SiPC Information

Both Lombard Securities Incorporated (“Lombard”) and its New York Stock Exchange correspondent, Hilltop Securities, Inc. (“SWST”), are members of the Securities Investor Protection Corporation (SiPC) through which customer accounts are protected in the event of a firm’s insolvency up to $500,000, including a maximum of $250,000 for free cash balances. SiPC is not the same as, or a substitute for, FDIC deposit insurance, and it does not protect against declines in the market value of your securities. For additional information, including a brochure about SiPC coverage, please call 202.371.8300 or visit www.sipc.org.

Lombard’s correspondent has purchased an additional insurance policy through an internationally known underwriter to supplement SPIC protection. This additional protection becomes available to customers in the event that SPIC limits are exhausted.

Reading the booklet “How SiPC Protects You” is an essential first step in becoming acquainted with the protection of securities accounts provided to our customers. It can be read and copied on the website of the Securities Investor Protection Corporation at www.sipc.org. In addition, our correspondent, Hilltop Securities Inc., has purchased through underwriting syndicates at Lloyd’s of London additional security protection to cover the net equity of customers accounts up to an aggregate of $100 million.

Hilltop’s capital strength – approximately $200 million – also protects Lombard’s customers whose account clearing agent is Hilltop (this is noted near the bottom of your periodic statements). Historically, both firms have always maintained greater capital than required by any regulatory authority.

Key Provisions of Hilltop’s Protection Coverage

The following presents a simplified summary of the most important provisions of the additional protection SWST has purchased. It does not contain the legal documents that actually govern coverage. The full policy terms, conditions and limitations always govern. This summary does not alter the terms of the excess securities policy in any way and cannot be used to support a claim in the event of loss.

There are several important conditions to the excess securities protection. Coverage is provided in addition to pro-rata return by a Trustee and the $500,000 SiPC limit provided by the Securities Investor Protection Act of 1970, as amended. The policy covers only customer claims for loss of securities that would have been recoverable except for SiPC’s limit. When SiPC files application for a protective court decree in accordance with the Securities Investor Protection Act, the filing date shall be the date of valuation of securities. Trustee returns and SiPC and supplementary insurer protection does not apply to any decline in the market value of your securities. The policy is renewable annually on March 30.

Adequacy of Coverage

In the unlikely event of a liquidation process under the provisions of the Securities Investor Protection Act, all customers would share proportionately in any shortage in cash and securities belonging to customers. Here is a specific example: Hilltop Securities typically holds $19.5 billion of customer assets most are physically located at the Depository Trust Company, a central facility established to hold and deliver securities for brokerage firms and commercial banks.

For purpose of example, let’s assume a failure with a very large initial shortage of $500 million. Although we believe our internal controls and safeguards would prevent such a shortage from occurring, it would be 3% of the $19.5 billion SWST holds for customers. A SiPC trustee would, therefore, return from customer property on hand 97% of each customer’s account.

In addition, under SiPC* each customer would be entitled to replacement of any shortage up to $500,000 (including up to $250,000 in cash) and would share with other non customer creditors in any remaining firm assets. The example of a $500 million shortage is illustrated in the table below:

Customer Account Valued at Customer’s Pro-Rata ($) Share of Assets ($) Amount of SiPC Assistance ($) Customer’s Amount from the Policy ($) Customer’s Loss ($)
50,000 48,500 1,500 0 0
1,000,000 970,000 30,000 0 0
5,000,000 4,850,000 150,000 0 0
18,000,000 17,460,000 500,000 40,000 0
25,000,000 24,250,000 500,000 250,000 0
40,000,000 38,800,000 500,000 700,000 0

Expressed in general terms, federal law requires broker/dealers to:

  • Maintain accurate records of securities and monies they hold for each customer.
  • Promptly take possession and control of securities purchased and hold customer securities identified as such in approved locations.
  • Make weekly computations of customer money balances and cash representing any customer securities not actually in possession and to deposit any such balances in bank accounts identified as being for the benefit of customers.

The law permits customer cash balances to be used to finance fully collateralized margin loans. Both Hilltop Securities, Inc. and Lombard Securities Incorporated are subject to periodic reviews by regulatory organizations, including the New York Stock Exchange (in the case of Hilltop), the Financial Industry Regulatory Authority, and the Securities and Exchange Commission. Both SWST and Lombard make a diligent efforts to comply with all securities laws, including those designed to safeguard customer assets.

*See SiPC booklet for all definitions. For example, the securities Hilltop may hold in customer name without stock powers are returned separately without affecting the distribution shown in the table. All examples are assumed to be accounts with less than $250,000 in cash balances.

Our Relationship with Hilltop Securities (formerly Southwest Securities)

Every independent investment broker and financial advisor needs not only a “broker-dealer” but also a “clearing firm.”

The role of a broker-dealer, such as Lombard Securities, is primarily:

  • Opening, approving and monitoring accounts.
  • Providing administrative support for branches.
  • Responding to any questions or inquiries from brokers and clients.

The role of a custodian-clearing firm, such as Hilltop Securities (formerly Southwest Securities), is primarily:

  • Executing and settling of all securities’ transactions.
  • Preparing confirmations and statements.
  • Safekeeping, receipt and delivery of funds and securities.
  • Providing margin credit request and approval.
  • Providing a technology platform, including client’s portfolio reports.

As Lombard’s clearing partner, Hilltop Securities provides clearing and execution services as well as state-of-the-art back office technology. Hilltop has more than 35 years of experience providing services to more than two hundred “introducing broker-dealers,” such as Lombard Securities. Hilltop allows Lombard’s investment brokers direct access to its operational personnel and product experts as well as a dedicated relationship manager.

Thus, while Lombard Securities and Hilltop Securities work as partners to service accounts, each is independent of each other. Thanks to Lombard and Hilltop, Gary enjoys the freedom and flexibility to conduct business by focusing on which investments are the most suitable and appropriate for each client without regards to either sales quotas or proprietary products.