Signing a Personal Guarantee

Discussion in 'Prop Firms' started by hprop, Mar 26, 2008.

  1. hprop


    I'm about to open an account with a pretty big futures clearer in Chicago, to trade on my own account.

    I'm doing the paperwork at the moment, and one of the things they've given me to sign is a Personal Guarantee which makes me assume any risk in case "anything" goes wrong.

    I'm doing a corporate account - is this normal and to be expected?
  2. Would you mind PM me the name of the big futures chicago firm? I am interested. As for the personal guarantee, it is better without it. if you sign it, you can later require they remove it (if you produce commissions, maybe they would accept the removal rather than losing you as a client).
  3. cold


    yeahh I am afraid they all find a way to slip that in

    in one way or another

    as long as wrong according to their definition is things like

    they make an error on executing or paperwork or transfers

    these are their responsibilities
  4. hprop


    I think I'll just have to go ahead and sign it, but it's kind of discomforting. I'll be doing arbitrage mainly, but it's thoughts like "what happens if only one side is filled and the exchange goes down in smokes" etc that I'm not very happy about.

    Anyway, thanks for your input.
  5. That’s standard boiler plate for any loan, lease or margin agreement. Also known as the “Kneecap” or “Broken thumb” clause when you employ the services of your local loan shark. If you don’t want any problems don’t trade on margin. Remember you are opening a corporate account. Liability extends to the corporation.

  6. jazzsax


    Not true. If he signs a personal guarantee, the personal guarantee is *NOT* corporate and is very common when opening corporate accounts that an individual assumes liability for any debts of the corporation incurred but not paid.

    If you're not sure, get legal advice, but that's the gist of them. And, they are enforcable, especially if you are a director or officer of the company and you signed documents specifically to get loans or advances on behalf of the company. (Make sure your company minutes or articles of incorporation include a provision allowing you to sign to authorize these sorts of things).

    These can be easily revoked simply by sending confirmation in writing. They may kill your account though...
  7. If you have all of your significant assets in a Lichtenstein Foundation then go ahead and sign it, but don't tell anyone about your nest egg.
  8. hprop


    Guys, answers are much appreciated. I think I'm capable of evaluating the legal implications (which is why I'm uncomfortable in the first place).

    But do anyone of you know if this is to be expected from a clearing house/big FCM? I was hoping they'd have risk systems in place which would just auto-liquidate positions if the margin requirements are breached, and then take it upon themselves to make sure that these risk systems actually work.
  9. During overnight moves and in very fast moving or illiquid markets risk systems won't always work. Years ago I had an Ameritrade account and was holding a position on margin overnight. The next morning the stock gapped down 70%. MY account equity was wiped out and my account went negative and Ameritrade came after me for the money I owed them for the negative account balance.
  10. hprop


    Yes, that's right. I'm only trading intraday with no overnights, but still it's sometimes hard to imagine what can happen. I'm signing it, and will then try to revoke it in about six months when they're accustomed to my risk profile and account activity.
    #10     Mar 27, 2008