Additional Customer Protection

To supplement its SIPC coverage, NFS has arranged for additional protection for cash and covered securities from Lloyd’s of London, which currently has an A (Excellent) rating from ratings firm A.M. Best, an A+ (Strong) rating with “Stable Outlook” from Standard & Poor’s, and a AA- (Very Strong) rating from Fitch.4 This additional protection covers up to an aggregate loss limit of $1 billion for all customer claims, of which $1.9 million may cover cash awaiting reinvestment at the individual account level. This is the highest level of excess SIPC coverage currently available. For more information on Lloyd’s of London, please go to www.lloyds.com. Neither coverage protects against a decline in the market value of securities.

In addition to the above insurance coverage, NFS has other safeguards in place that are designed to protect its customers’ assets. For example, NFS is required by the SEC to file monthly and quarterly financial and operation reports (FOCUS reports) within 14 business days of the month’s end. These quarterly reports contain financial statements, including:

  • Statement of financial condition
  • Income statement and statement of changes in the stockholder’s equity
  • Regulatory schedules, including a computation of net capital, a reserve formula computation, and other key financial and operational data

Moreover, as stated above, NFS cannot use fully paid (non-margin account) customer securities for its own business. These securities must be held for the customer’s exclusive benefit and are subject to the instructions Commonwealth, as the introducing broker/dealer, provides to NFS.

1. The conclusions stated in this memo equally apply to Commonwealth’s relationship with Pershing LLC, which provides clearing services on a minimal number of customer accounts.
2. SIPC Annual Report, 2013
3. SIPC Track Record, www.sipc.org/who/sipctrackrecord.cfm, as of 2014
4. As of September, 2014. Subject to change.