How Your Assets Are Protected
Regulatory Controls for Your Protection
As a registered broker-dealer, National Financial Services LLC is subject to the rules and regulations of the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), and other exchanges of which National Financial Services LLC is a member, and the Municipal Securities Rulemaking Board (MSRB). These regulatory organizations each have certain rules and regulations that National Financial Services LLC must follow to safeguard your assets, including:
Keeping accurate records of your assets held at National Financial Services LLC
Maintaining net capital at required levels
In compliance with SEC rules, National Financial Services LLC has its financial information audited every year by an independent public accounting firm. Further, as a member of the NYSE and FINRA and registered with the SEC, National Financial Services LLC is subject to their regulatory oversight and examinations.
Further Safeguards
National Financial Services LLC is required by the SEC to file monthly and quarterly financial and operational reports (FOCUS reports) within 17 business days of the month’s end. The quarterly report contains financial statements, including:
Statement of financial condition
Income statement and statement of changes in stockholders’ equity
Regulatory schedules, including a computation of net capital, a reserve formula computation, and other key financial and operational data
As a broker-dealer, National Financial Services LLC cannot use your fully paid securities for its business. These securities must be held for your own exclusive benefit, and are subject to the instructions that we provide to National Financial Services LLC.
National Financial Services LLC must account for and inspect every physical security owned by an investor at least once every calendar quarter. Any differences must be recorded and corrected within specific time frames. Net customer cash balances not required for customer transactions must be maintained in a cash account segregated for the exclusive benefit of customers.
SECURITIES INVESTOR PROTECTION CORPORATION (SIPC)
Both National Financial Services LLC and our broker-dealer are members of the Securities Investor Protection Corporation (SIPC), which was created in 1970 to protect customers of member broker-dealer firms in case of broker-dealer liquidation. A nonprofit membership corporation, SIPC is funded by broker-dealers, and protects its membership by law. To cover assets such as yours, the SIPC fund is supported by:
$1 billion line of credit with a bank consortium
Borrowing power of up to $1 billion from the U.S. Treasury through the SEC
Because the Securities Investor Protection Act of 1970 affords special benefits to SIPC-covered firms such as National Financial Services LLC, our agreement with National Financial Services LLC provides your assets a high level of coverage.
Securities in accounts carried by National Financial Services LLC are protected in accordance with the SIPC up to $500,000 (including cash claims limited to $250,000).
For details, please visit www.sipc.org.
Within certain limits, SIPC coverage applies to both investor securities held by National Financial Services LLC and cash on deposit that will be used to purchase securities, or that has been generated from the sale of securities. This SIPC coverage protects your assets in the unlikely event that National Financial Services LLC should fail to meet its obligations, but this SIPC coverage is separate from the SIPC coverage that is available should our broker-dealer fail to meet its obligations. It also does not protect against a decline in the market value of your securities.
When analyzing your SIPC coverage, you should consider the following additional facts:
The maximum SIPC coverage for covered amounts is $500,000.
For claims filed on or after July 22, 2010, the $500,000 total amount of SIPC protection is inclusive of up to $250,000 protection for claims for cash, subject to periodic adjustments for in?ation in accordance with terms of the SIPC statute and approval by SIPC’s Board of Directors.
These limits are on a per-customer basis, as defined in the Securities Investor Protection Act.
Most types of securities held in a brokerage account at National Financial Services LLC are protected, including stocks, bonds, notes, debentures, certificates of deposit (CDs), and mutual funds.
“EXCESS OF SIPC” COVERAGE
In addition to SIPC protection, National Financial Services LLC provides for brokerage accounts additional “excess of SIPC” coverage from Lloyd’s of London, together with other insurers. (Fidelity’s “excess of SIPC” insurance is provided by Lloyd’s of London, together with Axis Specialty Europe Ltd. and Munich Reinsurance Co.)
The “excess of SIPC” coverage would only be used when SIPC coverage is exhausted. Like SIPC protection, “excess of SIPC” protection does not cover investment losses in customer accounts due to market fluctuation. It also does not cover other claims for losses incurred while broker-dealers remain in business. Total aggregate “excess of SIPC” coverage available through National Financial Services LLC’s “excess of SIPC” policy is $1 billion. Within National Financial Services LLC’s “excess of SIPC” coverage, there is no per account dollar limit on coverage of securities, but there is a per account limit of $1.9 million on coverage of cash. This is the maximum “excess of SIPC” protection currently available in the brokerage industry.
Lloyd’s of London currently has an A (Excellent) rating with “Stable Outlook” from ratings firm A.M. Best and an A+ (Strong) rating with “Stable Outlook” from Fitch Ratings and Standard & Poor’s. (As of November 2009 and subject to change. For ratings explanations, please go tohttp://www.lloyds.com/Lloyds/Investor-Relations/Ratings.)
ADDITIONAL INFORMATION
Consolidated Statement of Financial Condition
Under the Securities Exchange Act of 1934, on a semiannual basis, National Financial Services LLC is required to provide information regarding its financial standing. To view National Financial Services LLC’s current consolidated statement of financial condition, please visitwww.mybrokerageinfo.com.
Business Continuity
In the event of a business disruption, National Financial Services LLC has an extensive and sophisticated business continuity plan in place to safeguard your assets and protect vital account information. To view the National Financial Services LLC business continuity statement, please visit www.mybrokerageinfo.com.
National Financial Services LLC Privacy Policy
National Financial Services LLC and our broker-dealer are proud of their respective privacy and confidentiality practices. As the custodian and clearing firm for your brokerage account, National Financial Services LLC has crafted a privacy policy that describes its practices pertaining to the collection, use, disclosure, and safeguarding of your personal information. To view the detailed National Financial Services LLC policy, please visit www.mybrokerageinfo.com.
FOR MORE INFORMATION
To learn more about our relationship with National Financial Services LLC, please contact your investment representative.