However, CESR recognizes that from a practical point of view, it would be burdensome for branches of investment firms to be obliged to report their transactions to two competent authorities. Therefore, all transactions executed by the branch, could be reported to the Cyprus Securities and Exchange Commission if the investment firm elects to do so. In this case, transaction reports should follow the rules of the Cyprus Securities and Exchange Commission. However, where an investment firm chooses to use two reporting channels, as stated in the previous paragraph, this choice will not be challenged by the Cyprus Securities and Exchange Commission.
According to section 18(2)(j) of Law 144(I)/2007, when holding funds belonging to clients, a CIF must make adequate arrangements to safeguard the clients’ rights and, except in the case of credit institutions, prevent the use of client funds for its own account.
The whole issue revolves around the question as to whether the margin should be considered clients’ money. As long as the margin is in the clients’ account, in effect, the parties agree that it is clients’ money.
However, the CIF could have the following arrangement with the client, in order to be able to use the margin:
(a) The margin could be transferred by the client to the CIF outright, in other words, the margin will leave the clients’ account and will be transferred to the account of the CIF to be kept by the latter as security and be returned by the CIF to the client on the completion of the trades.
(b) In this case the margin will be considered as a debt due by the CIF to the client and not as clients’ money and, therefore, it could be used by the CIF subject to the repayment obligation.
In other words, at the end of the day, the matter is one of an agreement between the parties. Such agreement should always be clearly and explicitly documented.