Title Transfer Collateral Arrangements

Question 1

Title transfer collateral arrange

What is a TTCA?

Answer 1

1. A Title Transfer Collateral Arrangement (TTCA) allows derivatives firms to take ownership of client margin (collateral used for margined transactions like CFDs and spread betting).
2. Instead of treating margin as client money (which must be segregated), the firm can use it as its own working capital.

Question 2

What is the risk of TTCA in the event of a firm’s insolvency?

Answer 2

1. If a firm using TTCAs goes bankrupt, the client’s margin is not protected as client money.

2 Instead, the client will have to claim it back as an unsecured creditor (like someone owed money without collateral).

3. If the firm has no remaining assets, the client may not get their money back at all.

Question 3

What are the rules for TTCA’s under the FCA client asset rules and MiFID II?

Answer 3

Regulatory Restrictions (MiFID II & FCA Rules):

1. Retail clients: TTCAs cannot be used (banned) to secure or cover any obligations (present or future).
2. Non-retail clients: Firms can use TTCAs only if they:
   A. Disclose the risks and how TTCAs affect client money/assets. (E.g. If we go bankrupt, you might not get your money back)
   B. Assess if a TTCA is appropriate for the client.

Question 4

How should firms determine appropriateness of using TTCA for non-retail clients?

Answer 4

Firms must consider:

A. Whether there is a real need to use a TTCA based on the client’s debts or obligations to the firm.

B. Whether the amount of money/assets under the TTCA is much larger than what the client actually owes the firm.

Question 5

TTCA example

This is only for understanding purposes

Answer 5

Example to Illustrate a TTCA:

Imagine a trader, John, opens a CFD trading account with Firm X and deposits £10,000 as margin.

A. If Firm X does NOT use a TTCA → John’s £10,000 stays in a separate, protected client money account.

B. If Firm X uses a TTCA → Firm X owns John’s £10,000 and can use it for its own business.

C. If Firm X goes bankrupt, John might not get his money back.

D. For retail clients, this is not allowed under FCA rules.

E. But, for non-retail clients, firms can use TTCAs only if they explain the risks and ensure it’s appropriate.