Is your securities account held at an “Introducing Broker Dealer?”
If it is, there are a few things you should know about your investment.
In the securities industry, “introducing broker dealers” and
“introducing firms” are securities broker-dealers that do
not "clear" transactions—this means they do not handle
funds for customers, and do not clear transactions that are entered by
clients at the firm. Instead, the transactions are cleared by an unrelated
securities broker dealer, called a “clearing firm.”
Introducing Firms & Clearing Firms
Clearing firms are typically much larger than introducing firms, and have
the financial capital required to maintain positions, carry accounts,
sustain infrastructure, send out monthly statements, handle funds, and
keep regulatory capital on-hand (net capital,
Rule 15c3-1).
Because introducing firms do not always have the financial wherewithal
to clear their own transactions, they often farm out these functions to
larger clearing firms. This is why account statements from introducing
firms may reference other firms apart from the one you entered a transaction
with. If you suffer losses on an investment, recovering losses from an
introducing broker dealer is highly problematic.
The Big Issue with Introducing Firms
Essentially, introducing firms are sales firms. They do the marketing,
and the brokers have what is really the most valuable asset of any securities
or financial investment organization—the relationships with the
clients. But while client relationships are the lifeblood of any investment
firm, the monetary assets of an introducing firm are limited, and this
is cause for client concern. Why? Because
if a dispute develops between you and the introducing firm, the firm has
a very limited ability to compensate you.
If you’re facing trouble with a broker-dealer firm, our investment
fraud lawyers may help you secure the best possible resolution.
Call the Baldwin Mader Law Group!