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The firm would get all the money they could from client first. Go after his
assets home etc then they would go after all of my assets. Then if they
still were short the money most if not all firms have debt insurance so
usually the stock holder would not be effected. Under crash conditions
everybody looses generally, the client, broker, the firm and it's share
holders except the fortunate few that are short. I still believe there are
literally hundreds of hedge funds still in major trouble right now. One of
the greatest threats facing the Feds and why there so concerned with the
market going to high to fast. Just a hunch but Greenspan starts jaw boning
the high interest rate deal every time the market gets a little extended. A
large and fast correction will trigger more bankruptcies in the hedge fund
sector and have a domino effect driving the market into who knows a world
wide crash. Negative thinking huh.......LOL
Robert
At 01:53 AM 7/18/1999 -0700, Alexander Levitin wrote:
>Dear Robert:
>
>I am not a broker and I may not understand everything. But reading your
>message I asked myself, what would happened if your client (an excellent
>person) buys a large block of "volatile" stock and the very next tick is a
>hold in trading and when the trading resumes the stock is 1/16? No question
>that your client is a honorable person, but what if he is not rich enough
>to cover losses? Then you are next in line. But what if you are not rich
>enough too? (Nothing personal is intended).
>
>Charles Schwab lost a few hundred millions dollars in 1987 because one well
>known client refuse to honor his stock purchases. Schwab paid every penny
>out of firm pocket (meaning out of my pocket if I am Schwab shareholder). I
>am sure there were good intentions of every party. But there are
>circumstances we can not control and that why there are time proven rules
>and procedures. Because in the final count it is I (shareholder) that pay
>the price.
>
>Yours, Alex.
>
>P.S. I do not have or ever had shares in Charles Schwab (I wish I had).
>
>At 10:19 PM 7/17/99 -0500, Robert W Cummings wrote:
>>
>>Because I'm a broker and know my clients goals and there risk tolerance to
>>achieve those goals. This is a personal relationship that is formed over a
>>period of time. I have clients that take responsibility for their own
>>actions and I have total trust in them. If for example they were to call me
>>up and make a large purchase of a volatile stock and had no money in their
>>account I would buy the stock knowing they would deposit the funds later.
>>Keep in mind if they didn't I would have to sell out the position and
>>absorb the loss if any personally. If it turned out to be a profit I
>>couldn't keep it. Knowing this I wouldn't do the same for other clients I
>>have although they may have a larger net worth and maybe more experience.
>>This type relationship (know your customer rule)couldn't exist if I had a
>>high number of continuing new accounts being opened minus personal contact.
>>Your a lawyer you guys write these new account documents requirements for
>>firms these customers sign to open and trade their accounts. If by chance a
>>customer falls short on net worth or experience then additional forms are
>>needed to open the account. All a firm has is that information given them
>>and a history of that individual previous stock accounts but only if it's
>>bad history. A firm doesn't care if your telling the truth about yourself
>>only that you said it about yourself and it's in writing. Like I said your
>>a lawyer and lawyers write these new account opening documents to protect
>>the firm from liability. New account forms are not written to protect the
>>customer. If your a level 1 option guy and desire to be a level 2 guy
>>before you place your first trade no problem. Just sign an additional form
>>saying you lack experience but still want to do this, its done. The firm
>>has your money prior to the trade controls the margin requirements and has
>>all the needed documentation so their butts are covered.
>>
>>Robert
>
>
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