C28C29 Part VII Financial Markets and Insolvency
Pt. VII: power to apply conferred (1.12.2001) by 2000 c. 8, s. 301(1)(a); S.I. 2001/3538, art. 2(1)
Introduction
I1154 Introduction.
This Part has effect for the purposes of safeguarding the operation of certain financial markets by provisions with respect to—
a
the insolvency, winding up or default of a person party to transactions in the market (sections 155 to 172),
b
the effectiveness or enforcement of certain charges given to secure obligations in connection with such transactions (sections 173 to 176), and
c
rights and remedies in relation to certain property provided as cover for margin in relation to such transactions F88or as default fund contribution, or subject to such a charge (sections 177 to 181).
F238Recognised bodies
S. 155 cross-heading substituted (28.11.2017) by The Central Securities Depositories Regulations 2017 (S.I. 2017/1064), regs. 1, 3(2) (with regs. 7(4), 9(1))
I2155 Market contracts.
F1261
In this Part—
a
“clearing member client contract” means a contract between a recognised central counterparty and one or more of the parties mentioned in subsection (1A) which is recorded in the accounts of the recognised central counterparty as a position held for the account of a client, an indirect client or a group of clients or indirect clients;
b
“clearing member house contract” means a contract between a recognised central counterparty and a clearing member recorded in the accounts of the recognised central counterparty as a position held for the account of a clearing member;
c
“client trade” means a contract between two or more of the parties mentioned in subsection (1A) which corresponds to a clearing member client contract;
d
“market contracts” means the contracts to which this Part applies by virtue of subsections (2) to F341(3ZA).
F1231A
The parties referred to in subsections (1)(a) and (c) are—
a
a clearing member;
b
a client; and
c
an indirect client.
F12
Except as provided in subsection (2A), in relation to a recognised investment exchange this Part applies to—
a
contracts entered into by a member or designated non-member of the exchange F2with a person other than the exchangewhich are either
i
contracts made on the exchange or on an exchange to whose undertaking the exchange has succeeded whether by amalgamation, merger or otherwise; or
ii
contracts in the making of which the member or designated non-member was subject to the rules of the exchange or of an exchange to whose undertaking the exchange has succeeded whether by amalgama- tion, merger or otherwise; F55...
F56b
contracts entered into by the exchange, in its capacity as such, with a member of the exchange or with a recognised clearing house F339or with a recognised CSD or with another recognised investment exchange for the purpose of enabling the rights and liabilities of that member F340or recognised body under a transaction to be settled; and
A “designated non-member” means a person in respect of whom action may be taken under the default rules of the exchange but who is not a member of the exchange.
F572A
Where the exchange in question is a recognised overseas investment exchange, this Part does not apply to a contract that falls within paragraph (a) of subsection (2) (unless it also falls within subsection (3)).
F1242B
In relation to transactions which are cleared through a recognised central counterparty, this Part applies to—
a
clearing member house contracts;
b
clearing member client contracts;
c
client trades, other than client trades excluded by subsection (2C) F183or (2D); and
2C
A client trade is excluded by this subsection from subsection (2B)(c) if—
a
the clearing member which is a party to the clearing member client contract corresponding to the client trade defaults; and
b
the clearing member client contract is not transferred to another clearing member within the period specified for this purpose in the default rules of the recognised central counterparty.
F1812D
A client trade is also excluded by this subsection from subsection (2B)(c) if—
a
the client trade was entered into by a client in the course of providing indirect clearing services to an indirect client;
b
the client defaults; and
c
the clearing member client contract corresponding to the client trade is not transferred within—
i
the period specified for this purpose in the default rules of the recognised central counterparty; or
ii
if no such period is specified in the default rules of the recognised central counterparty, a period of 14 days beginning with the day on which proceedings in respect of the client’s insolvency are begun.
F583
In relation to a recognised clearing house F125which is not a recognised central counterparty, this Part applies to—
a
contracts entered into by the clearing house, in its capacity as such, with a member of the clearing house or with a recognised investment exchange F344or with a recognised CSD or with another recognised clearing house for the purpose of enabling the rights and liabilities of that member F345or recognised body under a transaction to be settled; and
b
F3373ZA
In relation to a recognised CSD, this Part applies to contracts entered into by the central securities depository with a member of the central securities depository or with a recognised investment exchange or with a recognised clearing house or with another recognised CSD for the purpose of providing authorised central securities depository services to that member or recognised body.
F543A
In this section “central counterparty clearing services” means—
a
the services provided by a recognised investment exchange or a recognised clearing house to the parties to a transaction in connection with contracts between each of the parties and the investment exchange or clearing house (in place of, or as an alternative to, a contract directly between the parties),
b
the services provided by a recognised clearing house to F348a recognised body in connection with contracts between them, or
c
the services provided by a recognised investment exchange to F349a recognised body in connection with contracts between them.
F1823B
The reference in subsection (2D)(c)(ii) to the beginning of insolvency proceedings is to—
a
F204the making of a bankruptcy application or the presentation of a bankruptcy petition or a petition for sequestration of a client’s estate, or
b
the application for an administration order or the presentation of a winding-up petition or the passing of a resolution for voluntary winding up, or
c
the appointment of an administrative receiver.
3C
In subsection (3B)(b) the reference to an application for an administration order is to be taken to include a reference to—
a
in a case where an administrator is appointed under paragraph 14 or 22 of Schedule B1 to the Insolvency Act 1986 (appointment by floating charge holder, company or directors) following filing with the court of a copy of a notice of intention to appoint under that paragraph, the filing of the copy of the notice, and
b
in a case where an administrator is appointed under either of those paragraphs without a copy of a notice of intention to appoint having been filed with the court, the appointment of the administrator.
F3383D
In this Part “authorised central securities depository services” means, in relation to a recognised CSD—
a
the core services listed in Section A of the Annex to the CSD regulation which that central securities depository is authorised to provide pursuant to Article 16 or 19(1)(a) or (c) of the CSD regulation;
b
the non-banking-type ancillary services listed in or permitted under Section B of that Annex which that central securities depository is authorised to provide, including services notified under Article 19 of the CSD regulation; and
c
the banking-type ancillary services listed in or permitted under Section C of that Annex which that central securities depository is authorised to provide pursuant to Article 54(2)(a) of the CSD regulation.
4
The Secretary of State may by regulations make further provision as to the contracts to be treated as “market contracts”, for the purposes of this Part, in relation to F350a recognised body.
5
The regulations may add to, amend or repeal the provisions of subsections F351(2), (3), (3ZA) and (3D) above.
155AF128Qualifying collateral arrangements and qualifying property transfers
1
In this Part—
a
“qualifying collateral arrangements” means the contracts and contractual obligations to which this Part applies by virtue of subsection (2); and
b
“qualifying property transfers” means the property transfers to which this Part applies by virtue of subsection (4).
2
In relation to transactions which are cleared through a recognised central counterparty, this Part applies to any contracts or contractual obligations for, or arising out of, the provision of property as margin where—
a
the margin is provided to a recognised central counterparty and is recorded in the accounts of the recognised central counterparty as an asset held for the account of a client, an indirect client, or a group of clients or indirect clients; or
b
the margin is provided to a client or clearing member for the purpose of providing cover for exposures arising out of present or future client trades.
3
In subsection (2)—
a
“property” has the meaning given by section 436(1) of the Insolvency Act 1986 and
b
the reference to a contract or contractual obligation for, or arising out of, the provision of property as margin in circumstances falling within paragraph (a) or (b) of that subsection includes a reference to a contract or contractual obligation of that kind which has been amended to reflect the transfer of a clearing member client contract or client trade.
4
In relation to transactions which are cleared through a recognised central counterparty, this Part applies to—
a
transfers of property made in accordance with Article 48(7) of the EMIR Level 1 Regulation;
F352aa
transfers of property made in accordance with Article 4(6) and (7) of the EMIR Level 2 Regulation or Article 4(6) and (7) of the MIFIR Level 2 Regulation;
b
transfers of property to the extent that they—
i
are made by a recognised central counterparty to a non-defaulting clearing member instead of, or in place of, a defaulting clearing member;
ii
represent the termination or close out value of a clearing member client contract which is transferred from a defaulting clearing member to a non-defaulting clearing member; and
iii
are determined in accordance with the default rules of the recognised central counterparty.
F184c
transfers of property to the extent that they—
i
are made by a clearing member to a non-defaulting client or another clearing member instead of, or in place of, a defaulting client;
ii
represent the termination or close out value of a client trade which is transferred from a defaulting client to another clearing member or a non-defaulting client; and
iii
do not exceed the termination or close out value of the clearing member client contract corresponding to that client trade, as determined in accordance with the default rules of the recognised central counterparty.
F3156. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I3157
1
F240A recognised body shall give the F145appropriate regulator at least F144three months notice of any proposal to amend, revoke or add to its default rules; and the F146regulator may within F144three months from receipt of the notice direct F241the recognised body not to proceed with the proposal, in whole or in part.
F1471A
The appropriate regulator may, if it considers it appropriate to do so, agree a shorter period of notice and, in a case where it does so, any direction under this section must be given by it within that shorter period.
2
A direction under this section may be varied or revoked.
3
Any amendment or revocation of, or addition to, the default rules of F243a recognised body in breach of a direction under this section is ineffective.
F1434
The appropriate regulator”—
a
in relation to a recognised UK investment exchange, means the FCA, and
I4158 Modifications of the law of insolvency.
F1491
The general law of insolvency has effect in relation to—
a
market contracts,
b
action taken under the rules of F247a recognised body other than a recognised central counterparty, with respect to market contracts,
c
action taken under the rules of a recognised central counterparty to transfer clearing member client contracts, or settle clearing member client contracts or clearing member house contracts, in accordance with the default rules of the recognised central counterparty,
d
where clearing member client contracts transferred in accordance with the default rules of a recognised central counterparty were entered into by the clearing member F185or client as a principal, action taken to transfer F186... client trades, or groups of client trades, corresponding to those clearing member client contracts,
e
action taken to transfer qualifying collateral arrangements in conjunction with a transfer of clearing member client contracts as mentioned in paragraph (c) or a transfer of client trades as mentioned in paragraph (d), and
f
qualifying property transfers,
subject to the provisions of sections 159 to 165.
2
So far as those provisions relate to insolvency proceedings in respect of a person other than a defaulter, they apply in relation to—
F97a
proceedings in respect of a recognised investment exchange or a member or designated non-member of a recognised investment exchange,
aa
proceedings in respect of a recognised clearing house or a member of a recognised clearing house, F245...
F244ab
proceedings in respect of a recognised CSD or a member of a recognised CSD, and
b
but not in relation to any other insolvency proceedings, notwithstanding that rights or liabilities arising from market contracts fall to be dealt with in the proceedings.
3
The reference in subsection (2)(b) to the beginning of insolvency proceedings is to—
a
F205the making of a bankruptcy application or the presentation of a bankruptcy petition or a petition for sequestration of a person’s estate, or
F4b
the application for an administration order or the presentation of a winding-up petition or the passing of a resolution for voluntary winding up,
c
the appointment of an administrative receiver.
F53A
In subsection (3)(b) the reference to an application for an administration order shall be taken to include a reference to—
a
in a case where an administrator is appointed under paragraph 14 or 22 of Schedule B1 to the Insolvency Act 1986 (appointment by floating charge holder, company or directors) following filing with the court of a copy of a notice of intention to appoint under that paragraph, the filing of the copy of the notice, and
b
in a case where an administrator is appointed under either of those paragraphs without a copy of a notice of intention to appoint having been filed with the court, the appointment of the administrator.
C14
The Secretary of State may make further provision by regulations modifying the law of insolvency in relation to the matters mentioned in F151paragraphs (a) to (d) of subsection (1).
C15
The regulations may add to, amend or repeal the provisions mentioned in subsection (1), and any other provision of this Part as it applies for the purposes of those provisions, or provide that those provisions have effect subject to such additions, exceptions or adaptations as are specified in the regulations.
I5159F239Proceedings of recognised bodies take precedence over insolvency procedures.
1
None of the following shall be regarded as to any extent invalid at law on the ground of inconsistency with the law relating to the distribution of the assets of a person on bankruptcy, winding up or sequestration, or F78in the administration of a company or other body or in the administration of an insolvent estate—
a
a market contract,
b
the default rules of F251a recognised body,
c
F118d
the rules of a recognised central counterparty on which the recognised central counterparty relies to give effect to the transfer of a clearing member client contract, or the settlement of a clearing member client contract or clearing member house contract, in accordance with its default rules,
e
a transfer of a clearing member client contract, or the settlement of a clearing member client contract or a clearing member house contract, in accordance with the default rules of a recognised central counterparty,
f
where a clearing member client contract transferred in accordance with the default rules of a recognised central counterparty was entered into by the clearing member F187or client as principal, a transfer of F188a client trade or group of client trades corresponding to that clearing member client contract,
g
a transfer of a qualifying collateral arrangement in conjunction with the transfer of clearing member client contract as mentioned in paragraph (e) or of a client trade as mentioned in paragraph (f), or
h
a qualifying property transfer.
2
The powers of a relevant office-holder in his capacity as such, and the powers of the court under the M1Insolvency Act 1986F120, the Bankruptcy (Scotland) Act F2132016, Part 10 of the Building Societies Act 1986, Parts 2 and 3 of the Banking Act 2009 or under regulations made under section 233 of that Act, shall not be exercised in such a way as to prevent or interfere with—
a
b
any action taken under the default rules of F250a recognised body other than a recognised central counterparty,
F121c
the transfer of a clearing member client contract, or the settlement of a clearing member client contract or a clearing member house contract, in accordance with the default rules of a recognised central counterparty,
d
where a clearing member client contract transferred in accordance with the default rules of a recognised central counterparty was entered into by the clearing member F189or client as principal, the transfer of F190a client trade or group of client trades corresponding to that clearing member contract,
e
the transfer of a qualifying collateral arrangement in conjunction with a transfer of a clearing member client contract as mentioned in paragraph (c), or a transfer of a client trade as mentioned in paragraph (d),
f
any action taken to give effect to any of the matters mentioned in paragraphs (c) to (e), or
g
any action taken to give effect to a qualifying property transfer.
This does not prevent a relevant office-holder from afterwards seeking to recover any amount under section 163(4) or 164(4) or prevent the court from afterwards making any such order or decree as is mentioned in section 165(1) or (2) (but subject to subsections (3) and (4) of that section).
3
Nothing in the following provisions of this Part shall be construed as affecting the generality of the above provisions.
4
A debt or other liability arising out of a market contract which is the subject of default proceedings may not be proved in a winding up or bankruptcy F79or in the administration of a company or other body, or in Scotland claimed in a winding up or sequestration F79or in the administration of a company or other body, until the completion of the default proceedings.
A debt or other liability which by virtue of this subsection may not be proved or claimed shall not be taken into account for the purposes of any set-off until the completion of the default proceedings.
F64A
However, prior to the completion of default proceedings—
a
where it appears F235to the convener that a sum will be certified under section 162(1) to be payable, subsection (4) shall not prevent any proof or claim including or consisting of an estimate of that sum which has been lodged or, in Scotland, submitted, from being admitted or, in Scotland, accepted, for the purpose only of determining the entitlement of a creditor to vote F236in a decision procedure; and
b
a creditor whose claim or proof has been lodged and admitted or, in Scotland, submitted and accepted, for the purpose of determining the entitlement of a creditor to vote F234in a decision procedure and which has not been subsequently wholly withdrawn, disallowed or rejected, is eligible as a creditor to be a member of a liquidation committee or, in bankruptcy proceedings in England and Wales, F80or in the administration of a company or other body a creditors’ committee.
5
For the purposes of F7subsections (4) and (4A) the default proceedings shall be taken to be completed in relation to a person when a report is made under section 162 stating the sum (if any) certified to be due to or from him.
I6160
1
It is the duty of—
a
any person who has or had control of any assets of a defaulter, and
b
any person who has or had control of any documents of or relating to a defaulter,
to give F252a recognised body such assistance as it may reasonably require for the purposes of its default proceedings.
This applies notwithstanding any duty of that person under the enactments relating to insolvency.
2
A person shall not under this section be required to provide any information or produce any document which he would be entitled to refuse to provide or produce on grounds of legal professional priviledge in proceedings in the High Court or on grounds of confidentiality as between client and professional legal adviser in proceedings in the Court of Session.
3
Where original documents are supplied in pursuance of this section, F254the recognised body shall return them forthwith after the completion of the relevant default proceedings, and shall in the meantime allow reasonable access to them to the person by whom they were supplied and to any person who would be entitled to have access to them if they were still in the control of the person by whom they were supplied.
4
The expenses of a relevant office-holder in giving assistance under this section are recoverable as part of the expenses incurred by him in the discharge of his duties; and he shall not be required under this section to take any action which involves expenses which cannot be so recovered, unless F255the recognised body undertakes to meet them.
There shall be treated as expenses of his such reasonable sums as he may determine in respect of time spent in giving the assistance F8and for the purpose of determining the priority in which his expenses are payable out of the assets, sums in respect of time spent shall be treated as his remuneration and other sums shall be treated as his disbursements or, in Scotland, outlays.
C25
The regulations may add to, amend or repeal the provisions of subsections (1) to (4) above.
6
In this section “document” includes information recorded in any form.
I7C3161 Supplementary provisions as to default proceedings.
1
If the court is satisfied on an application by a relevant office-holder that a party to a market contract with a defaulter intends to dissipate or apply his assets so as to prevent the office-holder recovering such sums as may become due upon the completion of the default proceedings, the court may grant such interlocutory relief (in Scotland, such interim order) as it thinks fit.
2
A liquidatorF87, administrator or trustee of a defaulter or, in Scotland, a F215trustee in the sequestration of the estate of the defaulter shall not—
a
declare or pay any dividend to the creditors, or
b
return any capital to contributories,
unless he has retained what he reasonably considers to be an adequate reserve in respect of any claims arising as a result of the default proceedings of F258the recognised body concerned.
3
The court may on an application by a relevant office-holder make such order as it thinks fit altering or dispensing from compliance with such of the duties of his office as are affected by the fact that default proceedings are pending or could be taken, or have been or could have been taken.
C304
Nothing in F9section 126, 128, 130, 185 or 285 of, or paragraph F8540, 41, 42 or 43 (F86including those paragraphs as applied by paragraph 44) of Schedule B1 to, the Insolvency Act 1986 (which restrict the taking of certain legal proceedings and other steps), and nothing in any rule of law in Scotland to the like effect as the said section 285, in the Bankruptcy (Scotland) Act M2F2142016 or in the Debtors (Scotland) Act M3 as to the effect of sequestration, shall affect any action taken by F257a recognised body for the purpose of its default proceedings.
I8C4162 Duty to report on completion of default procedings.
1
F10Subject to subsection (1A), F259a recognised body shall, on the completion of proceedings under its default rules, report to the F164appropriate regulator on its proceedings stating in respect of each creditor or debtor the sum F163or sums certified by them to be payable from or to the defaulter or, as the case may be, the fact that no sum is payable.
F111A
A recognised overseas investment exchange or recognised overseas clearing house shall not be subject to the obligation under subsection (1) unless it has been notified by the F165appropriate regulator that a report is required for the purpose of insolvency proceedings in any part of the United Kingdom.
F1611B
The report under subsection (1) need not deal with a clearing member client contract which has been transferred in accordance with the default rules of a recognised central counterparty.
2
F260The recognised body may make a single report or may make reports from time to time as proceedings are completed with respect to the transactions affecting particular persons.
3
F261The recognised body shall apply a copy of every report under this section to the defaulter and to any relevant office-holder acting in relation to him or to his estate.
4
5
F262A recognised body shall make available for inspection by a creditor or debtor of the defaulter so much of any report by it under this section as relates to the sum (if any) certified to be due or from him or to the method by which that sum was determined.
6
F1627
“The appropriate regulator”—
a
in relation to a recognised investment exchange or a recognised overseas investment exchange, means the FCA, and
b
in relation to a F264recognised CSD, a recognised clearing house or a recognised overseas clearing house, means the Bank of England.
I9C5163 Net sum payable on completion of default proceedings.
F991
The following provisions apply with respect to a net sum certified by F265a recognised body under its default rules to be payable by or to a defaulter.
2
If, in England and Wales, a bankruptcyF60, winding-up or administration order has been made, or a resolution for voluntary winding-up has been passed, the debt—
a
is provable in the bankruptcyF63, winding up or administration or, as the case may be, is payable to the relevant office-holder, and
b
in the same way as a debt before the commencement of the bankruptcy, the date on which the body corporate goes into liquidation (within the meaning of section 247 of the Insolvency Act 1986)F61, or enters administration or, in the case of a partnership, the date of the winding-up order F62or the date on which the partnership enters administration.
3
If, in Scotland, an award of sequestration or a winding-up F65or administration order has been made, or a resolution for voluntary winding up has been passed, the debt—
a
may be claimed in the sequestrationF67, winding up or administration or, as the case may be, is payable to the relevant office-holder, and
b
shall be taken into account for the purposes of any rule of law relating to set-off applicable in sequestrationF68, winding up or administration,
in the same way as a debt due before the date of sequestration (within the meaning of section F21622(7) of the Bankruptcy (Scotland) Act 2016 ) or the commencement of the winding up (within the meaning of section 129 of the Insolvency Act 1986) F66or the date on which the body corporate enters administration.
F593A
In subsections (2) and (3), a reference to the making of an administration order shall be taken to include a reference to the appointment of an administrator under—
a
paragraph 14 of Schedule B1 to the Insolvency Act 1986 (appointment by holder of qualifying floating charge); or
b
paragraph 22 of that Schedule (appointment by company or directors).
C64
However, where (or to the extent that) a sum is taken into account by virtue of subsection (2)(b) or (3)(b) which arises from a contract entered into at a time when the creditor had notice—
a
b
F71c
that an application for an administration order was pending or that any person had given notice of intention to appoint an administrator,
the value of any profit to him arising from the sum being so taken into account (or being so taken into account to that extent) is recoverable from him by the relevant office-holder unless the court directs otherwise.
C65
Subsection (4) does not apply in relation to a sum arising from a contract effected under the default rules of F266a recognised body.
C66
Any sum recoverable by virtue of subsection (4) ranks for priority, in the event of the insolvency of the person from whom it is due, immediately before preferential or, in Scotland, preferred debts.
I10C7164 Disclaimer of property, rescission of contracts, &c.
1
Sections 178, 186, 315 and 345 of the Insolvency Act 1986 (power to disclaim onerous property and court’s power to order rescission of contracts, &c.) do not apply in relation to—
a
a market contract, F170...
F167aa
a qualifying collateral arrangement,
ab
a transfer of a clearing member client contract, a client trade or a qualifying collateral arrangement, as mentioned in paragraphs (c) to (e) of section 158(1),
ac
a qualifying property transfer, or
b
In the application of this subsection in Scotland, the reference to sections 178, 315 and 345 shall be construed as a reference to any rule of law having the like effect as those sections.
2
In Scotland, a F219trustee in the sequestration of the estate of a defaulter or a liquidator is bound by any market contract to which that defaulter is a party and by any contract as is mentioned in subsection (1)(b) above notwithstanding section F220110 of the Bankruptcy (Scotland) Act 2016 or any rule of law to the like effect applying in liquidations.
3
Sections 127 and 284 of the Insolvency Act 1986 (avoidance of property dispositions effected after commencement of winding up F207, submission of bankruptcy application or or presentation of bankruptcy petition), and section F21787(4) of the Bankruptcy (Scotland) Act 2016 (effect of dealing with debtor relating to estate vested in F218... trustee), do not apply to—
a
a market contract, or any disposition of property in pursuance of such a contract,
b
the provision of margin in relation to market contracts,
F168bb
a qualifying collateral arrangement,
bc
a transfer of a clearing member client contract, a client trade or a qualifying collateral arrangement, as mentioned in paragraphs (c) to (e) of section 158(1),
bd
a qualifying property transfer
c
C84
However, where—
a
a market contract is entered into by a person who has notice that F208a bankruptcy application has been submitted or a petition has been presented for the winding up or bankruptcy or sequestration of the estate of the other party to the contract, or
b
the value of any profit to him arising from the contract or, as the case may be, the amount or value of the margin F77or default fund contribution is recoverable from him by the relevant office-holder unless the court directs otherwise.
C8F1695
Subsection (4)(a) does not apply where the person entering into the contract is F269a recognised body acting in accordance with its rules, or where the contract is effected under the default rules of such F270a recognised body; but subsection (4)(b) applies in relation to the provision of—
a
margin in relation to any such contract, unless the contract has been transferred in accordance with the default rules of the central counterparty, or
b
default fund contribution.
C86
Any sum recoverable by virtue of subsection (4) ranks for priority, in the event of the insolvency of the person from whom it is due, immediately before preferential or, in Scotland, preferred debts.
I11165 Adjustment of prior transactions.
1
No order shall be made in relation to a transaction to which this section applies under—
a
section 238 or 339 of the Insolvency Act 1986 (transactions at an under-value),
b
section 239 or 340 of that Act (preferences), or
c
section 423 of that Act (transactions defrauding creditors).
2
As respects Scotland, no decree shall be granted in relation to any such transaction—
a
under section F22198 or 99 of the Bankruptcy (Scotland) Act 2016 or section 242 or 243 of the Insolvency Act 1986 (gratuitous alienations and unfair preferences), or
b
at common law on grounds of gratuitous alienations or fraudulent preferences.
3
This section applies to—
a
F158ab
a market contract to which this Part applies by virtue of section 155(2B), and
b
a disposition of property in pursuance of a market contract referred to in paragraph (a) or (ab).
4
Where margin is provided in relation to a market contract and (by virtue of subsection (3)(a)F154, (3)(ab) or otherwise) no such order or decree as is mentioned in subsection (1) or (2) has been, or could be, made in relation to that contract, this section applies to—
a
the provision of the margin,
F155ab
a qualifying collateral arrangement,
b
any contract effected by F271the recognised body in question for the purpose of realising the property provided as margin, and
F815
This section also applies to—
a
the provision of default fund contribution to a F274recognised body,
b
c
F156d
a transfer of a clearing member client contract, a client trade or a qualifying collateral arrangement as mentioned in paragraphs (c) to (e) of section 158(1), and
e
a qualifying property transfer.
I12C33166 Powers F127... to give directions.
1
2
Where in any case F277a recognised body has not taken action under its default rules—
a
3
Before giving such a direction the F109appropriate regulator shall consult the F279recognised body in question; and F16it shall not give a direction unless F16it is satisfied, in the light of that consultation—
a
in the case of a direction to take action, that failure to take action would involve undue risk to investors or other participants in the market, F110...
b
in the case of a direction not to take action, that the taking of action would be premature or otherwise undesirable in the interests of investors or other participants in the market,
F111c
in either case, that the direction is necessary having regard to the public interest in the stability of the financial system of the United Kingdom, or
d
in either case, that the direction is necessary—
i
to facilitate a proposed or possible use of a power under Part 1 of the Banking Act 2009 (special resolution regime) F385or Schedule 11 to the Financial Services and Markets Act 2023 (central counterparties), or
ii
in connection with a particular exercise of a power under that Part F386or that Schedule.
F1023A
The appropriate regulator may give a direction to a relevant office-holder appointed in respect of a defaulting clearing member to take any action, or refrain from taking any action, if the direction is given for the purposes of facilitating—
a
the transfer of a clearing member client contract, a client trade or a qualifying collateral arrangement, or
b
a qualifying property transfer.
3B
The relevant office-holder to whom a direction is given under subsection (3A)—
a
must comply with the direction notwithstanding any duty on the relevant office-holder under any enactment relating to insolvency, but
b
is not required to comply with the direction given if the value of the clearing member’s estate is unlikely to be sufficient to meet the office-holder’s reasonable expenses of complying.
3C
The expenses of the relevant office-holder in complying with a direction of the regulator under subsection (3A) are recoverable as part of the expenses incurred in the discharge of the office-holder’s duties.
4
A direction shall specify the grounds on which it is given.
5
A direction not to take action may be expressed to have effect until the giving of a further direction (which may be a direction to take action or simply revoking the earlier direction).
6
No direction shall be given not to take action if, in relation to the person in question—
a
a bankruptcy order or an award of sequestration of his estate has been made, or an interim receiver or interim trustee has been appointed, or
b
a winding up order has been made, a resolution for voluntary winding up has been passed or an administrator, administrative receiver or provisional liquidator has been appointed;
and any previous direction not to take action shall cease to have effect on the making or passing of any such order, award or appointment.
7
Where F278a recognised body has taken or been directed to take action under its default rules, the F112appropriate regulator may direct it to do or not to do such things (being things which it has power to do under its default rules) as are specified in the direction.
F113. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F1037A
Where the F280recognised body is acting in accordance with a direction under subsection (2)(a) that was given only by virtue of paragraph (a) of subsection (3), the appropriate regulator shall not give a direction under subsection (7) unless it is satisfied that the direction under that subsection will not impede or frustrate the proper and efficient conduct of the default proceedings.
7B
Where the F281recognised body has taken action under its default rules without being directed to do so, the appropriate regulator shall not give a direction under subsection (7) unless—
a
it is satisfied that the direction under that subsection will not impede or frustrate the proper and efficient conduct of the default proceedings, or
b
it is satisfied that the direction is necessary—
i
having regard to the public interest in the stability of the financial system of the United Kingdom,
ii
to facilitate a proposed or possible use of a power under Part 1 of the Banking Act 2009 (special resolution regime) F387or Schedule 11 to the Financial Services and Markets Act 2023 (central counterparties), or
iii
in connection with a particular exercise of a power under that Part F388or that Schedule.
8
A direction under this section is enforceable, on the application of the F115regulator which gave the direction, by injunction or, in Scotland, by an order under section 45 of the M6Court of Session Act 1988; and where F282a recognised bodyF114or a relevant office-holder has not complied with a direction, the court may make such order as it thinks fit for restoring the position to what it would have been if the direction had been complied with.
F1049
“The appropriate regulator”—
a
in relation to a recognised UK investment exchange, means the FCA, and
I13C32167 Application to determine whether default proceedings to be taken.
F831
This section applies where a relevant insolvency event has occurred in the case of—
a
a recognised investment exchange or a member or designated non-member of a recognised investment exchange,F193...
F327ba
a recognised CSD or a member of a recognised CSD, or
c
a client which is providing indirect clearing services to an indirect client.
F328The person referred to in paragraphs (a) to (c) in whose case a relevant insolvency event has occurred is referred to below as “the person in default”.
1A
For the purposes of this section a “relevant insolvency event” occurs where—
a
a bankruptcy order is made,
b
an award of sequestration is made,
c
an order appointing an interim receiver is made,
d
an administration or winding up order is made,
e
an administrator is appointed under paragraph 14 of Schedule B1 to the Insolvency Act 1986 (appointment by holder of qualifying floating charge) or under paragraph 22 of that Schedule (appointment by company or directors),
f
a resolution for voluntary winding up is passed, or
g
an order appointing a provisional liquidator is made.
1B
Where in relation to a person in default F329a recognised body (“F330the responsible recognised body”)—
a
has power under its default rules to take action in consequence of the relevant insolvency event or the matters giving rise to it, but
b
has not done so,
a relevant office-holder appointed in connection with or in consequence of the relevant insolvency event may apply to the F130appropriate regulator.
2
The application shall specify F331the responsible recognised body and the grounds on which it is made.
3
On receipt of the application the F131appropriate regulator shall notify F332the responsible recognised body, and unless within three business days after the day on which the notice is received F332the responsible recognised body —
a
takes action under its default rules, or
b
notifies the F131appropriate regulator that it proposes to do so forthwith,
then, subject as follows, the provisions of sections 158 to 165 above do not apply in relation to market contracts to which F84the person in default is a party or to anything done by F332the responsible recognised body for the purposes of, or in connection with, the settlement of any such contract.
For this purpose a “business day” means any day which is not a Saturday or Sunday, Christmas Day, Good Friday or a bank holiday in any part of the United Kingdom under the M7Banking and Financial Dealings Act 1971.
4
The provisions of sections 158 to 165 are not disapplied if before the end of the period mentioned in subsection (3) the F132appropriate regulator gives F333the responsible recognised body a direction under section 166(2)(a) (direction to take action under default rules).
No such direction may be given after the end of that period.
5
If F334the responsible recognised body notifies the F133appropriate regulator that it proposes to take action under its default rules forthwith, it shall do so; and that duty is enforceable, on the application of the F133appropriate regulator, by injunction or, in Scotland, by an order under section 45 of the M8Court of Session Act 1988.
F3356
“The appropriate regulator”—
a
in relation to a recognised investment exchange, means the FCA, and
b
in relation to a recognised clearing house or recognised CSD, means the Bank of England.
F17168. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I14169 Supplementary provisions.
F181
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
F19Sections 296 and 297 of the Financial Services and Markets Act 2000 apply in relation to a failure by a recognised investment exchange or recognised clearing house to comply with an obligation under this Part as to a failure to comply with an obligation under that Act.
F2852A
Section 296 of the Financial Services and Markets Act 2000 applies in relation to a failure by a recognised CSD to comply with an obligation under this Part as to a failure to comply with an obligation under that Act.
C93
Where the recognition of F288an investment exchange, clearing house or central securities depository is revoked under the F20Financial Services and Markets Act 2000, the appropriate authority may, before or after the revocation order, give such directions as F21it thinks fit with respect to the continued application of the provisions of this Part, with such exceptions, additions and adaptations as may be specified in the direction, in relation to cases where a relevant event of any description specified in the directions occurred before the revocation order takes effect.
F223A
“The appropriate authority” means—
a
in the case of an overseas investment exchange or clearing house, the Treasury;
c
in the case of a UK clearing house, the Bank of EnglandF286, and
d
in the case of a central securities depository, the Bank of England.
F184
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
F23Regulations under section 414 of the Financial Services and Markets Act 2000 (service of notices) may make provision in relation to a notice, direction or other document required or authorised by or under this Part to be given to or served on any person other than the F24TreasuryF135, the FCA or the Bank of England.
Other exchanges and clearing houses
C10I15170 Certain overseas exchanges and clearing houses.
F981
The Secretary of State and the Treasury may by regulations provide that this Part applies in relation to contracts connected with an overseas investment exchange or overseas clearing house which—
a
is not a recognised investment exchange or recognised clearing house, but
b
is approved by the Treasury in accordance with such requirements as may be so specified,
as it applies in relation to contracts connected with a recognised investment exchange or recognised clearing house.
2
The F25Treasury shall not approve an overseas investment exchange or clearing house unless F26they are satisfied—
a
that the rules and practices of the body, together with the law of the country in which the body’s head office is situated, provide adequate procedures for dealing with the default of persons party to contracts connected with the body, and
b
that it is otherwise appropriate to approve the body.
3
The reference in subsection (2)(a) to default is to a person being unable to meet his obligations.
4
The regulations may apply in relation to the approval of a body under this section such of the provisions of the F27Financial Services and Markets Act 2000 as the Secretary of State considers appropriate.
5
The Secretary of State may make regulations which, in relation to a body which is so approved—
a
apply such of the provisions of the F27Financial Services and Markets Act 2000 as the Secretary of State considers appropriate, and
b
provide that the provisions of this Part apply with such exceptions, additions and adaptations as appear to the Secretary of State to be necessary or expedient;
and different provision may be made with respect to different bodies or descriptions of body.
6
Where the regulations apply any provisions of the F27Financial Services and Markets Act 2000, they may provide that those provisions apply with such exceptions, additions and adaptations as appear to the Secretary of State to be necessary or expedient.
170AF100F360Third country central counterparties
1
In this section and section 170B—
a
“assets” has the meaning given by Article 39(10) of the EMIR Level 1 Regulation;
F363b
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F364c
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
d
“overseas competent authority” means a competent authority responsible for the authorisation or supervision of clearing houses or central counterparties in a country or territory other than the United Kingdom;
e
“relevant provisions” means any provisions of the default rules of F365a third country central counterparty which—
i
provide for the transfer of the positions or assets of a defaulting clearing member;
ii
are not necessary for the purposes of complying with the minimum requirements of Articles 48(5) and (6) of the EMIR Level 1 Regulation; and
iii
may be relevant to a question falling to be determined in accordance with the law of a part of the United Kingdom;
f
“relevant requirements” means the requirements specified in paragraph 34(2) (portability of accounts: default rules going beyond requirements of EMIR) of Part 6 of the Schedule to the Financial Services and Markets Act 2000 (Recognition Requirements for Investment Exchanges F289, Clearing Houses and Central Securities Depositories) Regulations 2001;
g
“UK clearing member” means a clearing member to which the law of a part of the United Kingdom will apply for the purposes of an insolvent reorganisation or winding upF194, and
h
“UK client” means a client—
i
which offers indirect clearing services, and
ii
to which the law of a part of the United Kingdom will apply for the purposes of an insolvent re-organisation or winding up.
2
3
For section 157 there is to be substituted—
Change in default rules157
1
F367A third country central counterparty in respect of which an order under section 170B(4) has been made and not revoked must give the Bank of England at least three months’ notice of any proposal to amend, revoke or add to its default rules.
2
The Bank of England may, if it considers it appropriate to do so, agree a shorter period of notice.
3
Where notice is given to the Bank of England under subsection (1) F368, a third country central counterparty must provide the Bank of England with such information, documents and reports as the Bank of England may require.
4
Information, documents and reports required under subsection (3) must be provided in English and be given at such times, in such form and at such place, and verified in such a manner, as the Bank of England may direct.
4
Section 162 does not apply to F369... a third country central counterparty unless it has been notified by the Bank of England that a report under that section is required for the purposes of insolvency proceedings in any part of the United Kingdom.
5
In relation to F370a third country central counterparty, references in this Part to the “rules” or “default rules” of the central counterparty are to be taken not to include references to any relevant provisions unless—
a
the relevant provisions satisfy the relevant requirements; or
b
the Bank of England has made an order under section 170B(4) recognising that the relevant provisions of its default rules satisfy the relevant requirements and the order has not been revoked.
170BF361Third country central counterparties: procedure
1
F371A third country central counterparty may apply to the Bank of England for an order recognising that the relevant provisions of its default rules satisfy the relevant requirements.
2
The application must be made in such manner, and must be accompanied by such information, documents and reports, as the Bank of England may direct.
3
Information, documents and reports required under subsection (2) must be provided in English and be given at such times, in such form and at such place, and verified in such manner, as the Bank of England may direct.
4
The Bank of England may make an order recognising that the relevant provisions of the default rules satisfy the relevant requirements.
5
The Bank of England may by order revoke an order made under subsection (4) if—
a
the F372... third country central counterparty consents;
b
the F383... third country central counterparty has failed to pay a fee which is owing to the Bank of England under paragraph 36 of Schedule 17A to the Financial Services and Markets Act 2000;
c
the F384... third country central counterparty is failing or has failed to comply with a requirement of or imposed under section 157 (as modified by section 170A(3)); or
d
it appears to the Bank of England that the relevant provisions no longer satisfy the relevant requirements.
6
An order made under subsection (4) or (5) must state the time and date when it is to have effect.
7
An order made under subsection (5) may contain such transitional provision as the Bank of England considers appropriate.
8
The Bank of England must—
a
maintain a register of orders made under subsection (4) which are in force; and
b
publish the register in such manner as it appears to the Bank of England to be appropriate.
9
Section 298 of the Financial Services and Markets Act 2000 applies to a refusal to make an order under subsection (4) or the making of a revocation order under subsection (5)(b), (c) or (d) as it applies to the making of a revocation order under section 297(2) of the Financial Services and Markets Act 2000, but with the following modifications—
a
for “appropriate regulator” substitute “the Bank of England”;
b
for “recognised body” substitute “F373... third country central counterparty”; and
c
in subsection (7), for “give a direction under section 296” substitute “make an order under paragraph (b), (c) or (d) of section 170B(5) of the Companies Act 1989”.
10
If the Bank of England refuses to make an order under subsection (4) or makes an order under subsection (5)(b), (c) or (d), the F374... third country central counterparty may refer the matter to the Upper Tribunal.
11
The Bank of England may rely on information or advice from an overseas competent authorityF375... in its determination of an application under subsection (1) or the making of a revocation order under subsection (5)(d).
170CF362Third country CSDs
1
This Part applies to transactions settled through F376... a third country CSD by a UK member of the central securities depository as it applies to transactions settled through a recognised CSD, but subject to subsections (2), (3) and (4).
2
The definition of “authorised central securities depository services” in section 155(3D) applies to third country CSDs as if it read—
“authorised central securities depository services” means, in relation to a third country CSD, those services which that central securities depository is authorised to provide that are equivalent to the services listed in the Annex to the CSD regulation.
3
Section 157 does not apply to F376... a third country CSD.
4
Section 162 does not apply to F376... a third country CSD unless it has been notified by the Bank of England that a report under that section is required for the purposes of insolvency proceedings in any part of the United Kingdom. Where F376... a third country CSD has been so notified, the appropriate regulator for the purposes of section 162 shall be the Bank of England.
5
In this section “UK member” means a member of F376... a third country CSD to which the law of a part of the United Kingdom will apply for the purposes of an insolvent reorganisation or winding up.
F28171. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
C11I16172 Settlement arrangements provided by the Bank of England.
1
The Secretary of State may by regulations provide that this Part applies to contracts of any specified description in relation to which settlement arrangements are provided by the Bank of England, as it applies to contracts connected with F290a recognised body.
2
Regulations under this section may provide that the provisions of this Part apply with such exceptions, additions and adaptations as appear to the Secretary of State to be necessary or expedient.
3
Before making any regulations under this section, the Secretary of State F29and the Treasury shall consult the Bank of England.
Market charges
I17C12173 Market charges.
1
In this Part “market charge” means a charge, whether fixed or floating, granted—
a
in favour of a recognised investment exchange, for the purpose of securing debts or liabilities arising in connection with the settlement of market contracts,
F30aa
in favour of The Stock Exchange, for the purpose of securing debts or liabilities arising in connection with short term certificates;
b
in favour of a recognised clearing house, for the purpose of securing debts or liabilities arising in connection with their ensuring the performance of market contracts, F291...
F292ba
in favour of a recognised CSD, for the purpose of securing debts or liabilities arising in connection with their ensuring the performance of market contracts, or
c
in favour of a person who agrees to make payments as a result of the transfer F31or allotment of specified securities made through the medium of a computer-based system established by the Bank of England and The Stock Exchange, for the purpose of securing debts or liabilities of the transferee F31or allottee arising in connection therewith.
2
3
F33In subsection (1)—
“short term certificate” means an instrument issued by The Stock Exchange undertaking to procure the transfer of property of a value and description specified in the instrument to or to the order of the person to whom the instrument is issued or his endorsee or to a person acting on behalf of either of them and also undertaking to make appropriate payments in cash, in the event that the obligation to procure the transfer of property cannot be discharged in whole or in part;
“specified securities” means securities for the time being specified in the list in Schedule 1 to the M9Stock Transfer Act 1982, and includes any right to such securities; and
“transfer”, in relation to any such securities or right, means a transfer of the beneficial interest.
4
The Secretary of State may by regulations make further provision as to the charges granted in favour of any such person as is mentioned in subsection (1)(a), (b) F294, (ba) or (c) which are to be treated as “market charges” for the purposes of this Part; and the regulations may add to, amend or repeal the provisions of subsections (1) to (3) above.
5
The regulations may provide that a charge shall or shall not be treated as a market charge if or to the extent that it secures obligations of a specified description, is a charge over property of a specified description or contains provisions of a specified description.
6
Before making regulations under this section in relation to charges granted in favour of a person within subsection (1)(c), the Secretary of State F34and the Treasury shall consult the Bank of England.
I18C13174 Modifications of the law of insolvency.
1
The general law of insolvency has effect in relation to market charges and action taken in enforcing them subject to the provisions of section 175.
2
The Secretary of State may by regulations make further provision modifying the law of insolvency in relation to the matters mentioned in subsection (1).
3
The regulations may add to, amend or repeal the provisions mentioned in subsection (1), and any other provision of this Part as it applies for the purposes of those provisions, or provide that those provisions have effect with such exceptions, additions or adaptations as are specified in the regulations.
4
The regulations may make different provision for cases defined by reference to the nature of the charge, the nature of the property subject to it, the circumstances, nature or extent of the obligations secured by it or any other relevant factor.
5
Before making regulations under this section in relation to charges granted in favour of a person within section 173(1)(c), the Secretary of State F35and the Treasury shall consult the Bank of England.
I19C31175 Administration orders, &c.
F361
The following provisions of Schedule B1 to the Insolvency Act 1986 (administration) do not apply in relation to a market charge—
a
paragraph 43(2) and (3) (restriction on enforcement of security or repossession of goods) (including that provision as applied by paragraph 44 (interim moratorium)), and
b
paragraphs 70, 71 and 72 (power of administrator to deal with charged or hire-purchase property).
1A
Paragraph 41(2) of that Schedule (receiver to vacate office at request of administrator) does not apply to a receiver appointed under a market charge.
C142
However, where a market charge falls to be enforced after F37the occurrence of an event to which subsection (2A) applies, and there exists another charge over some or all of the same property ranking in priority to or pari passu with the market charge, F38on the application of any person interested the court may order that there shall be taken after enforcement of the market charge such steps as the court may direct for the purpose of ensuring that the chargee under the other charge is not prejudiced by the enforcement of the market charge.
F392A
This subsection applies to—
a
making an administration application under paragraph 12 of Schedule B1 to the Insolvency Act 1986,
b
appointing an administrator under paragraph 14 or 22 of that Schedule (appointment by floating charge holder, company or directors),
c
filing with the court a copy of notice of intention to appoint an administrator under either of those paragraphs.
C153
The following provisions of the Insolvency Act 1986 (which relate to the powers of receivers) do not apply in relation to a market charge—
a
section 43 (power of administrative receiver to dispose of charged property), and
b
section 61 (power of receiver in Scotland to dispose of an interest in property).
4
Sections 127 and 284 of the Insolvency Act 1986 (avoidance of property dispositions effected after commencement of winding upF211, making of bankruptcy application or presentation of bankruptcy petition), and section F22287(4) of the Bankruptcy (Scotland) Act 2016 (effect of dealing with debtor relating to estate vested in F223... trustee), do not apply to a disposition of property as a result of which the property becomes subject to a market charge or any transaction pursuant to which that disposition is made.
C16C17F1535
However, if a person who is party to a disposition mentioned in subsection (4) has notice at the time of the disposition that F210a bankruptcy application has been made or a petition has been presented for the winding up or bankruptcy or sequestration of the estate of the party making the disposition, the value of any profit to him arising from the disposition is recoverable from him by the relevant office-holder unless—
a
the person is a chargee under the market charge,
b
the disposition is made in accordance with the default rules of a recognised central counterparty for the purposes of transferring a position or asset of a clearing member in default, or
c
the court directs otherwise.
F1525A
In subsection (5)(b), “asset” has the meaning given by Article 39(10) of the EMIR Level 1 Regulation.
C176
Any sum recoverable by virtue of subsection (5) ranks for priority, in the event of the insolvency of the person from whom it is due, immediately before preferential or, in Scotland, preferred debts.
7
In a case falling within both subsection (4) above (as a disposition of property as a result of which the property becomes subject to a market charge) and section 164(3) (as the provision of margin in relation to a market contract), section 164(4) applies with respect to the recovery of the amount or value of the margin and subsection (5) above does not apply.
C18I20C19176 Power to make provision about certain other charges.
1
The Secretary of State may by regulations provide that the general law of insolvency has effect in relation to charges of such descriptions as may be specified in the regulations, and action taken in enforcing them, subject to such provisions as may be specified in the regulations.
C192
The regulations may specify any description of charge granted in favour of—
a
a body approved under section 170 (certain overseas exchanges and clearing houses),
b
c
the Bank of England,
F41d
a person who has permission under F174Part 4A of the Financial Services and Markets Act 2000 to carry on a relevant regulated activity, or
e
an international securities self-regulating organisation approved for the purposes of an order made under section 22 of the Financial Services and Markets Act 2000,
for the purpose of securing debts or liabilities arising in connection with or as a result of the settlement of contracts or the transfer of assets, rights or interests on a financial market.
3
The regulations may specify any description of charge granted for that purpose in favour of any other person in connection with exchange facilities or clearing services F297or settlement arrangements provided by a recognised investment exchange or recognised clearing house or by any such body, person, authority or organisation as is mentioned in subsection (2) F298, or in connection with authorised central securities depository services (see section 155(3D)) provided by a recognised CSD.
4
Where a charge is granted partly for the purpose specified in subsection (2) and partly for other purposes, the power conferred by this section is exercisable in relation to the charge so far as it has effect for that purpose.
5
The regulations may—
a
make the same or similar provision in relation to the charges to which they apply as is made by or under sections 174 and 175 in relation to market charges, or
b
apply any of those provisions with such exceptions, additions or adaptations as are specified in the regulations.
F426
Before making regulations under this section relating to a description of charges defined by reference to their being granted in favour of a person included in the list maintained by the F43. . . F172Bank of England for the purposes of F44section 301 of the Financial Services and Markets Act 2000, or in connection with exchange facilities or clearing services F296or settlement arrangements provided by a person included in that list, the Secretary of State and the Treasury shall consult the F173FCA and the Bank of England.
6A
Before making regulations under this section relating to a description of charges defined by reference to their being granted in favour of the Bank of England, or in connection with settlement arrangements provided by the Bank, the Secretary of State and the Treasury shall consult the Bank.
7
Regulations under this section may provide that they apply or do not apply to a charge if or to the extent that it secures obligations of a specified description, is a charge over property of a specified description or contains provisions of a specified description.
F458
For the purposes of subsection (2)(d), “relevant regulated activity” means—
a
dealing in investments as principal or as agent;
b
arranging deals in investments;
F46ba
operating a multilateral trading facility;
F359bb
operating an organised trading facility;
c
managing investments;
d
safeguarding and administering investments;
e
sending dematerialised instructions; F179...
F178ea
managing a UCITS;
eb
acting as trustee or depositary of a UCITS;
ec
managing an AIF;
ed
acting as trustee or depositary of an AIF; or
f
establishing etc. a collective investment scheme.
9
Subsection (8) must be read with—
a
section 22 of the Financial Services and Markets Act 2000;
b
any relevant order under that section; and
c
Schedule 2 to that Act.
Market property
I21C20177 Application of margin F96or default fund contribution not affected by certain other interests.
1
2
So far as necessary to enable the property to be applied in accordance with the rules of F301the recognised body , it may be so applied notwithstanding any prior equitable interest or right, or any right or remedy arising from a breach of fiduciary duty, unless F301the recognised body had notice of the interest, right or breach of duty at the time the property was provided as margin F90or as default fund contribution.
3
4
178 Priority of floating market charge over subsequent charges.
1
The Secretary of State may by regulations provide that a market charge which is a floating charge has priority over a charge subsequently created or arising, including a fixed charge.
2
The regulations may make different provision for cases defined, as regards the market charge or the subsequent charge, by reference to the description of charge, its terms, the circumstances in which it is created or arises, the nature of the charge, the person in favour of whom it is granted or arises or any other relevant factor.
I22C21179 Priority of market charge over unpaid vendor’s lien.
Where property subject to an unpaid vendor’s lien becomes subject to a market charge, the charge has priority over the lien unless the chargee had actual notice of the lien at the time the property became subject to the charge.
I23C22180 Proceedings against market property by unsecured creditors.
1
Where property (other than land) is held by F305a recognised body as margin in relation to market contracts F92or as default fund contribution, or is subject to a market charge, no execution or other legal process for the enforcement of a judgment or order may be commenced or continued, and no distress may be levied, F203and no power to use the procedure in Schedule 12 to the Tribunals, Courts and Enforcement Act 2007 (taking control of goods) may be exercised, against the property by a person not seeking to enforce any interest in or security over the property, except with the consent of—
a
b
in the case of property subject to a market charge, the person in whose favour the charge was granted.
2
3
Where by virtue of this section a person would not be entitled to enforce a judgment or order against any property, any injunction or other remedy granted with a view to facilitating the enforcement of any such judgment or order shall not extend to that property.
4
In the application of this section to Scotland, the reference to execution being commenced or continued includes a reference to diligence being carried out or continued, and the reference to distress being levied shall be omitted.
C23I24181 Power to apply provisions to other cases.
1
F47A power to which this subsection applies includes the power to apply sections 177 to 180 to any description of property provided as cover for margin in relation to contracts in relation to which the power is exercised or, as the case may be, property subject to charges in relation to which the power is exercised.
2
The regulations may provide that those sections apply with such exceptions, additions and adaptations as may be specified in the regulations.
F483
Subsection (1) applies to the powers of the Secretary of State and the Treasury to act jointly under—
a
sections 170, 172 and 176 of this Act; and
b
section 301 of the Financial Services and Markets Act 2000 (supervision of certain contracts).
Supplementary provisions
I25C24182 Powers of court in relation to certain proceedings begun before commencement.
1
The powers conferred by this section are exercisable by the court where insolvency proceedings in respect of—
a
a member of a recognised investment exchange or a recognised clearing house, or
b
a person by whom a market charge has been granted,
are begun on or after 22nd December 1988 and before the commencement of this section.
That person is referred to in this section as “the relevant person”.
2
For the purposes of this section “insolvency proceedings” means proceedings under Part II, IV, V or IX of the M12Insolvency Act 1986 (administration, winding up and bankruptcy) or under the Bankruptcy (Scotland) Act F2252016; and references in this section to the beginning of such proceedings are to—
F212za
the making of a bankruptcy application on which a bankruptcy order is made,
a
the presentation of a petition on which an administration order, winding-up order, bankruptcy order or award of sequestration is made, or
b
the passing of a resolution for voluntary winding up.
3
This section applies in relation to—
a
in England and Wales, the administration of the insolvent estate of a deceased person, and
b
in Scotland, the administration by a judicial factor appointed under section 11A of the M13Judicial Factors (Scotland) Act 1889 of the insolvent estate of a deceased person,
as it applies in relation to insolvency proceedings.
In such a case references to the beginning of the proceedings shall be construed as references to the death of the relevant person.
4
The court may on an application made, within three months after the commencement of this section, by—
a
a recognised investment exchange or recognised clearing house, or
b
a person in whose favour a market charge has been granted,
make such order as it thinks fit for achieving, except so far as assets of the relevant person have been distributed before the making of the application, the same result as if the provisions of Schedule 22 had come into force on 22nd December 1988.
5
The provisions of that Schedule (“the relevant provisions”) reproduce the effect of certain provisions of this Part as they appeared in the Bill for this Act as introduced into the House of Lords and published on that date.
6
The court may in particular—
a
require the relevant person or a relevant office-holder—
i
to return property provided as cover for margin or which was subject to a market charge, or to pay to the applicant or any other person the proceeds of realisation of such property, or
ii
to pay to the applicant or any other person such amount as the court estimates would have been payable to that person if the relevant provisions had come into force on 22nd December 1988 and market contracts had been settled in accordance with the rules of the recognised investment exchange or recognised clearing house, or a proportion of that amount if the property of the relevant person or relevant office-holder is not sufficient to meet the amount in full;
b
provide that contracts, rules and dispositions shall be treated as not having been void;
c
modify the functions of a relevant office-holder, or the duties of the applicant or any other person, in relation to the insolvency proceedings, or indemnify any such person in respect of acts or omissions which would have been proper if the relevant provisions had been in force;
d
provide that conduct which constituted an offence be treated as not having done so;
e
dismiss proceedings which could not have been brought if the relevant provisions had come into force on 22nd December 1988, and reverse the effect of any order of a court which could not, or would not, have been made if those provisions had come into force on that date.
7
An order under this section shall not be made against a relevant office-holder if the effect would be that his remuneration, costs and expenses could not be met.
182AF129Recognised central counterparties: disapplication of provisions on mutual credit and set-off
1
Nothing in the law of insolvency shall enable the setting off against each other of—
a
positions and assets recorded in an account at a recognised central counterparty and held for the account of a client, an indirect client or a group of clients or indirect clients in accordance with Article 39 of the EMIR Level 1 Regulation F353, Article 3(1) of the EMIR Level 2 Regulation or Article 3(1) of the MIFIR Level 2 Regulation; and
b
positions and assets recorded in any other account at the recognised central counterparty.
F1962
Nothing in the law of insolvency shall enable the setting off against each other of—
a
positions and assets recorded in an account at a clearing member and held for the account of an indirect client or a group of indirect clients in accordance with F354Article 4(2) of the EMIR Level 2 Regulation or Article 4(2) of the MIFIR Level 2 Regulation; and
b
positions and assets recorded in any other account at the clearing member.
I26183 Insolvency proceedings in other jurisdictions.
1
The references to insolvency law in section 426 of the M14Insolvency Act 1986 (co-operation with courts exercising insolvency jurisdiction in other jurisdictions) include, in relation to a part of the United Kingdom, the provisions made by or under this Part and, in relation to a relevant country or territory within the meaning of that section, so much of the law of that country or territory as corresponds to any provisions made by or under this Part.
2
A court shall not, in pursuance of that section or any other enactment or rule of law, recognise or give effect to—
a
any order of a court exercising jurisdiction in relation to insolvency law in a country or territory outside the United Kingdom, or
b
any act of a person appointed in such a country or territory to discharge any functions under insolvency law,
in so far as the making of the order or the doing of the act would be prohibited in the case of a court in the United Kingdom or a relevant office-holder by provisions made by or under this Part.
3
I27184 Indemnity for certain acts, &c.
1
Where a relevant office-holder takes any action in relation to property of a defaulter which is liable to be dealt with in accordance with the default rules of a F308recognised body, and believes and has reasonable grounds for believing that he is entitled to take that action, he is not liable to any person in respect of any loss or damage resulting from his action except in so far as the loss or damage is caused by the office-holder’s own negligence.
2
Any failure by a F309recognised body to comply with its own rules in respect of any matter shall not prevent that matter being treated for the purposes of this Part as done in accordance with those rules so long as the failure does not substantially affect the rights of any person entitled to require compliance with the rules.
3
No F310recognised body, nor any officer or servant or member of the governing body of a F310recognised body, shall be liable in damages for anything done or omitted in the discharge or purported discharge of any functions to which this subsection applies unless the act or omission is shown to have been in bad faith.
4
The functions to which subsection (3) applies are the functions of F307the recognised body so far as relating to, or to matters arising out of—
a
its default rules, or
b
any obligations to which it is subject by virtue of this Part.
5
No person F49to whom the exercise of any function of a F311recognised body is delegated under its default rules, nor any officer or servant of such a person, shall be liable in damages for anything done or omitted in the discharge or purported discharge of those functions unless the act or omission is shown to have been in bad faith.
I28C25185 Power to make further provision by regulations.
1
The Secretary of State may by regulations make such further provision as appears to him necessary or expedient for the purposes of this Part.
2
Provision may, in particular, be made—
a
for integrating the provisions of this Part with the general law of insolvency, and
b
for adapting the provisions of this Part in their application to overseas investment exchanges and clearing houses.
3
Regulations under this section may add to, amend or repeal any of the provisions of this Part or provide that those provisions have effect subject to such additions, exceptions or adaptations as are specified in the regulations.
F504
References in this section to the provisions of this Part include any provision made under section 301 of the Financial Services and Markets Act 2000.
C26I29186 Supplementary provisions as to regulations.
1
Regulations under this Part may make different provision for different cases and may contain such incidental, transitional and other supplementary provisions as appear to the Secretary of State to be necessary or expedient.
2
Regulations under this Part shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.
C27I30187 Construction of references to parties to market contracts.
1
Where a person enters into market contracts in more than one capacity, the provisions of this Part apply (subject as follows) as if the contracts entered into in each different capacity were entered into by different persons.
2
References in this Part to a market contract to which a person is a party include (subject as follows, and unless the context otherwise requires) contracts to which he is party as agent.
F1012A
Subsections (1) and (2) do not apply to market contracts to which this Part applies by virtue of section 155(2B).
3
The Secretary of State may by regulations—
a
modify or exclude the operation of subsections (1) and (2), and
b
make provision as to the circumstances in which a person is to be regarded for the purposes of those provisions as acting in different capacities.
I31188 Meaning of “default rules” and related expressions.
1
In this Part “default rules” means rules of a F318recognised body which provide for the taking of action in the event of a person F95(including another F318recognised body) appearing to be unable, or likely to become unable, to meet his obligations in respect of one or more market contracts F176connected with F319the recognised body, F199....
F1971A
In the case of a recognised central counterparty, “default rules” includes—
a
the default procedures referred to in Article 48 of the EMIR Level 1 Regulation; and
b
any rules of the recognised central counterparty which provide for the taking of action in accordance with a request or instruction from a clearing member under the default procedures referred to in F355Article 4(6) and (7) of the EMIR Level 2 Regulation or Article 4(6) and (7) of the MIFIR Level 2 Regulation in respect of assets or positions held by the recognised central counterparty for the account of an indirect client or group of indirect clients.
F3171B
In the case of a recognised CSD, “default rules” includes the default rules and procedures referred to in Article 41 of the CSD regulation.
2
References in this Part to a “defaulter” are to a person in respect of whom action has been taken by F321a recognised body under its default rules, whether by declaring him to be a defaulter or otherwise; and references in this Part to “default”F177, “defaulting” and “non-defaulting” shall be construed accordingly.
F1982A
For the purposes of subsection (2), where a recognised central counterparty takes action under the rules referred to in subsection (1A)(b), the action is to be treated as taken in respect of the client providing the indirect clearing services.
3
In this Part “default proceedings” means proceedings taken by F322a recognised body under its default rules.
F943A
In this Part “default fund contribution” means—
a
contribution by a member or designated non-member of a recognised investment exchange to a fund which—
i
is maintained by that exchange for the purpose of covering losses arising in connection with defaults by any of the members of the exchange, or defaults by any of the members or designated non-members of the exchange, and
ii
may be applied for that purpose under the default rules of the exchange;
b
contribution by a member of a recognised clearing house to a fund which—
i
is maintained by that clearing house for the purpose of covering losses arising in connection with defaults by any of the members of the clearing house, and
ii
may be applied for that purpose under the default rules of the clearing house;
c
contribution by a recognised clearing house to a fund which—
F323i
is maintained by another recognised body (A) for the purpose of covering losses arising in connection with defaults by recognised bodies other than A or by any of their members, and
ii
may be applied for that purpose under A’s default rules; F324...
d
contribution by a recognised investment exchange to a fund which—
F325i
is maintained by another recognised body (A) for the purpose of covering losses arising in connection with defaults by recognised bodies other than A or by any of their members, and
ii
may be applied for that purpose under A’s default rules.
F320e
contribution by a member of a recognised CSD to a fund which—
i
is maintained by that central securities depository for the purpose of covering losses arising in connection with defaults by any of the members of the central securities depository, and
ii
may be applied for that purpose under the default rules of the central securities depository; or
f
contribution by a recognised CSD to a fund which—
i
is maintained by another recognised body (A) for the purpose of covering losses arising in connection with defaults by recognised bodies other than A or by any of their members, and
ii
may be applied for that purpose under A’s default rules.
4
If F326a recognised body takes action under its default rules in respect of a person, all subsequent proceedings under its rules for the purposes of or in connection with the settlement of market contracts to which the defaulter is a party shall be treated as done under its default rules.
I32189 Meaning of “relevant office-holder”.
1
The following are relevant office-holders for the purposes of this Part—
a
the official receiver,
b
any person acting in relation to a company as its liquidator, provisional liquidator, administrator or administrative receiver,
c
d
any person acting as administrator of an insolvent estate of a deceased person.
2
In subsection (1)(b) “company” means any company, society, association, partnership or other body which may be wound up under the M16Insolvency Act 1986.
189AF180Meaning of “transfer”
1
In this Part, a reference to a transfer of a clearing member client contract, a client trade or a qualifying collateral arrangement shall be interpreted in accordance with this section.
2
A transfer of a clearing member client contract or client trade includes—
a
an assignment;
b
a novation; and
c
terminating or closing out the clearing member client contract or client trade and establishing an equivalent position between different parties.
3
Where a clearing member client contract is recorded in the accounts of a recognised central counterparty as a position held for the account of an indirect client or group of indirect clients, the clearing member client contract is to be treated as having been transferred if the position is transferred to a different account at the recognised central counterparty.
4
A reference to a transfer of a qualifying collateral arrangement includes an assignment or a novation.
I33190 Minor definitions.
1
In this Part—
“administrative receiver” has the meaning given by section 251 of the Insolvency Act 1986;
F137. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
“charge” means any form of security, including a mortgage and, in Scotland, a heritable security;
F51. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F140“clearing member”, in relation to a recognised central counterparty, has the meaning given by Article 2(14) of the EMIR Level 1 Regulation;
F140“client” has the meaning given by Article 2(15) of the EMIR Level 1 Regulation;
F312“CSD regulation” means Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities settlement in the European Union and on central securities depositories;
F140“EMIR Level 1 Regulation” means Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories;
F140“EMIR Level 2 Regulation” means Commission Delegated Regulation (EU) No 149/2013 of 19 December 2012 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 with regard to regulatory technical standards on indirect clearing arrangements, the clearing obligation, the public register, access to a trading venue, non-financial counterparties, risk mitigation for OTC derivatives contracts not cleared by a CCP F356as amended by Commission Delegated Regulation (EU) 2017/2155 of 22 September 2017;
F138“the FCA” means the Financial Conduct Authority;
F200“indirect clearing services” has the same meaning as in the EMIR Level 2 Regulation;
F140“indirect client” has the meaning given by Article 1(a) of the EMIR Level 2 Regulation;
F228“interim trustee” has the same meaning as in the Bankruptcy (Scotland) Act 2016
F51. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F312“member”, in relation to a central securities depository, means a participant of that central securities depository as defined in Article 2(1)(19) of the CSD regulation;
F140“member of a clearing house” includes a clearing member of a recognised central counterparty;
F357“MIFIR Level 2 Regulation” means Commission Delegated Regulation (EU) 2017/2154 of 22 September 2017 supplementing Regulation (EU) No. 600/2014 of the European Parliament and of the Council with regard to regulatory technical standards on indirect clearing arrangements;
“overseas”, in relation to an investment exchange or clearing house F313or central securities depository , means having its head office outside the United Kingdom;
F140“position” has the same meaning as in the EMIR Level 1 Regulation;
F139“the PRA” means the Prudential Regulation Authority;
F312“recognised body” has the same meaning as in section 313 of the Financial Services and Markets Act 2000;
F379F314...“recognised central counterparty”, “recognised CSD”, “recognised clearing house”, “recognised investment exchange” F380, “third country central counterparty” and “third country CSD” have the same meaning as in the Financial Services and Markets Act 2000 (see section 285 of that Act);
F229“sequestration” means sequestration under the Bankruptcy (Scotland) Act 2016;
F51. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
“set-off”, in relation to Scotland, includes compensation;
F52“The Stock Exchange” means the London Stock Exchange Limited;
F141“UK”, in relation to an investment exchange, means having its head office in the United Kingdom.
F1422
References in this Part to settlement—
a
mean, in relation to a market contract, the discharge of the rights and liabilities of the parties to the contract, whether by performance, compromise or otherwise;
b
include, in relation to a clearing member client contract or a clearing member house contract, a reference to its liquidation for the purposes of Article 48 of the EMIR Level 1 Regulation.
3
In this Part the expressions “margin” and “cover for margin” have the same meaning.
F2013A
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F534
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
For the purposes of this Part a person shall be taken to have notice of a matter if he deliberately failed to make enquiries as to that matter in circumstances in which a reasonable and honest person would have done so.
This does not apply for the purposes of a provision requiring “actual notice”.
F1366
References in this Part to the law of insolvency—
a
include references to every provision made by or under the Insolvency Act 1986 or the Bankruptcy (Scotland) Act F2302016; and in relation to a building society references to insolvency law or to any provision of the Insolvency Act 1986 are to that law or provision as modified by the Building Societies Act 1986;
b
are also to be interpreted in accordance with the modifications made by the enactments mentioned in subsection (6B).
6A
For the avoidance of doubt, references in this Part to administration, administrator, liquidator and winding up are to be interpreted in accordance with the modifications made by the enactments mentioned in subsection (6B).
6B
The enactments referred to in subsections (6)(b) and (6A) are—
a
article 3 of, and the Schedule to, the Banking Act 2009 (Parts 2 and 3 Consequential Amendments) Order 2009;
b
article 18 of, and paragraphs 1(a), (2) and (3) of Schedule 2 to, the Building Societies (Insolvency and Special Administration) Order 2009; and
c
regulation 27 of, and Schedule 6 to, the Investment Bank Special Administration Regulations 2011.
7
In relation to Scotland, references in this Part—
a
to sequestration include references to the administration by a judicial factor of the insolvent estate of a deceased person, and
b
to an interim F231trustee or to a trustee in the sequestration of an estate include references to a judicial factor on the insolvent estate of a deceased person,
unless the context otherwise requires.
I34191 Index of defined expressions.
The following Table shows provisions defining or otherwise explaining expressions used in this Part (other than provisions defining or explaining an expression used only in the same section or paragraph)—
F175Defined Expression | Section |
|---|---|
administration | Sections 190(6A) and (6B) |
administrator | Sections 190(6A) and (6B) |
administrative receiver | Section 190(1) |
F315authorised central securities depository services | Section 155(3D) |
charge | Section 190(1) |
clearing member | Section 190(1) |
clearing member client contract | Section 155(1)(a) |
clearing member house contract | Section 155(1)(b) |
client | Section 190(1) |
client trade | Section 155(1)(c) |
cover for margin | Section 190(3) |
F315CSD regulation | Section 190(1) |
default fund contribution | Section 188(3A) |
default rules (and related expressions) | Section 188 |
designated non-member | Section 155(2) |
F381. . . | F381. . . |
EMIR Level 1 Regulation | Section 190(1) |
EMIR Level 2 Regulation | Section 190(1) |
the FCA | Section 190(1) |
F202indirect clearing services | Section 190(1) |
indirect client | Section 190(1) |
insolvency law (and similar expressions) | Sections 190(6) and (6B) |
interim trustee | Sections 190(1) and 190(7)(b) |
liquidator | Sections 190(6A) and (6B) |
margin | Section 190(3) |
market charge | Section 173 |
market contract | Section 155 |
F315member (in relation to a central securities depository) | Section 190(1) |
member of a clearing house | Section 190(1) |
F358MIFIR Level 2 Regulation | Section 190(1) |
notice | Section 190(5) |
overseas (in relation to investment exchanges F316, clearing houses and central securities depositories) | Section 190(1) |
party (in relation to a market contract) | Section 187 |
F232. . . | F232. . . |
the PRA | Section 190(1) |
qualifying collateral arrangement | Section 155A(1)(a) |
qualifying property transfers | Section 155A(1)(b) |
F315recognised body | Section 190(1) |
recognised central counterparty | Section 190(1) |
recognised clearing house | Section 190(1) |
F315recognised CSD | Section 190(1) |
recognised investment exchange | Section 190(1) |
relevant office-holder | Section 189 |
sequestration | Section 190(7)(a) |
set off (in relation to Scotland) | Section 190(1) |
settlement and related expressions (in relation to a market contract) | Section 190 (2) |
The Stock Exchange | Section 190(1) |
F382third country central counterparty | Section 190(1) |
F315third country CSD | Section 190(1) |
F202transfer | Section 189A |
F233interim trustee and trustee in the sequestration of an estate (in relation to Scotland) | section 190(1) and (7)(b) |
UK (in relation to investment exchanges) | Section 190(1) |
winding up | Sections 190(6A) and (6B) |
Pt. VII (ss. 154-191): functions of the Secretary of State transferred (7.6.1992) to the Treasury by S.I. 1992/1315, art. 2(1)(c) (with art. 6)
Pt. VII (ss. 154-191) applied (E.W.S.) (15.8.1995) by S.I. 1995/2049, reg.3; and applied (with modifications) (E.W.S.) (15.8.1995) by S.I. 1995/2049, regs.3,4,5,19, 26; and applied (with modifications) (15.7.1996) by S.I. 1996/1469, regs.3, 4, 5