CASS 6.1 Application

This chapter (the custody rules) applies to a firm:2 1

1. (1)

   [deleted]2

   2
   1. (a)

      [deleted]2

      2
   2. (b)

      [deleted]2

      2
2. (1A)

   2when it holds financial instruments belonging to a client in the course of its MiFID business;

   7
3. (1B)

   2when it is safeguarding and administering investments, in the course of business that is not MiFID business;7

4. (1C)

   when it is acting as trustee or depositary of an AIF; 7

   9
5. (1D)

   when it is acting as trustee or depositary of a UCITS; and9 7

6. (1E)

   in respect of any arrangement for a client to transfer full ownership of a safe custody asset to the firm which is:

   1. (a)

      in the course of, or in connection with, the firm's designated investment business; and

   2. (b)

      for the purpose of securing or otherwise covering present or future, actual or contingent or prospective obligations, but the application of the custody rules to a firm under this paragraph is limited to the rules and guidance in CASS 6.1.6 R to CASS 6.1.9 G.9

7. (2)

   [deleted]2

   2

2Firms to which the custody rules apply by virtue of CASS 6.1.1R (1B), (1C) or (1D) 7 must also apply the custody rules to those custody assets which are not safe custody investments in a manner appropriate to the nature and value of those custody assets.

The custody rules do not apply where a firm carries on business in its name but on behalf of the client where that is required by the very nature of the transaction and the client is in agreement.

[Note: recital 26 to MiFID]

1. (1)

   The custody rules do not apply where a client transfers full ownership of a safe custody asset to a firm for the purpose of securing or otherwise covering present or future, actual, contingent or prospective obligations.

   [Note: recital 27 to MiFID]

   4
2. (2)

   4Excepted from (1) is a transfer of the full ownership of a safe custody asset:

   1. (a)

      belonging to a retail client;

   2. (b)

      whose purpose is to secure or otherwise cover that client's present or future, actual, contingent or prospective obligations under a contract for differences or6 a rolling spot forex contract that is a future, and in either case where that contract is6 entered into with a firm acting as market maker; and

   3. (c)

      which is made to that firm or to any other person arranging on its behalf.

1. (1)

   4Subject to (2), where a firm makes arrangements for the purpose of securing or otherwise covering present or future, actual, contingent or prospective obligations of a retail client those arrangements must not provide for the taking of a transfer of full ownership of any of that client's safe custody assets.

2. (2)

   The application of (1) is confined to the taking of a transfer of full ownership:

   1. (a)

      whose purpose is to secure or otherwise cover that retail client's obligations under a contract for differences or6a rolling spot forex contract that is a future, and in either case where that contract is6 entered into with a firm acting as market maker; and

   2. (b)

      which is made to that firm or to any other person arranging on its behalf.

9In respect of a firm's business falling under CASS 6.1.1R (1B), the custody rules do not apply to the firm when it is safeguarding and administering investments on behalf of an affiliated company, unless:

1. (1)

   the firm has been notified that the designated investment belongs to a client of the affiliated company; or

2. (2)

   the affiliated company is a client dealt with at arm's length.

1. (1)

   A firm need not treat this chapter as applying in respect of a delivery versus payment transaction through a commercial settlement system if it is intended that the safe custody asset 2 is either to be:

   2
   1. (a)

      in respect of a client's purchase, due to the client within one business day following the client's fulfilment of a payment obligation; or

   2. (b)

      in respect of a client's sale, due to the firm within one business day following the fulfilment of a payment 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 safe custody asset 2 by the client.

   2
2. (2)

   Until such a delivery versus payment transaction through a commercial settlement system settles, a firm may segregate money (in accordance with the client money chapter ) instead of the client's safe custody assets.2

   22

2The exemptions in CASS 6.1.16B R to CASS 6.1.16D G do not apply to a MiFID investment firm which holds financial instruments belonging to a client in the course of MiFID business.

2The custody rules do not apply to a personal investment firm when it temporarily holds a designated investment, other than in bearer form, belonging to a client, if the firm:

1. (1)

   keeps it secure, records it as belonging to that client, and forwards it to the client or in accordance with the client's instructions, as soon as practicable after receiving it;

2. (2)

   retains the designated investment for no longer than the firm has taken reasonable steps to determine is necessary to check for errors and to receive the final document in connection with any series of transactions to which the documents relate; and

3. (3)

   makes a record, which must then be retained for a period of 5 years after the record is made, of all the designated investments handled in accordance with (1) and (2) together with the details of the clients concerned and of any action the firm has taken.

2The specialist regime in CASS 6.1.16F R to CASS 6.1.16I G does not apply to a MiFID investment firm which holds financial instruments belonging to a client in the course of MiFID business.

2When a firm arranges safeguarding and administration of assets, it must ensure that proper records of the arrangements9 are made and retained for a period of 5 years after they are made.