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!