Freemont Management SA accounts holding our clients' securities are insured by the Securities Investor Protection Corporation ("SIPC") for up to $500,000 (of which no more than $250,000 can be paid in compensation for cash positions) and by Freemont Management SA in cooperation with Lloyd's of London insurance firm for up to $30 million (of which no more than $900,000 can be allocated to cash positions). The aggregate amount of insurance payments may not exceed 150 million U.S. dollars. Futures and options on futures are not eligible for insurance benefits. As with all securities firms, this insurance coverage protects investors in the event of a broker-dealer bankruptcy, not a drop in the market value of securities.
To distinguish between accounts with similar owner names, Freemont Management SA combines accounts of the same type (e.g., John and Jane Smith and Jane and John Smith), but keeps different types of accounts separately (e.g., Individual/John Smith and IPS/John Smith).
The SIPC is a membership corporation funded by participating broker-dealers.
Investor protection at Freemont Management SA and industry standards
Freemont Management SA takes a preventive approach to client security. Freemont Management SA daily calculates the amount of funds and securities owed to the client and records them along with a large reserve in the client's name. Freemont Management SA was the first broker-dealer approved by FINRA to calculate the daily mandatory reserve (per Rule 15c3-3), while the industry standard remains weekly or monthly calculation.Freemont Management SA's enhanced client protection system reduces the risk of incomplete compensation in the event of firm liquidation. Almost all other broker-dealers calculate amounts due to clients on a weekly or monthly basis. With this approach, funds transferred by clients in the interim period are at risk, as these firms protect only the capital available in the client's account at the time of the last settlement. Freemont Management SA, on the other hand, calculates and sets aside funds owed to clients each business day. In the event the firm closes, which is highly unlikely, the trustees can easily determine our indebtedness to all clients. The trustees of the other broker-dealers would have to recreate last week's transactions, which, based on the Lehman bankruptcy example, significantly slows the refund.
Freemont Management SA applies real-time risk margin requirements to client accounts, whereas most industry uses risk margin at the close of the trading day. If it turns out that the client does not have enough assets to cover the risk of his open positions, Freemont Management SA usually performs liquidation of positions in real time to restore the account's compliance with margin requirements. Other broker-dealers often allow their clients to be exposed to such risk for several days.Freemont Management SA's real-time margin requirements and protective liquidations significantly reduce the threat of client losses associated with the trading activity of other traders working through us, as well as the threat that these losses pose to Freemont Management SA. The practice of other broker-dealers to calculate risk at the end of the day increases the likelihood that volatile market conditions will hit their clients' assets. Firms that do not require immediate liquidation of positions and allow deferred deposit of necessary funds expose their clients to mutual credit risk.
Another strong advantage of doing business through Freemont Management SA is that the company has no proprietary inventory. Freemont Management SA acts solely as an assistant in carrying out client trading and does not make its own bets regarding the direction of the market. Two of the most famous brokerage bankruptcies of the last ten years (Lehman Brothers and MF Global) were caused by the risk associated with the private assets of these firms.Since Freemont Management SA does not trade independently, the risk of collapse of the company and the resulting red tape with client funds is much lower than other broker-dealers with proprietary positions. In addition, users of Freemont Management SA do not have to worry about the broker using them to play the market.
All broker-dealers are allowed to lend clients' securities (to "re-pledge" them) if the client takes a margin loan (a loan against the securities). When Freemont Management SA pledges a client's securities, it creates a daily cash reserve of 103% of the market value of those securities. Most other broker-dealers do this only once a week.By setting aside client funds each day, Freemont Management SA ensures that there is segregated capital in excess of the market value of the pledged shares in case of a need for reimbursement. In the situation of other broker-dealers that settle weekly, client funds and assets are exposed to additional risk of loss because they are not protected during the week.
Unlike other brokers, Freemont Management SA segregates money every 24 hours to cover the value of those client-owned securities that are temporarily outside the proper control location 1. This is a common industry phenomenon known as a "segregation deficit." Other brokers may allow such deficits to exist for several days before taking action.Freemont Management SA reduces client risk by ensuring that the market value of all securities outside of the proper control location is deposited daily in cash. This provides Freemont Management SA traders with greater certainty that all their assets are correctly segregated. Many other brokers will allow the deficit to exist for a few days before taking additional steps to protect their clients.
Finally, Freemont Management SA does not belong to a banking structure, which cannot be said of most broker-dealers with comparable capital. This gives Freemont Management SA a more stable platform in case of a major crisis.Broker-dealers affiliated with banks are subject to in-depth oversight by banking regulators, which leads to additional uncertainty about who will own the rights to their assets if the firm goes bankrupt. Since Freemont Management SA is not a bank, the return of clients' money and securities will happen much faster. Moreover, in the event of an economic crisis, the financial resources of Freemont Management SA will be used solely to ensure the smooth operation of the firm. Broker-dealers belonging to banks depend on the banks' capital and are usually subsidiaries of the parent banking company. Unlike Freemont Management SA they are not autonomous self-sustaining structures, which means an additional risk for their clients. In an economic crisis, such broker-dealers will have to fight their banks for capital and liquidity. This could result in funds being diverted from the broker-dealer to an affiliated bank to the detriment of clients. A historical example of this is Lehman Brothers and Bear Stearns, who began siphoning funds from broker-dealers they owned in an attempt to save their banks, which were the original cause of their financial problems. In the end, both businesses filed for bankruptcy. Thereafter, their clients faced significant delays in accessing assets and transferring them to a functioning broker-dealer. And in the midst of the financial crisis, people withdrew their money and assets from broker-dealers affiliated with banks and deposited them with Freemont Management SA.