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  • MIR-4.7 MIR-4.7 Segregation and Handling of Clients' Assets

    • MIR-4.7.1

      For the purpose of this Module, "clients assets" means securities, money and other assets received or retained by, or deposited with a member in the course of its business for which it is liable to account to its client, and any securities, money or other assets accruing therefrom.

      Adopted January 2010

    • MIR-4.7.2

      The client assets are held or controlled by a member on behalf of a client if they are:

      (a) Directly held by the member;
      (b) Held in an account in the name of the member;
      (c) Held by a person, or in an account in the name of a person, controlled by the member; or
      (d) Held in an account with another person, controlled by the member.
      Adopted January 2010

    • MIR-4.7.3

      The CBB would consider a person to be controlled by a member if that person is inclined to act in accordance with the instructions of such members.

      Adopted January 2010

    • MIR-4.7.4

      The CBB would consider an account to be controlled by a member if that account is operated in accordance with the instructions of such members.

      Adopted January 2010

    • Segregation of Client Assets

      • MIR-4.7.5

        The member, or any person acting on its behalf, shall maintain sufficient systems and procedures in respect of the handling of securities, money or other assets, including but not limited to the requirement of maintaining books and records, segregation of the clients' securities, money and assets and the risk management and internal controls systems to address this requirement.

        Adopted January 2010

      • MIR-4.7.6

        A licensed member must hold client assets separate from its own at all times. The licensed member must, in connection with any clients' securities and funds received in the course of their business, establish and maintain separate client accounts, segregated from those used for their own accounts.

        Amended: April 2013
        Adopted January 2010

      • MIR-4.7.7

        A member may only use a client's assets for its own account, and/or for the account of any of its other clients if:

        (a) That client has given his express consent in writing;
        (b) The use of the client assets is restricted to the terms and conditions stipulated on the agreement agreed and signed by it; and
        (c) The agreement in which that client's consent is requested by the member gives clear information to him on:
        (i) The rights, obligations and responsibilities of the member and/or of the clients for whose account the member has been allowed to use the client's assets, with respect to the use of such assets; and
        (ii) The risks involved.
        Amended: January 2019
        Amended: April 2013
        Adopted January 2010

      • MIR-4.7.7A

        [This Paragraph was deleted in January 2019].

        Deleted: January 2019
        Added: April 2013

      • MIR-4.7.8

        A member should communicate to its clients in writing, at a minimum, the information regarding client assets held. This information must be reported after the initial transaction date not later than the required date stipulated in the designated clearing, settlement and central depository system.

        Adopted January 2010

      • MIR-4.7.9

        The member may maintain and hold the clients assets under the following agreements or arrangements:

        (a) Non discretionary securities account;
        (b) Discretionary accounts and portfolios;
        (c) Margin trading arrangements;
        (d) Depository and custody accounts;
        (e) Bank accounts related to the securities transactions (if applicable);
        (f) Securities lending and borrowing arrangements;
        (g) For the purpose of collateral arrangements;
        (h) Under specific mandates and arrangements approved by the CBB and SRO.

        All the abovementioned arrangements shall be entered into by and in a duly signed agreement between the member and its clients.

        Adopted January 2010

    • Client Money

      • MIR-4.7.10

        The member must hold client money in a separate client bank account designated for the purpose of settlement of the client's transaction.

        Adopted January 2010

      • MIR-4.7.11

        A client bank account is an account maintained by the Settlement Bank or other designated licensed bank holding client money of one or more clients in a bank account designated as such, in accordance with the terms of agreement with the client/clients.

        Adopted January 2010

      • MIR-4.7.12

        Client bank accounts may only be opened with banks licensed by the CBB to do business in the Kingdom of Bahrain, after being subject to due diligence by the member.

        Adopted January 2010

      • MIR-4.7.13

        For the purpose of rule MIR-4.7.12 when undertaking due diligence, the member should take reasonable steps to establish that the bank is appropriate considering, among other factors, the following:

        (a) Whether it is acceptable to the SRO;
        (b) Whether it is a duly licensed bank in good regulatory standing;
        (c) The capital adequacy of the bank;
        (d) The amount of client money to be placed, as a proportion of the bank's capital and deposits; and
        (e) The credit rating of the bank, if available.
        Adopted January 2010

      • MIR-4.7.14

        If a member holds or controls client assets which are not subject to the client asset provisions in an arrangement with a market counterparty, it must disclose to that market counterparty in writing that:

        (a) The protections conferred by the client asset protection rules do not apply to such client money;
        (b) As a consequence of (a), such client assets may be mixed with money belonging to the member, and may be used by the member in the course of the clearing and settling of the clients' securities transaction; and
        (c) In the event of insolvency, winding up of the member or other distribution event stipulated by the laws, rules and regulations, the clients assets shall not be considered as a part of the member's assets.
        Adopted January 2010

    • Transfer of Money to Eligible Third Parties

      • MIR-4.7.15

        The member may only pay, or permit to be paid, clients money into an account of a person who is a counterparty of the securities transaction, in accordance with the applicable clearing, settlement and central depository rules.

        Adopted January 2010

      • MIR-4.7.16

        The member must not hold money other than client money in a client bank account unless it is:

        (a) A minimum sum required to open the account or to keep it open;
        (b) Money temporarily held in the account in accordance with the mixed remittance requirements; or
        (c) Interest credited to the account which exceeds the amount due to clients as interest and which has not yet been withdrawn by the client or the member.
        Adopted January 2010

      • MIR-4.7.17

        If a member receives a mixed remittance (that is part client money and part other money), it must:

        (a) Pay the full sum into a client bank account; and
        (b) Pay the money that is not client money out of the client bank account within the same business day or otherwise as per provision of the agreement under rule MIR-4.7.7 (b).
        Adopted January 2010

    • Reconciliation

      • MIR-4.7.18

        A member must ensure that a system is implemented to perform reconciliations of both client securities account and client bank accounts after each transaction is executed for the benefit of that particular client. In addition, these reconciliations must be carried out on a regular basis, sufficient to ensure the accuracy of its records at least once a month on the last business day of each calendar month.

        Adopted January 2010

      • MIR-4.7.19

        A member must perform the reconciliations required under rule MIR-4.7.18 within 10 calendar days from the end of each month.

        Adopted January 2010

      • MIR-4.7.20

        In respect of reconciliation, the member must ensure that unresolved differences, shortfalls and excess balances are investigated and, where applicable, corrective action is taken as soon as is practicable. In such cases, the member must confirm such corrective action to the related clients and other counterparty's broker-dealers (if required).

        Amended: April 2013
        Adopted January 2010

    • Record-keeping

      • MIR-4.7.21

        Members must ensure that proper records, sufficient to show and explain the member's transactions and commitments in respect of its client assets are kept. These records must be retained for a period of a minimum of 5 years after they were made, unless otherwise required by law.

        Adopted January 2010

    • Auditor Reports

      • MIR-4.7.22

        Members that hold or control client assets must arrange for their external auditor to report on the members' compliance with the requirements related to the holding and segregation of the client's assets requirements.

        Adopted January 2010

      • MIR-4.7.23

        A member must submit the report, referred to in Paragraph MIR-4.7.22, in the form agreed by the CBB within 3 months of its financial year end.

        Amended: January 2018
        Adopted January 2010

      • MIR-4.7.23A

        The format of the Auditor's Report (Agreed Upon Procedure) is included in Part B of the Rulebook, as part of the supplementary information.

        Added: January 2018

    • Client Agreements and Statements

      • MIR-4.7.24

        Before the member undertakes any regulated activities or services mentioned under paragraph MIR-1.1.2 they must notify the client as to the appropriate terms and conditions which apply to each service or arrangement and sign the prescribed agreement(s). The agreement must cover, at a minimum, the following matters, wherever applicable:

        1. Representations and warranties by the client;
        2. Acknowledgements by the client;
        3. Clients' orders and instructions;
        4. Settlement and clearing services;
        5. Commission and charges;
        6. Information and advice;
        7. Undertaking of the client;
        8. Members responsibilities;
        9. The right to object to withdrawal or transfer of securities;
        10. Correspondence and confirmation;
        11. Terms and termination;
        12. Joint liability;
        13. Force Majeure;
        14. Severability;
        15. Notices: client; member;
        16. Amendment of the agreement; and
        17. Law and jurisdiction.
        Adopted January 2010

      • MIR-4.7.25

        The specimen of the abovementioned agreement shall be provided in the business rules of the SRO, as the case may be. The specimen shall contain the minimum requirements and information.

        Adopted January 2010