CASS 7A.2 Primary pooling events

A primary pooling event occurs:

1. (1)

   on the failure of the firm;

2. (2)

   on the vesting of assets in a trustee2 in accordance with an 'assets requirement' imposed under section 55P(1)(b) or (c) (as the case may be) of the Act;

   2
3. (3)

   on the coming into force of a requirement or requirements which, either separately or in combination:7

   1. (a)

      is or are for all client money held by the firm; and7

   2. (b)

      require the firm to take steps to cease holding all client money7; or

4. (4)

   when the firm notifies7 the FCA, in accordance with CASS 7.15.33 R 4 (Notification requirements), that it is unable correctly to identify and allocate in its records all valid claims arising as a result of a secondary pooling event.

   4

CASS 7A.2.2R (4) does not apply so long as:

1. (1)

   the firm is taking steps, in consultation with the FCA, to establish those records; and

2. (2)

   there are reasonable grounds to conclude that the records will be capable of rectification within a reasonable period.

4If a primary pooling event occurs in circumstances where the firm had, before the primary pooling event, reduced its margined transaction requirement7 by utilising approved collateral under CASS 7.16.33 R 4 , it must immediately liquidate this approved collateral and place the proceeds in a client bank account that relates to the relevant notional pool under CASS 7A.2.4R(1) (Pooling and distribution or transfer)7

4CASS 7A.2.7-AR7 (Client money received after the failure of the firm) does not apply to the proceeds under CASS 7A.2.3A R.

If a primary pooling event occurs, then4:

1. (1)
   1. (a)

      in respect of a sub-pool,4 the following is treated as a single notional pool of client money for the beneficiaries of that pool:45

      1. (i)

         any client money held in a client bank account of the firm relating to that sub-pool; and5

      2. (ii)

         any client money held in a client transaction account of the firm relating to that sub-pool, except for client money held in a client transaction account at an authorised central counterparty3 or a clearing member which is, in either case, held as part of a 4regulated clearing arrangement;5

   2. (b)

      in respect of the general pool, the following is treated as a single notional pool of client money for the beneficiaries of the general pool:5

      1. (i)

         any client money held in any client bank account of the firm;5

      2. (ii)

         any client money held in a client transaction account of the firm, except for client money held in a client transaction account at an authorised central counterparty, or a clearing member which is, in either case, held as part of a regulated clearing arrangement; and5

      3. (iii)

         any client money identifiable in any other account held by the firm into which client money has been received;5

      except, in each case, for client money relating to a sub-pool which falls under sub-paragraphs7 (1)(a)(i) or (ii); and7

      5
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2. (1A)
   1. (a)

      a notional pool under paragraph (1) shall also include any client money that is:7

      1. (i)

         transferred by the firm under regulation 10H(3) of the IBSA Regulations to a client bank account that is included in that pool under paragraph (1);7

      2. (ii)

         paid under CASS 7A.2.3AR into a client bank account that is included in that pool under paragraph (1);7

      3. (iii)

         paid under CASS 7A.2.4R(3)(b) or CASS 7A.2.4R(3)(d) into a client bank account or client transaction account that is included in that pool under paragraph (1);7

      4. (iv)

         (subject to sub-paragraph (b)) otherwise received after the primary pooling event into a client transaction account that is included in that pool under paragraph (1) where the receipt is in relation to a margined transaction that the firm had entered into through the use of that client transaction account and which had not closed out before primary pooling event; and7

      5. (v)

         paid under CASS 7.15.29R(1) (Reconciliation discrepancies) after the primary pooling event into a client bank account that is included in that pool under paragraph (1); and7

   2. (b)

      the firm must not transfer any client money in a notional pool under sub-paragraphs (1)(a) or (b) to a client transaction account except where necessary to comply with sub-paragraph (2)(b);7

   3. (c)

      a notional pool under paragraph (1) shall cease to include client money from the point at which it is: 7

      1. (i)

         transferred by the firm under regulation 10H(4) of the IBSA Regulations from a client bank account that is included in that pool under paragraph (1); or7

      2. (ii)

         paid out after the primary pooling event from a client transaction account that is included in that pool under paragraph (1) where the payment is in relation to a margined transaction that the firm had entered into through the use of that client transaction account and which had not closed out before primary pooling event.7

3. (2)

   the firm must, as soon as reasonably practicable7:

   44
   1. (a)

      (subject to paragraph (4))7 4distribute client money comprising a notional pool in accordance with CASS 7.17.2 R 4 , so that each client who is a beneficiary of that pool receives a sum which is rateable to the client money entitlement calculated in accordance with CASS 7A.2.5R (Client money entitlements)7; or

      4
   2. (b)

      4(where applicable) transfer client money comprising a sub-pool to effect or facilitate porting of positions held for the clients who are beneficiaries of that sub-pool; and

4. (3)

   1if, in connection with a regulated clearing arrangement, client money is remitted directly to the firm 3either from an authorised central counterparty3 or from a clearing member as part of that person’s default management procedures7, then, as soon as reasonably practicable7:

   1. (a)

      any such remittance in respect of a client transaction account that is an individual client account does not form a part of any notional pool under CASS 7A.2.4R(1) and7 must be distributed to the relevant client subject to CASS 7.17.2R (4) 4 ;

      4
   2. (b)

      subject to sub-paragraphs7 (3)(c) and (d)4, any such remittance in respect of a client transaction account that is an omnibus client account must form part of the notional pool 4 under CASS 7A.2.4R(1)(b)7 and be subject to distribution in accordance with CASS 7A.2.4R(2)(a)7;

      4
   3. (c)

      any such remittance in respect of a client transaction account that is an omnibus client account must be distributed to the3 relevant clients for whom that omnibus client account is held if:

      1. (i)

         no client money in excess of the amount recorded in that omnibus client account is held by the firm as margin in relation to the positions recorded in that omnibus client account; and4

      2. (ii)

         the amount of such remittance attributable to each client of the omnibus client account is readily apparent from information provided to the firm 4 by the authorised central counterparty3 or, in the case of indirect clients, the clearing member;

         4

      in which case the amount of such remittance does not form a part of any notional pool under CASS 7A.2.4R(1) and7 must be distributed to each such client in accordance with the information provided by the authorised central counterparty 3or clearing member subject to CASS 7.17.2R (4) 4 ; and4

      4
   4. (d)

      4any such remittance in respect of a client transaction account that is a net margined omnibus client account in respect of which the firm maintains a sub-pool must form part of such sub-pool under CASS 7A.2.4R(1)(a)7 to be distributed in accordance with CASS 7A.2.4R (2)(a); and7

5. (4)

   as an alternative to distributing a client’s client money in a notional pool to the relevant client under CASS 7A.2.4R(2)(a) and in respect of client money that that is not required to be transferred under CASS 7A.2.4R(2)(b), a firm (Firm A) may on its own initiative transfer some or all of that client’s client money in the relevant notional pool to any other person (Firm B) for safekeeping on behalf of the client provided that:7

   1. (a)

      as a consequence of any such transfer, Firm A does not distribute to any other client whose client money is in that notional pool, or transfer on behalf of any such other client to another person, an amount of money that would be less than that which such other client was entitled to have distributed or transferred under this rule;7

   2. (b)

      unless Firm A is able to rely on regulation 10B(3)(b) of the IBSA Regulations for the transfer to Firm B to have effect without the consent of the client, either:7

      1. (i)

         Firm A has the specific consent of the client to the transfer to Firm B; or7

      2. (ii)
         1. (A)

            there is a written agreement between Firm A and the client which provides that Firm A may transfer the client’s client money to another person; and7

         2. (B)

            Firm A can lawfully rely on that provision to achieve the transfer under this rule;7

   3. (c)

      Firm A has, in advance of the transfer under this rule, either:7

      1. (i)

         obtained a contractual undertaking from Firm B that the money transferred will be held by Firm B as client money in accordance with the client money rules; or7

      2. (ii)

         where the client money rules do not apply to Firm B, or where they do apply but Firm B is able to hold the money transferred other than as client money, satisfied itself, having exercised all due skill care and diligence in its assessment, that Firm B will apply adequate measures to protect the money transferred;7

   4. (d)

      where regulation 10C(3) of the IBSA Regulations does not apply, Firm A has, in advance of the transfer under this rule, obtained a contractual undertaking from Firm B that Firm B will return the money to the client at the client’s request; and7

   5. (e)

      Firm A has, in advance of the transfer under this rule, obtained a contractual undertaking from Firm B that Firm B will notify the client, within 14 days of the transfer of that client’s balance having commenced:7

      1. (i)

         of the applicable regulatory regime under which the money will be held by Firm B;7

      2. (ii)

         either:7

         1. (A)

            of any relevant compensation scheme limits that may apply in respect of Firm B’s handling of the transferred money; or7

         2. (B)

            of the fact that Firm B does not participate in a relevant compensation scheme, if that is the case; and7

      3. (iii)

         where regulation 10C(3) of the IBSA Regulations does not apply, that the client has the option of having its money returned to it by Firm B.7

1. (-2)
   1. (a)

      Subject to paragraph (-2)(b), each client’s entitlement to client money in a notional pool is calculated with reference to the client money requirement as shown by an internal client money reconciliation carried out in accordance with CASS 7.15.15R(4)(a) (Internal client money reconciliations) as at the primary pooling event.7

   2. (b)

      If, as at the primary pooling event, the firm had entered in to one or more cleared margined transactions through the use of a client transaction account at a clearing house that had not closed out as at the primary pooling event, the client money requirement under (-2)(a) must be calculated as follows:7

      1. (i)

         CASS 7.16.28R does not apply in respect of those cleared margined transactions; and7

      2. (ii)

         subject to CASS 7.16.30R, in respect of those cleared margined transactions a client’s equity balance is instead the amount which the firm is liable to pay to the client (or the client to the firm) under the client money rules for margined transactions following the close out of those margined transactions. This balance should include any cash margin the firm has received from the client in connection with those transactions.7

2. (-1)

   1Each client's client equity balance following any adjustments under paragraph (-2)7 must be reduced by:

   1. (a)

      any amount paid by:

      3
      1. (i)

         an authorised central counterparty to a clearing member7 other than the firm in connection with a porting arrangement in accordance with CASS 7.11.34R (6) 4 in respect of that client; and7

         4
      2. (ii)

         a clearing member to another clearing member or firm (other than the firm) in connection with a transfer in accordance with7 CASS 7.11.34R (8);4

         4
   2. (b)

      any amount paid by:

      3
      1. (i)

         an authorised central counterparty directly to that client, in accordance withCASS 7.11.34R (7);4 and

         4
      2. (ii)

         3a clearing member directly to an indirect client in accordance with7 CASS 7.11.34R (9);4 and

         4
   3. (c)

      any amount that must be distributed to that client by the firm in accordance with CASS 7A.2.4R (3)(a) or (c).

3. (1)

   When, in respect of a client who is a beneficiary of a pool and following any adjustments under paragraph (-2) and reductions under paragraph (-1)7, there is a positive individual client balance 4 and a negative client equity balancein relation to that pool4, the credit for that pool 4must be offset against the debit for that pool7 reducing the individual client balance 4 for that client.

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4. (2)

   When, in respect of a client who is a beneficiary of a pool and following any adjustments under paragraph (-2) and reductions under paragraph (-1)7, there is a negative individual client balance 4 and a positive client equity balance in relation to that pool4, the credit for that pool 4must be offset against the debit for that pool 4reducing the client equity balance for that client.

   4

1. (1)

   7Before a firm ceases to treat a balance of client money in a notional pool as client money by transferring it to itself under CASS 7.17.2R(5) it must:

   1. (a)

      (subject to paragraph (2)) attempt to distribute the balance to the relevant client or transfer it to another person for safekeeping on behalf of the client in accordance with CASS 7A.2.4R (Pooling and distribution or transfer);

   2. (b)

      (subject to paragraph (3)) take reasonable steps to notify any client in respect of whom the firm has evidence that the money may belong, of the firm’s proposed course of action;

   3. (c)

      where the firm has failed, apply any of the following types of balances of client money in the notional pool towards any costs incurred in accordance with CASS 7.17.2R(4), including any costs incurred under paragraph (1)(d):

      1. (i)

         client money allocated to a client for which, following the steps taken by the firm to satisfy paragraph (1)(b), the client to whom the client money belongs has not provided the firm with instructions that would enable the firm to make a distribution or transfer under paragraph (1)(a); or

      2. (ii)

         client money belonging to a client who, in response to a notification made under paragraph (1)(b), has confirmed to the firm that it disclaims the benefit of the statutory trust under CASS 7.17.2R in relation to the client money; or

      3. (iii)

         client money that, following the steps taken by the firm to satisfy paragraph (1)(b), is unallocated to any client in the firm’s records and accounts; and

   4. (d)

      immediately before transferring the balances of client money under paragraph (1)(c) to the firm itself, apply them towards making good any outstanding shortfall in the notional pool, and subsequently distribute or transfer them in accordance with CASS 7A.2.4R to or on behalf of clients for whom the firm is able to make such distributions or transfers.

2. (2)

   A firm is not required to attempt to return or transfer the balance of client money under paragraph (1)(a) where the client to whom the balance belongs has confirmed to the firm that it disclaims the benefit of the statutory trust under CASS 7.17.2R in relation to the balance client money.

3. (3)

   A firm is not required to notify a client under paragraph (1)(b) where:

   1. (a)

      the firm is able to distribute the client money to the relevant client or transfer it to another person on behalf of the client in accordance with CASS 7A.2.4R (Pooling and distribution or transfer);

   2. (b)

      the client to whom the balance of client money belongs has confirmed to the firm that it disclaims the benefit of the statutory trust under CASS 7.17.2R in relation to the balance client money;

   3. (c)

      in respect of a client for whom the firm has evidence that they were a retail client for the purposes of the client money rules at the time of the primary pooling event, the entitlement of that client in the notional pool is £25 or less when calculated under CASS 7A.2.5R (Client money entitlements); or

   4. (d)

      in respect of a client for whom the firm has evidence that they were a professional client for the purposes of the client money rules at the time of the primary pooling event, the entitlement of that client is £100 or less when calculated under CASS 7A.2.5R (Client money entitlements).

7If the firm undertook a tracing exercise for the purposes of CASS 7.11.50R(3) (Allocated but unclaimed client money) before the primary pooling event but had not made the charity payment under that rule by the time of the primary pooling event then the findings of that exercise may be relied on for the purposes of CASS 7A.2.6CE(1)(a).

1. (1)

   7A firm must make a record of any balance under CASS 7A.2.6AR(1)(c)(i) or (ii) which is to be applied towards any costs or towards any shortfall in the relevant notional pool in accordance with CASS 7A.2.6AR(1)(c) or (d) respectively, immediately before taking such steps.

2. (2)

   The record under paragraph (1) must state:

   1. (a)

      the amount of the balance of client money;

   2. (b)

      the name and contact details of any client to whom that balance was allocated according to the firm’s records at the time of making the record under this rule; and

   3. (c)

      either:

      1. (i)

         the efforts applied by the firm to determine the client’s correct contact details under CASS 7A.2.6CE(1)(a); or

      2. (ii)

         if being relied on under CASS 7A.2.6ER, the efforts applied by the firm to determine the client’s correct contact details for the purposes of CASS 7.11.50R(3) (Allocated but unclaimed client money).

3. (3)

   A firm must keep the record under (1) indefinitely.

1. (1)

   7This rule applies in respect of client money received by a firm after a primary pooling event that does not form part of a notional pool.

2. (2)

   Where the firm is using the normal approach under CASS 7.13.6R (The normal approach), client money to which this rule applies must be received into a client bank account that does not contain any client money forming part of a notional pool under CASS 7A.2.4R(1) (Pooling and distribution or transfer).

3. (3)
   1. (a)

      This paragraph applies in respect of client money that is received by a firm into an account other than a client bank account as required under CASS 7.13.62R (The alternative approach to client money segregation) or as permitted under CASS 7.13.72R (Use of the normal approach in relation to certain regulated clearing arrangements).

   2. (b)

      To the extent the firm makes any transfers from its own account to a client bank account under CASS 7.13.62R(3) (The alternative approach to client money segregation) or CASS 7.13.72R(2)(b) (Use of the normal approach in relation to certain regulated clearing arrangements), such transfers must be made into a client bank account that does not contain any client money forming part of a notional pool under CASS 7A.2.4R(1) (Pooling and distribution or transfer).

4. (4)

   Subject to paragraphs (5) and (6), a firm must promptly return to each relevant client all client money to which this rule applies.

5. (5)

   To the extent that client money relates to a transaction for a client that was concluded before the primary pooling event but had not yet settled at the time of the primary pooling event, the firm may use that client money to settle that transaction.

6. (6)
   1. (a)

      This paragraph applies where client money which is not received by the firm into a client transaction account relates to one or more cleared margined transactions entered into by the firm through the use of a client transaction account at a clearing house.

   2. (b)

      Where such transactions have not closed out as at the primary pooling event, then provided that the firm has not failed, it may transfer that client money to a client transaction account with the relevant clearing house in accordance with CASS 7.14 (Client money held by a third party) for the purpose of collateralising those margined transactions.

If a firm receives a mixed remittance after a primary pooling event other than where using the alternative approach under CASS 7.13.62R or under a regulated clearing arrangement to which CASS 7.13.72R applies7, it must:

1. (1)

   pay the full sum into a client bank account that meets the requirements of CASS 7A.2.7-AR(2)7; and

2. (2)

   pay the money that is not client money out of that client bank account into a firm's own bank account within one business day of the day on which the firm would normally expect the remittance to be cleared.

7A firm that is operating the normal approach to segregation under CASS 7.13 (Segregation of client money) which becomes liable to pay money to a client after a primary pooling event must promptly, and in any event no later than one business day after the money is due and payable, pay the money:

1. (1)

   to, or to the order of, the client; or

2. (2)

   into a client bank account that does not contain any client money forming part of a notional pool under CASS 7A.2.4R(1).

If both a primary pooling event and a secondary pooling event occur, the provisions of this section relating to a primary pooling event apply.