Client Protection

Discussions about brokerage firms for futures, stocks and other tradeable instruments.
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AFJ Garner
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Client Protection

Post by AFJ Garner » Mon Jan 23, 2006 2:37 pm

I currently have an account with Refco.........and may transfer it to Man Financial. What an absurdity - you need to open a different account and fill out all the forms again, even though Man owns the Refco futures division.

But my objection is with Man's Client Agreement. Every single clause is drafted for the protection of Man Financial. Not one single clause states that a client's assets will be segregated or even what the general statute law on segregation is. Not one single clause mentions any safeguards for the client. Fine, US securities law may well provide such protection but Man offers not a scrap of guidance on what such protection might be nor one scrap of comfort that they are complying and will continue to comply with any such laws.

Take a look at Clause 8 for instance:

"Within the limits of applicable law and regulations, you hereby authorise us to lend either to ourselves or to others any securities or other property held by us in your margin account together with all attendant rights of ownership, and to use all such property as collateral for our general loans. Any such property, together with all attendant rights of ownership, may be pledged, repledged, hypothecated or rehypothecated either separately or in common with other such property for any amounts due to us thereon or for a greater sum, and we shall have no obligation to retain a like amount of similar property in our possession and control."

So, what are "the limits of applicable law and regulations"?

Even if my account contains 98% US T Bills, prima facie Man seems to have the power to borrow them from me thus leaving me as an unsecured creditor of Man Financial.


I wonder what the "applicable laws and regulations "have to say about this?

How would you feel if you had been an unsecured creditor of one of the many bankrupt divisions of Refco?

RedRock
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Post by RedRock » Mon Jan 23, 2006 3:54 pm

AFJ,

Is Man dissolving Refco? Just curious why you would change unless its mandatory.

That is certainly an interesting tidbit you unearthed. I had always presumed that segregated funds meant just that. Out of the reach of the broker for any other purpose but your own business. This is troubling…

However, I don’t know of another retail broker that has the global clearing member depth of Man financial.

This link seems to touch on the subject somewhat. Seems the game has changed since I last looked. http://www.cftc.gov/foia/fedreg97/foi970807a.htm
Last edited by RedRock on Mon Jan 23, 2006 4:10 pm, edited 1 time in total.

AFJ Garner
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Post by AFJ Garner » Mon Jan 23, 2006 4:08 pm

Red Rock

I really do not know what on earth Clause 8 is supposed to mean. Maybe it is harmless but it does not sound it! And actually, thinking about it, what is a "margin account"? Maybe a margin account is only a sub account for money you actually put up as margin and the main bulk of your a/c is safe from these horrible sounding provisions, tucked away in the clearing members client a/c at the bank. I do not know. I guess I will have to scour the various regulatory websites.

I am changing IBs. Believe it or not if your old IB deals with the old Refco division but your new one deals with Man Financial, they won't swap your account over without opening an entirely new a/c at Man. That is the only reason I am doing this.

In a past life I was a commercial lawyer and practised for a few years with one of the big banking law firms in London. I have been too lax about account opening documentation in the past and intend to use my background to at least attempt to see what it is I'm letting myself in for on this one.

But of course small fry "retail scum" as Sluggo would classify himself and most of the rest of us have no real power to alter any standard documentation - it is take it or leave it.

Bemac
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Post by Bemac » Mon Jan 23, 2006 6:53 pm

AFJ,

I too have a small account still with Refco {Canada}. i must admit I have been extremely lax in keeping up with the recent ongoings, I gave up trying to follow it after the first couple of weeks and figured I'm either srew d or I'll get it back. Wait till the dust settles.

I seldom open the email account I gave them as it usually has ~ 100 spam/day. Not sure how that email addy got so popular.

My question is;
Are you being requested to 'Move your Funds' or IB?
Or are you doing this by personal preferance?

btw. Try opening a new acct in North America.
Pat iot Act wants your DNA just about.

B

goldfish
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Post by goldfish » Mon Jan 23, 2006 7:24 pm

AFJ,

i think the reason for "Clause 8" is not to protect Man, but rather to screw the customer, so to speak, and to allow Man to lend customer's securities held in "street name" with out paying any borrowing fees to the customer or entering into repo agreements with the customer. the customer is, of course, free to take the physical or transfer out anytime - in this case the broker will "borrow" from another customer. i guess the "Within the limits of applicable law and regulations" line refers to how much funds the broker needs to hold in reserve (in relation to customers funds). of course, if that reserve is not met and Man lends all securities, uncollaterallised, to a Big Hedge Fund and the Fund defaults then Man is in trouble and so is the customer.....

ps a link about holding Physical/"Street Name"
http://www.sec.gov/investor/pubs/holdsec.htm

freeman
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Refco

Post by freeman » Tue Feb 28, 2006 4:35 pm

Mate join the club,im screwed to from them,all we can do is learn from it,(never use a bucket shop again),i have a family memeber who is a lawyer in switerland and they have ever corner covered in there clauses,(so to speak).can only wait at this stage. :cry:

TrendMonkey
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Post by TrendMonkey » Tue Feb 28, 2006 8:12 pm

Bemac, I know Refco (and IB) are both IDA/CIPF members in Canada so I think that might protect you (us). I am not certain though, it's possible the IDA only covers the securities side of their business. It seems Refco in particular has a huge dividing line between stocks and futures.

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