Part XII of the Bankruptcy and Insolvency Act (BIA)

Part XII of the Bankruptcy and Insolvency Act (BIA) came into force in 1997.  It prescribes a procedural framework for the administration of securities firm bankruptcies that is simpler, and more fair, than the previous process of dealing with trust claims and tracing assets to individual customers.

Customers of a bankrupt securities firm obtain a priority over the claims of other creditors through the customer pool fund.  The customer pool fund includes all securities owned by a bankrupt securities firm, and all securities and cash held by or for the account of both the securities firm and every customer of the securities firm, other than customer name securities. The customer pool fund is allocated first to cover the costs of administering the bankrupt estate and then to cover customer claims in proportion to each customers net equity position.

Customer name securities are securities that are held by or on behalf of a securities firm for the account of a customer and that are also registered in the name of the customer or are in the process of being so registered. Customer name securities are not negotiable by the securities firm without a power of attorney and  must be returned to the customer in whose name they are registered. They are excluded from the customer pool fund.