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Account segregation, also known as "custody segregation," refers to the practice of keeping client assets separate from the assets of the financial institution or broker that holds them. The purpose of account segregation is to provide protection for the client's assets in the event that the financial institution or broker becomes insolvent or experiences financial difficulties.

In the traditional account segregation model, the financial institution or broker acts as a custodian, holding the client's assets in a separate account and maintaining records of the client's transactions. 

• The client's assets are kept separate from the assets of the institution or broker and are not commingled with other client assets. 

• The institution or broker is responsible for safeguarding the client's assets and ensuring that they are available to the client when needed.

Another important aspect of account segregation is the segregation of the client's assets and the firm's assets. 

• This means that the financial institution or broker is prohibited from using the client's assets for its own purposes, such as to cover operating expenses, to meet margin requirements, or to meet other financial obligations.

The segregation of client assets is a requirement for all regulated financial institutions and investment firms, and is part of the regulatory framework established to protect investors. 

• Regulators such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) in the U.S. closely supervise the account segregation practices of firms under their jurisdiction and enforce compliance through regular audits.

It's important to note that account segregation is not a guarantee of protection for client assets, as it does not eliminate the risk of fraud or mismanagement. However, it is an important safeguard that helps to minimize the risk of loss of client assets in the event of financial difficulties at the institution or broker. Clients should also conduct their own due diligence and research on the institution or broker they are considering to invest with, and make sure they understand the segregation of assets and the safety measures the firm has in place to protect the client's assets.