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CASS 9.1 Application

CASS 9.1.1 R RP

1This chapter applies to a firm:

  1. (1)

    to which CASS 6 (Custody rules) applies; and

  2. (2)

    which is a prime brokerage firm.

CASS 9.2 Prime broker's daily report to clients

CASS 9.2.1 R RP
  1. (1)

    1A firm must make available to each of its clients to whom it provides prime brokerage services a statement in a durable medium:

    1. (a)

      showing the value at the close of each business day of the items in (3); and

    2. (b)

      detailing any other matters which that firm considers are necessary to ensure that a client has up-to-date and accurate information about the amount of client money and the value of safe custody assets held by that firm for it.

  2. (2)

    The statement must be made available to those clients not later than the close of the next business day to which it relates.

  3. (3)

    The statement must include:

    1. (a)

      the total value of safe custody assets and the total amount of client money held by that prime brokerage firm for a client;

    2. (b)

      the cash value of each of the following:

      1. (i)

        Cash loans made to that client and accrued interest;

      2. (ii)

        securities to be redelivered by that client under open short positions entered into on behalf of that client;

      3. (iii)

        current settlement amount to be paid by that client under any futures contracts;

      4. (iv)

        short sale cash proceeds held by the firm in respect of short positions entered into on behalf of that client;

      5. (v)

        cash margin held by the firm in respect of open futures contracts entered into on behalf of that client;

      6. (vi)

        mark-to-market close-out exposure of any OTC transaction entered into on behalf of that client secured by safe custody assets or client money;

      7. (vii)

        total secured obligations of that client against the prime brokerage firm; and

      8. (viii)

        all other safe custody assets held for that client.

    3. (c)

      total collateral held by the firm in respect of secured transactions entered into under a prime brokerage agreement, including where the firm has exercised a right of use in respect of that client'ssafe custody assets;

    4. (d)

      the location of all of a client'ssafe custody assets, including assets held with a sub-custodian; and

    5. (e)

      a list of all the institutions at which the firm holds or may hold client money, including money held in client bank accounts and client transaction accounts.

CASS 9.2.2 G RP

2Where a firm has entered into an agreement with a client under article 91 (Reporting obligations for prime brokers) of the AIFMD level 2 regulation, and to the extent that the firm makes available to the client the same statements as specified by that article that it is required to provide to the relevant depositary, the FCA will treat the obligations under CASS 9.2.1 R as satisfied by the firm.

CASS 9.3 Prime brokerage agreement disclosure annex

CASS 9.3.1 R RP
  1. (1)

    1A firm must ensure that every prime brokerage agreement that includes its right to use safe custody assets for its own account includes a disclosure annex.

  2. (2)

    A firm must ensure that the disclosure annex sets out a summary of the key provisions within the prime brokerage agreement permitting the use of safe custody assets, including:

    1. (a)

      the contractual limit, if any, on the safe custody assets which a prime brokerage firm is permitted to use;

    2. (b)

      all related contractual definitions upon which that limit is based;

    3. (c)

      a list of numbered references to the provisions within that prime brokerage agreement which permit the firm to use the safe custody assets; and

    4. (d)

      a statement of the key risks to that client'ssafe custody assets if they are used by the firm, including but not limited to the risks to the safe custody assets on the failure of the firm.

  3. (3)

    A firm must ensure that it sends to the client in question an updated disclosure annex if the terms of the prime brokerage agreement are amended after completion of that agreement such that the original disclosure annex no longer accurately records the key provisions of the amended agreement.

CASS 9.3.2 G RP
  1. (1)

    Principle 10 (Clients’ assets) requires a firm to arrange adequate protection for client's assets when it is responsible for them. As part of these protections, the custody rules require a firm to take appropriate steps to protect safe custody assets for which it is responsible.

  2. (2)

    Subject to paragraph (3), a 3prime brokerage firm should not enter into “right to use arrangements” for a client'ssafe custody assets unless:1

    3
    1. (a)

      in the case of a CASS small firm or a firm to which CASS 1A.3.1C R applies2, the person in that firm to whom the responsibilities set out in CASS 1A.3.1 R or in CASS 1A.3.1C R (2) respectively2 have been allocated; or1

    2. (b)

      in the case of any other firm, the person who carries out the CASS operational oversight function; and1

    3. (c)

      those of that firm’s managers who are responsible for those safe custody assets;

      are each satisfied that the firm has adequate systems and controls to discharge its obligations under Principle 10 which include (where applicable)3:1

      1. (i)

        the daily reporting obligation in CASS 9.2.1 R; and1

      2. (ii)

        the record-keeping obligations in CASS 6.3.6R (3)(b)(i).1

  3. (3)

    Paragraph (2) does not apply where the prime brokerage firm is also acting as trustee or depositary of an AIF which is an unauthorised AIF and exercises a right of reuse for a safe custody asset of that unauthorised AIF under FUND 3.11.24 R (Reuse of assets).3