When does a secondary default occur for a person authorized to engage in securities activities?

A secondary default of a person authorized to practice securities activities occurs when the financial or administrative conditions of another person who keeps the funds and assets of the authorized person’s clients are disturbed, or when a judicial receiver or a bankruptcy manager is appointed, or total seizure of his assets, or partial seizure of no less than 50% of the those assets.

In the event of a secondary default, all clients’ money and assets must be deposited in a aggregated and separate account with a local bank, or the authorized person’s clients’ account, and they are dealt with as follows:

1- Each client shall bear separately any default resulting from a secondary default event in proportion to the volume of his funds deposited with the defaulting person, unless the authorized person breaches his obligations.

2- The accounts and records of the authorized person must be modified to reflect the effect of the application of the previous clause, provided that the authorized person prepares a record showing the total deficit resulting from the secondary default and each client’s share of this deficit.

The Capital Markets Authority may request the application of measures or procedures different from the previous procedures to address any secondary default cases.

The authorized person may not transfer the funds or assets of clients to the defaulting person after the occurrence of a secondary case of default except by order of the client in order to settle the obligation of that client towards the defaulting person, and the remaining funds shall be returned to the client’s account immediately or transferred to another person’s account in accordance with the client’s instructions .

Also, the previous rules regarding the secondary default situation do not apply to banks, as coordination is made between the Capital Markets Authority and the Central Bank in this regard according to the memorandum of understanding signed between the two parties.

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To book an appointment or request legal advice about the duties of securities companies in the optimal implementation of clients’ orders, we are pleased to receive your inquiries at (info@Taqneen.com).