The High Court in London has held that clients of insolvent UK brokers are entitled to a claim based on the value of their open positions as at the date of entry into administration or liquidation, rather than based on the value actually realised when those positions are closed. The “hindsight” principle – that where assets are later actually valued, actual values should be used – is not applicable.
Under the client money and client asset rules contained in the CASS 7 and 7A sourcebooks of the UK Financial Services Authority (the “FSA”) Handbook (the “client money rules”), brokers are required to segregate money received from or held for their clients and will hold such funds pursuant to a statutory trust. In the event of the broker entering administration or liquidation, client money is segregated from the broker’s property and is distributed to clients on a pari passu basis (meaning “pro rata”).
The client money rules have been the subject of protracted litigation and judicial criticism in various cases due to their lack of clarity and even drafting errors. A number of issues regarding the client money rules were resolved by the UK Supreme Court in February 2012 in the litigation arising out of the Lehman insolvency, and have been discussed in a previous client publication.  The client money rules have also been amended in various ways and are currently subject to a consultation process for more wholesale amendment. 
On 31 October 2011, investment broker MF Global UK Limited became the first investment company to enter the special administration regime under the Investment Bank Special Administration Regulations 2011. It held client money as well as many open derivative positions for clients.