Likely happening at most brokers. (Suggest checking with yours) In the crash of '87, Refco's policy was, "we'd rather customers don't trade at all for a while, but if you insist the margin requirement is $50,000." FWIW....
%% Better safe than sorry. In other words, the less margin/downpayment= the greater the forclosure rate+ same for stocks.................................................
I wired my money out as fast as I could as the crisis was unfolding. After about a week, I called and asked, "how are you guys making out"? They said they were looking at ~$300K customer debit, but that wasn't much of a problem as they had $20MM in excess capital". (An FCM's "required capital" is the amount the revenooers determine is appropriate for the amount of customer money the FCM has on deposit. "Excess Capital" is the extra amount of money the FCM has on deposit to cover any/all customer debits. If you're looking for a "safe" FCM for your money, you'll want to consider the ratio of "Excess capital/required capital" the firm has on deposit as a measure of "cushion against adversity" relative to the size of their customer base. ) And of course they were going to take legal action about the $300K in debits. (For those who don't know... futures are settled nightly. If the customer has blown out his account and then some, the FCM has to "make up the difference" and settle in the market with his own money as necessary. Any shortfalls from customers who wiped out are attempted to be recovered by the broker through legal action, if necessary.)
I just checked it out + sounds right- anybody correct this if its wrong. Refco[founded by Ray E F] had been cited >100 times from founding, by regulators , NFA+ CFTC[WSJ info]……………………………………………………………………………..
That's not market risk. And with $20 MM in excess capital... customers were not at risk for any other than fraud by the broker... same as now with any/all brokers. We traders are all supposed to be "protected" by regulatory requirements of "segregation of funds"... and rely upon our brokers to not violate. But if one's broker commits fraud, anything is possible.
%% OK; that's [RefCo] fake bond risk, NYSE stock market halt risk, CEO prison risk, Wells notice risk. Glad to hear you got out; sounds like you owned none of their bonds/stock, from your post...………………………………………………...
Regardless of whatever risks Refco took with house money, wasn't supposed to affect customers... as their money was to be segregated. Not sure everyone understands... but the CFTC regs allowed brokers to use "free balances(?)"... not sure about the term... but it meant the customer balances which were "free" as not being invested in T-bills. Those "free balances" could be invested as the broker chose... could receive income from it for themselves. Well, the brokers went overboard on that.. even with leverage. It all got wonky and got them in trouble. Seems the revenooers learned their lesson and don't allow such shenanigans these days.