank account promptly, and in any event, no later than one business day of the day on which the firm would normally expect the remittance to be cleared.

01/01/2009

Appointed representatives, tied agents, field representatives and other agents

CASS 7.4.24

(1) Pursuant to the client money segregation requirements, a firm operating the normal approach should establish and maintain procedures to ensure that client money received by its appointed representatives, tied agents, field representatives or other agents is:

(a) paid into a client bank account of the firm promptly, and in any event, no later than the next business day after receipt; or
(b) forwarded to the firm, or in the case of a field representative forwarded to a specified business address of the firm, so as to ensure that the money arrives at the specified business address promptly, and in any event, no later than the close of the third business day.

(2) For the purposes of 1(b), client money received on business day one should be forwarded to the firm or specified business address of the firm promptly, and in any event, no later than the next business day after receipt (business day two) in order for it to reach that firm or specified business address by the close of the third business day. Procedures requiring the client money in the form of a cheque to be sent to the firm or the specified business address of the firm by first class post promptly, and in any event, no later than the next business day after receipt, would be in line with 1(b).

01/01/2009

CASS 7.4.25

The firm should ensure that its appointed representatives, tied agents, field representatives or other agents keep client money separately identifiable from any other money (including that of the firm) until the client money is paid into a client bank account or sent to the firm.

01/11/2007

CASS 7.4.26

A firm that operates a number of small branches, but holds or accounts for all client money centrally, may treat those small branches in the same way as appointed representatives and tied agents.

01/11/2007

Client entitlements

CASS 7.4.27

Pursuant to the client money segregation requirements, a firm operating the normal approach that receives outside the United Kingdom a client entitlement on behalf of a client should pay any part of it which is client money:

(1) to, or in accordance with, the instructions of the client concerned; or
(2) into a client bank account promptly, and in any event, no later than five business days after the firm is notified of its receipt.

01/01/2009

CASS 7.4.28

Pursuant to the client money segregation requirements, a firm operating the normal approach should allocate a client entitlement that is client money to the individual client promptly and, in any case, no later than ten business days after notification of receipt.

01/01/2009

Money due to a client from a firm

CASS 7.4.29

Pursuant to the client money segregation requirements, a firm operating the normal approach that is liable to pay money to a client should promptly, and in any event no later than one business day after the money is due and payable, pay the money:

(1) to, or to the order of, the client; or
(2) into a client bank account.

01/01/2009

Segregation in different currency

CASS 7.4.30

A firm may segregate client money in a different currency from that of receipt. If it does so, the firm must ensure that the amount held is adjusted each day to an amount at least equal to the original currency amount (or the currency in which the firm has its liability to its clients, if different), translated at the previous day's closing spot exchange rate.

01/11/2007

CASS 7.4.31

The rule on segregation of client money in a different currency (CASS 7.4.30 R) does not apply where the client has instructed the firm to convert the money into and hold it in a different currency.

01/11/2007

Commodity Futures Trading Commission Part 30 exemption order

CASS 7.4.32

United States (US) legislation restricts the ability of non-US firms to trade on behalf of US customers on non-US futures and options exchanges. The relevant US regulator (the CFTC) operates an exemption system for firms authorised by the FSA. The FSA sponsors the application from a firm for exemption from Part 30 of the General Regulations under the US Commodity Exchange Act in line with this system.

06/04/2010

CASS 7.4.33

A firm with a Part 30 exemption order undertakes to the CFTC that it will refuse to allow any US customer to opt not to have his money treated as client money if it is held or received in respect of transactions on non-US exchanges, unless that US customer is an "eligible contract participant" as defined in section 1a(12) of the Commodity Exchange Act, 7 U.S.C. In doing so, the firm is representing that if available to it, it will not make use of the opt-out arrangements in CASS 7.1.7B R to CASS 7.1.7F R in relation to that business.

01/01/2009

CASS 7.4.34

A firm must not reduce the amount of, or cancel a letter of credit issued under, an LME bond arrangement where this will cause the firm to be in breach of its Part 30 exemption order.

01/11/2007

CASS 7.4.35

A firm must notify the FSA immediately it arranges the issue of an individual letter of credit under an LME bond arrangement.

01/11/2007

CASS 7.5

Transfer of client money to a third party

01/11/2007

CASS 7.5.1

This section sets out the requirements a firm must comply with when it transfers client money to another person without discharging its fiduciary duty owed to that client. Such circumstances arise when, for example, a firm passes client money to a clearing house in the form of margin for the firm's obligations to the clearing house that are referable to transactions undertaken by the firm for the relevant clients. They may also arise when a firm passes client money to an intermediate broker for contingent liability investments in the form of initial or variation margin on behalf of a client. In these circumstances, the firm remains responsible for that client's equity balance held at the intermediate broker until the contract is terminated and all of that client's positions at that broker closed. If a firm wishes to discharge itself from its fiduciary duty, it should do so in accordance with the rule regarding the discharge of a firm's fiduciary duty to the client (CASS 7.2.15 R).

01/11/2007

CASS 7.5.2

A firm may allow another person, such as an exchange, a clearing house or an intermediate broker, to hold or control client money, but only if:

(1) the firm transfers the client money:

(a) for the purpose of a transaction for a client through or with that person; or
(b) to meet a client's obligation to provide collateral for a transaction (for example, an initial margin requirement for a contingent liability investment); and

(2) in the case of a retail client, that client has been notified that the client money may be transferred to the other person.

01/11/2007

CASS 7.5.3

A firm should not hold excess client money in its client transaction accounts with intermediate brokers, settlement agents and OTC counterparties; it should be held in a client bank account.

01/11/2007

CASS 7.6

Records, accounts and reconciliations

01/11/2007

CASS 7.6.1

A firm must keep such records and accounts as are necessary to enable it, at any time and without delay, to distinguish client money held for one client from client money held for any other client, and from its own money.

[Note: article 16(1)(a) of the MiFID implementing Directive]

01/11/2007

CASS 7.6.2

A firm must maintain its records and accounts in a way that ensures their accuracy, and in particular their correspondence to the client money held for clients.

[Note: article 16(1)(b) of the MiFID implementing Directive]

01/11/2007

Client entitlements

CASS 7.6.3

Pursuant to CASS 7.6.2 R (Records and accounts), and where relevant SYSC 4.1.1 R (General requirements)and SYSC 6.1.1 R (Compliance), a firm should take reasonable steps to ensure that it is notified promptly of any receipt of client money in the form of a client entitlement.

06/04/2010

Record keeping

CASS 7.6.4

A firm must ensure that records made under CASS 7.6.1 R and CASS 7.6.2 R are retained for a period of five years after they were made.

01/11/2007

CASS 7.6.5

A firm should ensure that it makes proper records, sufficient to show and explain the firm's transactions and commitments in respect of its client money.

01/11/2007

Internal reconciliations of client money balances

CASS 7.6.6

(1) Carrying out internal reconciliations of records and accounts of the entitlement of each client for whom the firm holds client money with the records and accounts of the client money the firm holds in client bank accounts and client transaction accounts should be one of the steps a firm takes to satisfy its obligations under CASS 7.6.2 R, and where relevant SYSC 4.1.1 R and SYSC 6.1.1 R.
(2) A firm should perform such internal reconciliations:

(a) as often as is necessary; and
(b) as soon as reasonably practicable after the date to which the reconciliation relates;

to ensure the accuracy of the firm's records and accounts.
(3) The standard method of internal client money reconciliation sets out a method of reconciliation of client money balances that the FSA believes should be one of the steps that a firm takes when carrying out internal reconciliations of client money.

01/01/2009

Records

CASS 7.6.7

(1) A firm must make records, sufficient to show and explain the method of internal reconciliation of client money balances under CASS 7.6.2 R used, and if different from the standard method of internal client money reconciliation, to show and explain that:

(a) the method of internal reconciliation of client money balances used affords an equivalent degree of protection to the firm's clients to that afforded by the standard method of internal client money reconciliation; and
(b) in the event of a primary pooling event or a secondary pooling event, the method used is adequate to enable the firm to comply with the client money distribution rules.

(2) A firm must make these records on the date it starts using a method of internal reconciliation of client money balances and must keep it for a period of five years after ceasing to use it.

06/04/2010

CASS 7.6.8

A firm that does not use the standard method of internal client money reconciliation must first send a written confirmation to the FSA from the firm's auditor that the firm has in place systems and controls which are adequate to enable it to use another method effectively.

01/11/2007

Reconciliations with external records

CASS 7.6.9

A firm must conduct, on a regular basis, reconciliations between its internal accounts and records and those of any third parties by whom client money is held.

[Note: article 16(1)(c) of the MiFID implementing Directive]

01/11/2007

Frequency of external reconciliations

CASS 7.6.10

(1) A firm should perform the required reconciliation of client money balances with external records:

(a) as regularly as is necessary; and
(b) as soon as reasonably practicable after the date to which the reconciliation relates;

to ensure the accuracy of its internal accounts and records against those of third parties by whom client money is held.
(2) In determining whether the frequency is adequate, the firm should consider the risks which the business is exposed, such as the nature, volume and complexity of the business, and where and with whom the client money is held.

01/11/2007

Method of external reconciliations

CASS 7.6.11

A method of reconciliation of client money balances with external records that the FSA believes is adequate is when a firm compares:

(1) the balance on each client bank account as recorded by the firm with the balance on that account as set out on the statement or other form of confirmation issued by the bank with which those accounts are held; and
(2) the balance, currency by currency, on each client transaction account as recorded by the firm, with the balance on that account as set out in the statement or other form of confirmation issued by the person with whom the account is held;

and identifies any discrepancies between them.

01/11/2007

CASS 7.6.12

Any approved collateral held in accordance with the client money rules must be included within this reconciliation.

01/11/2007

Reconciliation discrepancies

CASS 7.6.13

When any discrepancy arises as a result of a firm's internal reconciliations, the firm must identify the reason for the discrepancy and ensure that:

(1) any shortfall is paid into a client bank account by the close of business on the day that the reconciliation is performed; or
(2) any excess is withdrawn within the same time period (but see CASS 7.4.20 G and CASS 7.4.21 R).

01/11/2007

CASS 7.6.14

When any discrepancy arises as a result of the reconciliation between a firm's internal records and those of third parties that hold client money, the firm must identify the reason for the discrepancy and correct it as soon as possible, unless the discrepancy arises solely as a result of timing differences between the accounting systems of the party providing the statement or confirmation and that of the firm.

01/11/2007

CASS 7.6.15

While a firm is unable to resolve a difference arising from a reconciliation between a firm's internal records and those of third parties that hold client money, and one record or a set of records examined by the firm during its reconciliation indicates that there is a need to have a greater amount of client money or approved collateral than is in fact the case, the firm must assume, until the matter is finally resolved, that the record or set of records is accurate and pay its own money into a relevant account.

01/11/2007

Notification requirements

CASS 7.6.16

A firm must inform the FSA in writing without delay:

(1) if it has not complied with, or is unable, in any material respect, to comply with the requirements in CASS 7.6.1 R, CASS 7.6.2 R or CASS 7.6.9 R;
(2) if having carried out a reconciliation it has not complied with, or is unable, in any material respect, to comply with CASS 7.6.13 R to CASS 7.6.15 R.

01/11/2007

Audit of compliance with the MiFID client money rules

CASS 7.6.17

Firms are reminded that the auditor of the firm has to confirm in the report submitted to the FSA under SUP 3.10 (Duties of auditors: notification and report on client assets) that the firm has maintained systems adequate to enable it to comply with the client money rules.

01/11/2007

CASS 7.6.18

Firms that do not adopt the normal approach are reminded that the firm's auditor must confirm to the FSA in writing that the firm has in place systems and controls which are adequate to enable it to operate the alternative approach effectively (see CASS 7.4.15 R).

01/11/2007

CASS 7.6.19

Firms that do not use the standard method of internal client money reconciliation are reminded that the firm's auditor must confirm to the FSA in writing that the firm has in place systems and controls which are adequate to enable it to use another method effectively (see CASS 7.6.8 R).

01/11/2007

CASS 7.7

Statutory trust

01/11/2007

CASS 7.7.1

Section 139(1) of the Act (Miscellaneous ancillary matters) provides that rules may make provision which result in client money being held by a firm on trust (England and Wales and Northern Ireland) or as agent (Scotland only). This section creates a fiduciary relationship between the firm and its client under which client money is in the legal ownership of the firm but remains in the beneficial ownership of the client. In the event of failure of the firm, costs relating to the distribution of client money may have to be borne by the trust.

01/11/2007

Requirement

CASS 7.7.2

A firm receives and holds client money as trustee (or in Scotland as agent) on the following terms:

(1) for the purposes of and on the terms of the client money rules and the client money distribution rules;
(2) subject to (3), for the clients (other than clients which are insurance undertakings when acting as such with respect of client money received in the course of insurance mediation activity and that was opted in to this chapter) for whom that money is held, according to their respective interests in it;
(3) after all valid claims in (2) have been met, for clients which are insurance undertakings with respect of client money received in the course of insurance mediation activity according to their respective interests in it;
(4) on failure of the firm, for the payment of the costs properly attributable to the distribution of the client money in accordance with (2); and
(5) after all valid claims and costs under (2) to (4) have been met, for the firm itself.

01/01/2009

CASS 7.7.3

A trustee firm which is subject to the client money rules by virtue of CASS 7.1.1R (4)CASS 7.1.1AR (2):

(1) must receive and hold client money in accordance with the relevant instrument of trust;
(2) subject to that, receives and holds client money on trust on the terms (or in Scotland on the agency terms) specified in CASS 7.7.2 R.

01/01/2009

CASS 7.7.4

If a trustee firm holds client money in accordance with CASS 7.7.3R (2), the firm should follow the provisions in CASS 7.1.15E R and CASS 7.1.15F R.

01/01/2009

CASS 7.8

Notification and acknowledgement of trust

01/11/2007

Banks

CASS 7.8.1

(1) When a firm opens a client bank account, the firm must give or have given written notice to the bank requesting the bank to acknowledge to it in writing that:

(a) all money standing to the credit of the account is held by the firm as trustee (or if relevant, as agent) and that the bank is not entitled to combine the account with any other account or to exercise any right of set-off or counterclaim against money in that account in respect of any sum owed to it on any other account of the firm; and
(b) the title of the account sufficiently distinguishes that account from any account containing money that belongs to the firm, and is in the form requested by the firm.

(2) In the case of a client bank account in the United Kingdom, if the bank does not provide the required acknowledgement within 20 business days after the firm dispatched the notice, the firm must withdraw all money standing to the credit of the account and deposit it in a client bank account with another bank as soon as possible.

01/11/2007

Exchanges, clearing houses, intermediary brokers or OTC counterparties

CASS 7.8.2

(1) A firm which undertakes any contingent liability investment for clients through an exchange, clearing house, intermediate broker or OTC counterparty must, before the client transaction account is opened with the exchange, clearing house, intermediate broker or OTC counterparty:

(a) notify the person with whom the account is to be opened that the firm is under an obligation to keep client money separate from the firm's own money, placing client money in a client bank account;
(b) instruct the person with whom the account is to be opened that any money paid to it in respect of that transaction is to be credited to the firm's client transaction account; and
(c) require the person with whom the account is to be opened to acknowledge in writing that the firm's client transaction account is not to be combined with any other account, nor is any right of set-off to be exercised by that person against money credited to the client transaction account in respect of any sum owed to that person on any other account.

(2) If the exchange, clearing house, intermediate broker or OTC counterparty does not provide the required acknowledgement within 20 business days of the dispatch of the notice and instruction, the firm must cease using the client transaction account with that broker or counterparty and arrange as soon as possible for the transfer or liquidation of any open positions and the repayment of any money.

06/02/2009

CASS 7 Annex 1

Annex 1

01/11/2007

As explained in CASS 7.6.6 G, in complying with its obligations under CASS 7.6.2 R (Records and accounts), and where relevant SYSC 4.1.1 R (General organisational requirements) and SYSC 6.1.1 R (Compliance), a firm should carry out internal reconciliations of records and accounts of client money the firm holds in client bank accounts and client transaction accounts. This Annex sets out a method of reconciliation that the FSA believes is appropriate for these purposes (the standard method of internal client money reconciliation).

1. Each business day, a firm that adopts the normal approach (see CASS 7.4.17 G) should check whether its client money resource, being the aggregate balance on the firm's client bank accounts, as at the close of business on the previous business day, was at least equal to the client money requirement, as defined in paragraph 6 below, as at the close of business on that day.

2. Each business day, a firm that adopts the alternative approach (see CASS 7.4.18 G) should ensure that its client money resource, being the aggregate balance on the firm's client bank accounts, as at the close of business on that business day is at least equal to the client money requirement, as defined in paragraph 6 below, as at the close of business on the previous business day.

3. No excess or shortfall should arise when adopting the alternative approach.

4. If a firm is operating the alternative approach and draws a cheque on its own bank account, it will be expected to account for those cheques that have not yet cleared when performing its reconciliations of records and accounts under paragraph 2. An historic average estimate of uncleared cheques may be used to satisfy this obligation (see CASS 7.4.19G (3)).

5. For the purposes of performing its reconciliations of records and accounts under paragraphs 1 or 2, a firm should use the values contained in its accounting records, for example its cash book, rather than values contained in statements received from its banks and other third parties.

Client money requirement

6. The client money requirement is either:

(1) (subject to paragraph 18) the sum of, for all clients:

(a) the individual client balances calculated in accordance with paragraph 7, excluding:

(i) individual client balances which are negative (that is, debtors); and
(ii) clients' equity balances; and

(b) the total margined transaction requirement calculated in accordance with paragraph 14; or

(2) the sum of:

(a) for each client bank account:

(i) the amount which the firm's records show as held on that account; and
(ii) an amount that offsets each negative net amount which the firm's records show attributed to that account for an individual client; and

(b) the total margined transaction requirement calculated in accordance with paragraph 14.

General transactions
7. The individual client balance for each client should be calculated in accordance with this table:

Individual client balance calculation

Free money (no trades) and

sale proceeds due to the client:

(a)

in respect of principal deals when the client has delivered the designated investments; and

(b)

in respect of agency deals, when either:

(i)

the sale proceeds have been received by the firm and the client has delivered the designated investments; or

(ii)

the firm holds the designated investments for the client; and

the cost of purchases:

(c)

in respect of principal deals, paid for by the client but the firm has not delivered the designated investments to the client; and

(d)

in respect of agency deals, paid for by the client when either:

(i)

the firm has not remitted the money to, or to the order of, the counterparty; or

(ii)

the designated investments have been received by the firm but have not been delivered to the client;

Less

money owed by the client in respect of unpaid purchases by or for the client if delivery of those designated investments has been made to the client; and

Proceeds remitted to the client in respect of sales transactions by or for the client if the client has not delivered the designated investments.

Individual Client Balance 'X' = (A+B+C1+C2+D+E1+E2)-F-G

8. A firm should calculate the individual client balance using the contract value of any client purchases or sales.

9. A firm may choose to segregate designated investments instead of the value identified in paragraph 7 (except E1) if it ensures that the designated investments are held in such a manner that the firm cannot use them for its own purposes.

10. Segregation in the context of paragraph 9 can take many forms, including the holding of a safe custody investment in a nominee name and the safekeeping of certificates evidencing title in a fire resistant safe. It is not the intention that all the custody rules in the custody chapter should be applied to designated investments held in the course of settlement.

11. In determining the client money requirement under paragraph 6, a firm need not include money held in accordance with CASS 7.2.8 R (Delivery versus payment transaction).

12. In determining the client money requirement under paragraph 6, a firm:

(1) should include dividends received and interest earned and allocated;
(2) may deduct outstanding fees, calls, rights and interest charges and other amounts owed by the client which are due and payable to the firm (see CASS 7.2.9 R);
(3) need not include client money in the form of client entitlements which are not required to be segregated (see CASS 7.4.27 G) nor include client money forwarded to the firm by its appointed representatives, tied agents, field representatives and other agents, but not received (see CASS 7.4.24 G);
(4) should take into account any client money arising from CASS 7.6.13 R (Reconciliation discrepancies); and
(5) should include any unallocated client money.

Equity balance

13. A firm's equity balance, whether with an exchange, intermediate broker or OTC counterparty, is the amount which the firm would be liable to pay to the exchange, intermediate broker or OTC counterparty (or vice-versa) in respect of the firm's margined transactions if each of the open positions of the firm's clients was liquidated at the closing or settlement prices published by the relevant exchange or other appropriate pricing source and the firm's account with the exchange, intermediate broker or OTC counterparty is closed.

Margined transaction requirement

14. The total margined transaction requirement is:

(1) the sum of each of the client's equity balances which are positive;
Less
(2) the proportion of any individual negative client equity balance which is secured by approved collateral; and
(3) the net aggregate of the firm's equity balance (negative balances being deducted from positive balances) on transaction accounts for customers with exchanges, clearing houses, intermediate brokers and OTC counterparties.

15. To meet a shortfall that has arisen in respect of the requirement in paragraph 6(1)(b) or 6(2)(b), a firm may utilise its own approved collateral provided it is held on terms specifying when it is to be realised for the benefit of clients, it is clearly identifiable from the firm's own property and the relevant terms are evidenced in writing by the firm. In addition, the proceeds of the sale of that collateral should be paid into a client bank account.

16. If a firm's total margined transaction requirement is negative, the firm should treat it as zero for the purposes of calculating its client money requirement.

17. The terms 'client equity balance' and 'firm's equity balance' in paragraph 13 refer to cash values and do not include non-cash collateral or other designated investments held in respect of a margined transaction.

17A. A firm with a Part 30 exemption order which also operates an LME bond arrangement for the benefit of US-resident investors, should exclude the client equity balances for transactions undertaken on the London Metal Exchange on behalf of those US-resident investors from the calculation of the margined transaction requirement.

Reduced client money requirement option

18.

(1) When, in respect of a client, there is a positive individual client balance and a negative client equity balance, a firm may offset the credit against the debit and hence have a reduced individual client balance in paragraph 7 for that client.
(2) When, in respect of a client, there is a negative individual client balance and a positive client equity balance, a firm may offset the credit against the debit and hence have a reduced client equity balance in paragraph 14 for that client.

19. The effect of paragraph 18 is to allow a firm to offset, on a client by client basis, a negative amount with a positive amount arising out of the calculations in paragraphs 7 and 14, and, by so doing, reduce the amount the firm is required to segregate.

01/01/2009