§ 78c–5. Segregation of assets held as collateral in security-based swap transactions

1,300 words·~6 min read·/usc/title-15/section-78c-5

A research copy — for the controlling text, always check the official state or federal source. Not legal advice.

It shall be unlawful for any person to accept any money, securities, or property (or to extend any credit in lieu of money, securities, or property) from, for, or on behalf of a security-based swaps customer to margin, guarantee, or secure a security-based swap cleared by or through a clearing agency (including money, securities, or property accruing to the customer as the result of such a security-based swap), unless the person shall have registered under this chapter with the Commission as a broker, dealer, or security-based swap dealer, and the registration shall not have expired nor been suspended nor revoked.

A broker, dealer, or security-based swap dealer shall treat and deal with all money, securities, and property of any security-based swaps customer received to margin, guarantee, or secure a security-based swap cleared by or though 1 a clearing agency (including money, securities, or property accruing to the security-based swaps customer as the result of such a security-based swap) as belonging to the security-based swaps customer. Money, securities, and property of a security-based swaps customer described in paragraph

(1)shall be separately accounted for and shall not be commingled with the funds of the broker, dealer, or security-based swap dealer or be used to margin, secure, or guarantee any trades or contracts of any security-based swaps customer or person other than the person for whom the same are held. Notwithstanding subsection (b), money, securities, and property of a security-based swaps customer of a broker, dealer, or security-based swap dealer described in subsection

(b)may, for convenience, be commingled and deposited in the same 1 or more accounts with any bank or trust company or with a clearing agency. Notwithstanding subsection (b), such share of the money, securities, and property described in subparagraph

(A)as in the normal course of business shall be necessary to margin, guarantee, secure, transfer, adjust, or settle a cleared security-based swap with a clearing agency, or with any member of the clearing agency, may be withdrawn and applied to such purposes, including the payment of commissions, brokerage, interest, taxes, storage, and other charges, lawfully accruing in connection with the cleared security-based swap. Notwithstanding subsection (b), in accordance with such terms and conditions as the Commission may prescribe by rule, regulation, or order, any money, securities, or property of the security-based swaps customer of a broker, dealer, or security-based swap dealer described in subsection

(b)may be commingled and deposited as provided in this section with any other money, securities, or property received by the broker, dealer, or security-based swap dealer and required by the Commission to be separately accounted for and treated and dealt with as belonging to the security-based swaps customer of the broker, dealer, or security-based swap dealer. Money described in subsection

(b)may be invested in obligations of the United States, in general obligations of any State or of any political subdivision of a State, and in obligations fully guaranteed as to principal and interest by the United States, or in any other investment that the Commission may by rule or regulation prescribe, and such investments shall be made in accordance with such rules and regulations and subject to such conditions as the Commission may prescribe. It shall be unlawful for any person, including any clearing agency and any depository institution, that has received any money, securities, or property for deposit in a separate account or accounts as provided in subsection

(b)to hold, dispose of, or use any such money, securities, or property as belonging to the depositing broker, dealer, or security-based swap dealer or any person other than the swaps customer of the broker, dealer, or security-based swap dealer. A security-based swap dealer or major security-based swap participant shall be required to notify the counterparty of the security-based swap dealer or major security-based swap participant at the beginning of a security-based swap transaction that the counterparty has the right to require segregation of the funds of other property supplied to margin, guarantee, or secure the obligations of the counterparty. At the request of a counterparty to a security-based swap that provides funds or other property to a security-based swap dealer or major security-based swap participant to margin, guarantee, or secure the obligations of the counterparty, the security-based swap dealer or major security-based swap participant shall— segregate the funds or other property for the benefit of the counterparty; and in accordance with such rules and regulations as the Commission may promulgate, maintain the funds or other property in a segregated account separate from the assets and other interests of the security-based swap dealer or major security-based swap participant. The requirements described in paragraph

(1)shall— apply only to a security-based swap between a counterparty and a security-based swap dealer or major security-based swap participant that is not submitted for clearing to a clearing agency; and not apply to variation margin payments; or not preclude any commercial arrangement regarding— the investment of segregated funds or other property that may only be invested in such investments as the Commission may permit by rule or regulation; and the related allocation of gains and losses resulting from any investment of the segregated funds or other property. The segregated account described in paragraph

(1)shall be— carried by an independent third-party custodian; and designated as a segregated account for and on behalf of the counterparty. If the counterparty does not choose to require segregation of the funds or other property supplied to margin, guarantee, or secure the obligations of the counterparty, the security-based swap dealer or major security-based swap participant shall report to the counterparty of the security-based swap dealer or major security-based swap participant on a quarterly basis that the back office procedures of the security-based swap dealer or major security-based swap participant relating to margin and collateral requirements are in compliance with the agreement of the counterparties. A security-based swap, as defined in section 78c(a)(68) of this title shall be considered to be a security as such term is used in section 101(53A)(B) and subchapter III of title 11. 2 An account that holds a security-based swap, other than a portfolio margining account referred to in section 78 o (c)(3)(C) of this title shall be considered to be a securities account, as that term is defined in section 741 of title 11 . The definitions of the terms “purchase” and “sale” in section 78c(a)(13) and

(14)of this title shall be applied to the terms “purchase” and “sale”, as used in section 741 of title 11 . The term “customer”, as defined in section 741 of title 11 , excludes any person, to the extent that such person has a claim based on any open repurchase agreement, open reverse repurchase agreement, stock borrowed agreement, non-cleared option, or non-cleared security-based swap except to the extent of any margin delivered to or by the customer with respect to which there is a customer protection requirement under section 78 o (c)(3) of this title or a segregation requirement. ( June 6, 1934, ch. 404 , title I, § 3E, as added Pub. L. 111–203, title VII, § 763(d) , July 21, 2010 , 124 Stat. 1774 .)

Connections182 cite this

Cited by 182 sections · top 30

CFR

2 references not yet in our index

Pub. L. 111-203
124 Stat. 1774

Citation graph

cites case law

§ 78c–5

Segregation of assets held as collateral in security-based swap transactions

Fed. Reg.×170

C.F.R.×12

Pub. L.Pub. L. 111-203

Stat.124 Stat. 1774

Cites 2Cited by 182 across 2 sources