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Robert W Cummings wrote:
>
> At 05:14 PM 6/19/98 GMT, JMB wrote:
>
> >Actually, my concern about this situation would be a hypothetical
> >question regarding IB's in general for those who may know?:
>
> >1) IF an IB were to "go belly up", what would happen to their
> >clients' accounts? Both short & long term??
>
> >2) Could those clients be harmed financially??
>
> answer to #1
> Most (IB) Introducing Brokers are not guaranteed but are instead guaranteed
> by the (FCM) Futures Commission Merchant. If a broker is guaranteeing
> himself he has to provide quarterly financial reports to the (NFA) National
> Futures Association. Fcm's have to give quarterly financial reports to the
> NFA. The Exchanges will only except IB'S that have Fcm backing.
>
> answer#2
>
> Exchanges are the first line of defense against clients losing money only
> because they will refuse business from a non reportable Fcm. Fcm's that go
> below financial reporting standards
> will be refused a license if not corrected obliviously.
>
> That is it you don't have SPIC Insurance and you could in fact lose all
> your money
> with a busted Fcm with no help from Uncle Sam. Most of the time other Fcm's
> take over before this happens. To my knowledge no client has ever lost a
> penny because of a busted Fcm have heard of money delays but can't even
> verify that.
>
> Robert
I had an account briefly with a broker who was an IB to LFG. He was a
guy coming back out of retirement. Altho in all the rest of my 2 years
of trading i have called the shots, this was an experiment. He was a
full service broker and asked to handle all the details except the
overall approval to get into a position. After losing 50% on one
position by holding onto it, I complained to LFG that he handled the
position in a way that was completely inconsistent with the risk control
he had preached to me prior to my opening the account. (Some of the
fault was mine in waiting 2 days in asking,hey what are you doing.) The
particular details are not the point, what happened next is. We more
or less agreed about $2000 of a $2800 loss should not have occurred.
He then indicated he had no money, and very little commission
income. He drove a very old car with holes in the floor, etc. He
indicated i could complain to LFG about his apparent lack of funds but
that i would not get money, only perhaps put him out of business. (He
then tried to get me to reopen the account with $500 so he could get the
money back for me that way.) I debated for about a week because i
didn't want to make it hard for an old man to get money; I sympathized
with him because my parents are very poor and because of severely
screwed up finances of my own, i can only help them a little. But i
decided that his operating apparently without sufficient captial was
wrong, and that a similar experience could happen to another customer.
So i wrote to LFG. The $2000 was never resolved, but i was told shortly
thereafter by the compliance officer at LFG that he "thought [broker]
was out of business". And soon thereafter i saw a note in Consensus
saying his newsletter was no longer being published due to illness. In
some ways i felt bad but i felt i had to do it to keep him from harming
others. What if someone said buy one SB at the market and he enetered
the order as one SP?? He wouldn't have the funds to make it good.
The point of all this is: there are times apparently that
self-guarenteeing brokers are either lying on their quarterly reports or
the FCM's are not enforcing minimum requirements. (Unless i got snowed
by the story that no money was available.)
I wonder if there isn't an advantage then to opening an account with a
larger firm, the fcm itself, or at least a fcm-guarenteed IB.
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