CASS 9

Prime brokerage

CASS 9.1

Application

CASS 9.1.1

See Notes

handbook-rule

This 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

See Notes

handbook-rule
  1. (1) A 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's safe custody assets;
    4. (d) the location of all of a client's safe 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 9.3

Prime brokerage agreement disclosure annex

CASS 9.3.1

See Notes

handbook-rule
  1. (1) A 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's safe 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

See Notes

handbook-guidance
  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) A prime brokerage firm should not enter into "right to use arrangements" for a client's safe custody assets unless the person to whom the responsibilities set out in CASS 1A.3.1 R have been allocated and each of the firm's managers who are responsible for those safe custody assets are satisfied that the firm has adequate systems and controls to discharge its obligations under Principle 10 which include:
    1. (a) the daily reporting obligation in CASS 9.2.1 R; and
    2. (b) the record-keeping obligations in CASS 6.3.6R (3)(b)(i).