THE CORPORATIONS LAW

CHAPTER 8 - THE FUTURES INDUSTRY

PART 8.4 - CONDUCT OF FUTURES BUSINESS

SECTION 1209   SEGREGATION OF CLIENT MONEY AND PROPERTY  

1209(1)  [Definitions]  

In this section:

``client'' , in relation to a futures broker, means a person on behalf of whom the broker deals, or from whom the broker accepts instructions to deal, in futures contracts, but does not include:

(a)  the broker;

(b)  if the broker is a body corporate - a director, or an officer, of the broker;

(c)  an employee of the broker;

(d)  if the broker is a body corporate - a body corporate that is related to the broker;

(e)  a person who is associated with, or who is a partner of, the broker; or

(f)  a body corporate in which the broker has, or the broker and partners of the broker together have, a controlling interest;

``credit facility'' means a document evidencing the right of a person to obtain money on credit from another person, and, without limiting the generality of the foregoing, includes a letter of credit and a bank guarantee;

``property'' includes credit facilities and securities;

``relevant credit balance'' , in relation to a client of a futures broker, means the total of:

(a)  the amounts deposited by the broker in respect of the client in a clients' segregated account, or clients' segregated accounts, of the broker, less so much of those amounts as has been withdrawn from the account or accounts; and

(b)  the values of the items of property that:

(i) have, in respect of the client, been deposited by the broker in safe custody pursuant to subsection (3);

(ii) have not been withdrawn from safe custody; and

(iii) under the terms and conditions on which they were deposited with, or received by, the broker, are available to meet, or to provide security in connection with the meeting of, relevant liabilities of the client;

``relevant liabilities'' , in relation to a client of a futures broker, means debts and liabilities of the client arising out of dealings in futures contracts effected by the broker on behalf of the client;

``settling'' , in relation to a dealing in a futures contract, includes making delivery, or taking delivery, of a commodity to which the futures contract relates.

1209(2)  [Value of item of property]  

For the purposes of the definition of ``relevant credit balance'' in subsection (1), the value of an item of property at a particular time is:

(a)  in the case of a credit facility - the amount of money that the person entitled to the right evidenced by the credit facility can, at that time or within a reasonable period after that time, obtain by virtue of that right; or

(b)  in any other case - the market value of the property as at the end of the last business day before that time.

1209(3)  [Broker to segregate clients' money or property]  

Where, in connection with:

(a)  dealings in futures contracts effected, whether in this jurisdiction or elsewhere or proposed to be effected, by a futures broker on behalf of a client of the broker; or

(b)  instructions by a client of a futures broker to deal in futures contracts, whether in this jurisdiction or elsewhere;

money or property (other than property to which section 1214 applies) is deposited with the broker by the client, or is received by the broker for, or on behalf of, the client, the broker shall:

(c)  in the case of money - deposit the money in a clients' segregated account of the broker maintained in Australia or in the place where the money was deposited with, or received by, the broker; or

(d)  in the case of property - deposit the property in safe custody, in Australia or in the place where the property was deposited with, or received by, the broker, in such a manner that the property is segregated from property other than property deposited by the broker in safe custody pursuant to this subsection;

on or before the next day after the money or property is deposited with, or received by, the broker that is a day on which the money or property can be deposited as first mentioned in paragraph (c) or (d).

1209(4)  [Clients' segregated account]  

Without limiting the generality of subsection (3), where, in connection with dealings in futures contracts effected, whether in this jurisdiction or elsewhere, by a futures broker, the broker receives from a person an amount of money some or all of which is attributable to dealings in futures contracts so effected, whether in this jurisdiction or elsewhere, on behalf of clients of the broker, the broker shall, on the next day on which the amount can be so deposited, deposit the amount in a clients' segregated account of the broker maintained in Australia or in the place where the broker receives the amount.

1209(4A)  [Designation of account]  

A clients' segregated account of a futures broker must be designated as a clients' segregated account, unless it is maintained outside Australia and the law in force in the place where it is maintained requires it to be designated in some other way.

1209(4B)  [Substantial compliance with designation requirement]  

If:

(a)  a clients' segregated account of a futures broker is required by subsection (4A) to be designated as a clients' segregated account; and

(b)  the account is designated in a way that complies substantially, but not completely, with that requirement;

subsection (4A) is taken to be complied with in relation to the account.

1209(5)  [Withdrawals from clients' segregated account]  

Where, pursuant to this section, a futures broker deposits money in respect of a client in a clients' segregated account of the broker, the broker shall not withdraw any of the money except for the purpose of:

(a)  making a payment to, or in accordance with the written direction of, a person entitled to the money;

(b)  making a payment for, or in connection with, the entering into, margining, guaranteeing, securing, transferring, adjusting or settling of dealings in futures contracts effected by the broker on behalf of clients only;

(c)  defraying brokerage and other proper charges incurred in respect of dealings in futures contracts effected by the broker on behalf of the client;

(d)  investing it:

(i) in any manner in which trustees are for the time being authorised by law to invest trust funds;

(ii) on deposit with an eligible money market dealer;

(iii) on deposit at interest with:

(A) an Australian ADI; or

(B) an approved foreign bank in relation to the broker;

(iv) on deposit with a clearing house for a futures exchange; or

(v) in the purchase of cash management trust interests;

(e)  paying to the broker the amount of a fee that the broker may charge, or an amount to which the broker is entitled, under an agreement with the client made under subsection (7); or

(f)  making a payment that is otherwise authorised by law;

or as permitted by subsection (10).

1209(5A)  [Withdrawal and payment to another broker]  

If, under subsection (5), a broker (the ``paying broker'' ) withdraws money from a clients' segregated account and pays it to another broker (the ``receiving broker'' ):

(a)  the paying broker must ensure that the receiving broker is notified, at the same time as the payment is made or as close to that time as is practicable, of the fact that the money has been withdrawn from a clients' segregated account of the paying broker and should be paid into a clients' segregated account of the receiving broker; and

(b)  on or before the next day after the receiving broker receives the payment, the receiving broker must pay the money into a clients' segregated account of the receiving broker.

1209(5B)  [Method of notification]  

A notification under paragraph (5A)(a) may be in writing or in an electronic or other form and may convey its message by express words, or by a code or some other means understood by the brokers concerned.

1209(6)  [Property deposited in safe custody]  

A futures broker must not deal with property deposited by the broker in safe custody under subsection (3) except:

(a)  in accordance with the terms and conditions on which it was deposited with, or received by, the broker; or

(b)  for the purpose of meeting obligations incurred by the broker in connection with margining, guaranteeing, securing, transferring, adjusting or settling dealings in futures contracts effected by the broker on behalf of clients only.

1209(7)  [Broker's fee or return on investment]  

A futures broker who invests as mentioned in paragraph (5)(d) money that was, in respect of a client of the broker, deposited by the broker under subsection (3):

(a)  may charge such fee (if any) for so investing the money; and

(b)  is entitled to so much (if any) of the return on the money so invested;

as the broker and the client agree in writing.

1209(8)  [Conditions of investment]  

A futures broker must not invest an amount pursuant to paragraph (5)(d) by despositing it with a person for that person to invest unless:

(a)  the broker:

(i) has informed the person that the amount has been withdrawn from a clients' segregated account of the broker and is money to which clients of the broker are entitled; and

(ii) has obtained from the person a written statement that is signed by the person, sets out the amount and acknowledges that the broker has informed the person as mentioned in subparagraph (i); or

(b)  the investment is made by the broker paying the amount into an account maintained with the person in relation to which the following conditions are satisfied:

(i) the account is maintained for the sole purpose of having amounts invested in it pursuant to paragraph (5)(d);

(ii) the broker has informed the person that amounts paid into the account will be amounts withdrawn from a clients' segregated account of the broker and will be moneys to which clients of the broker are entitled;

(iii) the broker has obtained from the person a written statement signed by the person that acknowledges that the broker has informed the person as mentioned in subparagraph (ii).

1209(9)  [Excess of liabilities over credit balance]  

Where, at a particular time, the total amount of the relevant liabilities of a client of a futures broker exceeds the relevant credit balance of the client, the broker may, in respect of the client, deposit in a clients' segregated account of the broker an amount of money not greater than the amount of the excess, and, if the broker does so, the amount so deposited shall, subject to subsection (10), be deemed to be money to which the client is entitled.

1209(10)  [Excess of credit balance over liabilities]  

Where:

(a)  a futures broker has, in respect of a client of the broker, deposited an amount pursuant to subsection (9) in a clients' segregated account of the broker; and

(b)  the relevant credit balance of the client exceeds by a particular amount the total amount of the relevant liabilities of the client;

the broker may withdraw from the account so much of the amount referred to in paragraph (a) as does not exceed the amount first referred to in paragraph (b).

1209(11)  [Separate financial records]  

A futures broker shall keep in relation to the clients' segregated account, or clients' segregated accounts, of the broker financial records that:

(a)  are separate from any other financial records of the broker;

(b)  record separately in respect of each client of the broker particulars of the amounts deposited in, and the amounts withdrawn from, the account or accounts in respect of the client; and

(c)  record, separately from the particulars referred to in paragraph (b):

(i) particulars (including particulars of withdrawals) of so much of the amounts deposited as required by subsection (4) in the account or accounts as was not attributable to dealings in futures contracts effected by the broker on behalf of clients of the broker;

(ii) particulars of all amounts deposited in the account or accounts pursuant to subsection (9); and

(iii) particulars of all amounts withdrawn from the account or accounts pursuant to subsection (10).

1209(12)  [Records of deposited property]  

A futures broker shall keep records that:

(a)  relate to deposits of property in safe custody by the broker pursuant to subsection (3); and

(b)  record separately in respect of each client of the broker particulars of the property deposited in respect of the client.

1209(13)  [Section 1213 applies to records]  

Section 1213 applies, so far as it is capable of application, in relation to financial records, and other records, that are required by subsections (11) and (12), respectively, of this section to be kept by a futures broker, and so applies as if those financial records and other records were financial records required by that section to be kept by the broker.

1209(14)  [Money or property not available for broker's debts]  

Subject to subsections (15) and (16), none of the following:

(a)  money deposited by a futures broker pursuant to this section in a clients' segregated account of the broker;

(b)  property in which money deposited by a futures broker as mentioned in paragraph (a) of this subsection has been invested pursuant to paragraph (5)(d);

(c)  property deposited by a futures broker in safe custody pursuant to subsection (3);

is available for the payment of a debt or liability of the broker or is liable to be attached, or taken in execution, under the order or process of a court at the instance of a person suing in respect of such a debt or liability.

1209(15)  [Right to recovery not affected]  

Nothing in subsection (14) affects the right of a client of a futures broker to recover money or property to which the client is entitled.

1209(16)  [Broker entitled to withdraw]  

Where a futures broker is entitled to withdraw money from a clients' segregated account of the broker for the purpose of making a payment to the broker, subsection (14) does not apply in relation to that money.

1209(17)  [Money invested not available for payment of debt etc]  

Where a futures broker invests money pursuant to paragraph (5)(d) by depositing it with a person for the person to invest, neither that money, nor any property in which the person invests any of that money, is available for the payment of a debt or liability of the person or is liable to be attached, or taken in execution, under the order or process of a court at the instance of a person suing in respect of such a debt or liability.

1209(18)  [Broker's lien not affected]  

Nothing in this section affects a claim or lien that a futures broker has, under an agreement, under an Australian law or otherwise, against or on:

(a)  money deposited by the broker pursuant to this section in a clients' segregated account of the broker;

(b)  property in which such money has been invested pursuant to paragraph (5)(d); or

(c)  property deposited by the broker in safe custody pursuant to subsection (3).

1209(19)  [Limitation on payment into account]  

A futures broker must not pay an amount into a clients' segregated account of the broker except as required or authorised by this section or the regulations.