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Segregated Accounts

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Money kept in Segregated Accounts

Segregated accounts are accounts in which the customer money is hold in the name of the customer in a separate account. The benefit for the customer of keeping the absolute ownership of the account instead of mixing his money with the money of other customers (like it is mixed in a pooled investment vehicle like a fund) is that his ownership will be clear in a case of bankruptcy of the asset manager, bank or the broker. Additional benefits are the total transparency as each cost, booking or buying price is shown in the account statements.

source: SAMT AG

Graph shows how account segregation works

segregated broker accounts

Customer Assets:

The SAMT broker is authorized and regulated by the Financial Conduct Authority (“FCA“) and provides client money and client asset services in accordance with FCA Client Assets regulations “CASS”.

SAMT AG

Client money is protected as follows:

Client money rules apply to all regulated firms that receive money from a client, or hold money for a client in the course of carrying out MiFID business and/or designated investment business.

Client money is entirely segregated from brokers own money. In the event of a failure of an authorised firm, clients’ monies held in the segregated accounts will be returned to the clients rather than being treated as a recoverable asset by general creditors. If there was a shortfall, the client may be eligible to claim for compensation from the Financial Services Compensation Scheme (“FSCS”).

Client money is ring-fenced in separate bank accounts which are held in trust on behalf of the clients. These accounts are distributed across a number of banks with investment grade ratings to avoid a concentration risk with any single institution. When the SAMT broker makes the selection and appointment of a bank to hold client money, it takes into account the expertise and market reputation of the bank, its financial standing and any legal requirements or market practices related to the holding of client money that could adversely affect clients' rights.

SAMT broker will allow client money to be held in a client transaction account by an exchange, a clearing house or an intermediate broker but only if the money is transferred to them for the purpose of a transaction or to meet a client’s obligation to provide collateral for a transaction.

Each day, SAMT broker performs a detailed reconciliation of client money held in client money bank accounts and client transaction accounts and its liabilities to its clients to ensure that client monies are properly segregated and sufficient to meet all liabilities in accordance with the FCA’s CASS rules. All monies credited to such bank accounts are held by the firm as trustee (or if relevant, as agent).

FCA regulations also require the broker to maintain a CASS Resolution Pack to ensure that in the unlikely event of the firm's liquidation, the Insolvency Practitioner is able to retrieve information with a view to returning client money and assets to the firm's clients on a timely basis.

Financial Services Compensation scheme

The main points relating to eligibility are:

  • FSCS pays compensation only to eligible claimants when an authorised firm is in default and will carry out an investigation to establish whether or not this is the case.
  • FSCS pays compensation only for financial loss and the limits for U.K. Investment firms are covered below.
  • The FSCS was set up mainly to assist private individuals, although smaller businesses are also covered.
  • Larger businesses are generally excluded.

Investments

FSCS provides protection if an authorised investment firm is unable to pay claims against it e.g. when an authorised investment firm goes out of business and cannot return assets to its clients. Assets classified as investments for authorised investment firms under the FSCS include stocks and shares, futures, options, cfds, other regulated instruments and money deposited by clients.

Compensation Limits

The actual level of compensation you receive will depend on the basis of your claim. The FSCS only pays compensation for financial loss. Compensation limits are per person per authorised firm. The current maximum levels of compensation for investments are 50,000 per person per firm (for claims against firms declared in default from 1 January 2010). Compensation levels are subject to change and for up to date details please refer to the FSCS website

The below information applies to customers who were or are continuing to trade all products.

Customer Assets:

Customer money is segregated in special bank or custody accounts, which are designated for the exclusive benefit of customers of the broker. This protection (the SEC term is “reserve” and the CFTC term is “segregation”) is a core principle of securities and commodities brokerage. By properly segregating the customer's assets, if no money or stock is borrowed and no futures positions are held by the customer, then the customer's assets are available to be returned to the customer in the event of a default by or bankruptcy of the broker.

Securities accounts with no borrowing of cash or securities

Securities customer money is protected as follows:

A portion is deposited at 14 large U.S. banks in special reserve accounts for the exclusive benefit of brokers customers. These deposits are distributed across a number of banks with investment-grade ratings so that we can avoid a concentration risk with any single institution. No single bank holds more than 5% of total customer funds held by the broker.

Commodities accounts

Commodities customer money is protected as follows:

A portion is pledged to futures clearing houses to support customer margin requirements on futures and options on futures positions or held in custody accounts identified as segregated for the benefit of the customers.

A portion is held at commodities clearing banks/brokers in accounts identified as segregated for the benefit of brokers customers to support customer margin requirements.

Cash in commodities accounts is protected in accordance with US commodities regulations. CFTC rules prohibit an FCM from commingling customer funds with its own money, securities or property. Customer funds must be separately accounted for and segregated as belonging to commodity or option customers. The titles of accounts in which customer funds are deposited must clearly indicate this and show that the funds are segregated as required by the Commodity Exchange Act (“CEA”) and CFTC Rules. Customer funds may not be obligated to anyone except to purchase, margin, guarantee, secure, transfer, adjust or settle trades, contracts or commodity option transactions of commodity or option customers. These requirements also extend to U.S. customers trading on foreign exchanges.

Account Protection

Customer securities accounts at the broker are protected by the Securities Investor Protection Corporation (“SIPC”) for a maximum coverage of $500,000 (with a cash sublimit of $250,000) and under the brokers excess SIPC policy with certain underwriters at Lloyd's of London for up to an additional $30 million (with a cash sublimit of $900,000) subject to an aggregate limit of $150 million. Futures, and options on futures are not covered. As with all securities firms, this coverage provides protection against failure of a broker-dealer, not against loss of market value of securities.

SIPC is a non-profit, membership corporation funded by broker-dealers that are members of SIPC. For more information about SIPC and answers to frequently asked questions (such as how SIPC works, what is protected, how to file a claim, etc.), please refer to the following websites:

Get further information at:

http://www.SIPC.org
http://www.finra.org/InvestorInformation/InvestorProtection/SIPCProtection/index.htm

What are segregated accounts?

Segregated accounts are accouts which are not hold in the name of the institution (for example the bank, broker or money manager) but in the name of the customer. Segregated account bring additional work for the wealth manager as each account has to be handled and traded separately.

Segregated accounts are typically used in high end money management relationships.

Fonds are pooled investments and the opposite of segregated accounts.

What all benefits they have?

First there is the very obvious benefit of segregagted accounts, that they are hold in the name of the customer and nobody else can access the money in the account. If for example the bank, broker or money manager goes bankrupcy the money in the segregated account (held on the customers name) is not part of the money of the bank (broker or wealth manager). The customer can expect that he gets his money back in the case of bankrupcy.

In additon there is even protection against fees (or at least transparency of fees) as every booking in visible in the segregated account. It is not possible to charge hidden cost into a segregated account as the account statement shows every booking.

This might be different for fonds, where the fond is a company and some operating or management cost are charged against the customer money without giving the ability to customers to check what exaclty has been charged.

In addition a segregated account provides better protection against fraud or bookkeeping errors. As the account is in the name of the customer nobody can access the money and it cannot be used against the will of the customer.

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