segregation of funds

'Client funds are held in client segregated trust accounts with the National Australia Bank or HSBC, both of which are AA Rated banks.'...does this imply a government guarantee on deposits in the event of a company collapse?...or simply just ensures that no trading is done by the broker with client deposits?...if it is the latter is there a way to confirm rather then to just believe statement?

the above was sent to pepperstone client services, awaiting reply...but if anyone here can shed some light the better?

There is no deposit guarantee by the government just by keeping the funds segregated.

What they mean is, instead of just deposit becoming a liability on their balance sheet and the funds becoming extra working capital at the company's disposal (so if the company runs red ink they just dip into client funds on the books to pay their bills... or use client funds for other purposes.) They keep all client deposits separate in a specific account meant only to hold client funds and not to be used for anything else aside from covering off the liability of your deposit on their balance sheet.

In theory, this should make them safe from the company making bad choices with the extra cash... and in some regulated countries, creditors can't put a lean on client funds marked as such in a segregated account should the company go insolvent...

HOWEVER, as with the case of MF Global, there's some things the company usually reserves the right to do with said funds in order to make a return on holding them OR in order to account for collateral the clients put up in an asset they buy/sell (ie, you buy a crap tonne of bonds, it's your funds being used to buy them, so they can't still be sitting in the segregated account now can they? Or, you put up a margin amount to buy something else, the funds need to be at the disposal of the company to secure the position, so they too aren't really in the segregated account either...)

All that aside, I'd much rather work with a broker that takes that extra step instead of considering the funds as part of their working capital or assets to be used internally.


As for government protection in general, go with a broker that provides protection on investment accounts form your local government sponsored investment insurance program. They aren't hard to find. Some brokers in the US provide this and I personally use Oanda Canada where my entire account is protected up to $1 million in case Oanda goes out of business through CIPF thanks to me being a Canadian citizen. Do some research here on what your government has to offer and which brokers are tapping into such protection...This alone is a great reason to go with a locally regulated broker as they often tie into local government investment programs and account types.

Jack is right, segregated means nothing more than funds held separate to company money.

Since banks in Australia don't offer the same guarantees for broker clients as those offshore, there is little you can do apart from chose as a reputable firm with good corporate governance. Pepperstone don't have their own AFSL, I think that says enough about the company.

thanks alot for responses guys....pepperstone c/s sent me a link to their legal docs-nothing new....looking at some insights from aussie lawyers' about the corporations act which requires the segregation of accts in australia, this definitely isn't a full proof safety net for deposited funds, they can still dip into the pool to 'meet obligations whether on behalf of clients or third parties,' amongst other things....will put funds across multiple brokers-can't trust anyone fully.

From a 'security of funds' pov only what would be the benefit of futures over spot forex??...obviously they would be exchange traded which would mitigate transaction risk but is regulation on the broker a lot more stringent for instance?

gusbus who do u trade with(if you want to share)?

Hello Friends !!

Yesterday I chat with LMAX representative, LMAX is ready to give details of segregated clients trust account to its every client.

Further I asked about the protection on clients deposits in the event of a company collapse & so they replied me this !!


Please see attachment





Kindly note that I am not affiliated to LMAX or any other brokerage firm

Hi ms1,

I'd rather not say who i use. i'd prefer to remain broker neutral and only provide feedback based on my experience with a company.

if you ask about a specific broker and ive had an account with them i'd be happy to provide feedback.

Just to add;

The Gov't guarantee referred to above relates to the bank going broke, not a third party (broker) conducting an account with your money. Is presently for account balances up to $250,000-.

Segregation does not mean your funds are separate from mine, they are lumped together and with yours, likely to be well over $250,000!

There was a case in the UK a few years ago where the Administrator was asking for claims (substantiated) because the broker's account keeping of segregated accounts was that bad they could not tell how much each client was entitled to.

Normally the client funds would be maintained with reputed banks and any change in the client's account equity would be adjusted with a matching withdrawal/payin into the segregated account - this so that client funds are not used for proprietary trading. Segregation by itself does not guarantee any payment by the authorities in case the broker fails, unless the broker is registered with designated authorities which also cover part/all of the client funds.

Please note that the MF Global mess happened in spite of stringent rules in the US regarding segregation of client funds - so take nothing for granted.

ASIC is very tough on the use of client funds, not just on segregation and in the wake of MF Global they are getting even tougher.

By doing what?

Quite a lot judging by the notices that have been sent out to Aussie brokers recently. I can't elaborate but it's enough to imagine a few lawyers will get some extra pay this month