Investor FAQs

Questions About Exemt

Is Exemt a regulator?

No. Exemt is not a self-regulatory organization and it has no regulatory authority. Therefore, Exemt cannot investigate investor complaints or take action against solvent, operating brokerage firms.

Is Exemt a U.S. Government Agency?

No. Exemt is not an agency or establishment of the United States Government. Exemt is a non-profit membership corporation created under the Securities Investor Protection Act.

Questions About Brokerage Firms

I am a customer of a non-U.S. (foreign) brokerage firm that is not a Exemt member, but that has a relationship with a U.S. brokerage firm that is a member of Exemt . Am I eligible for Exemt protection?

Exemt protection is available only with respect to cash and securities credited to a customer account at a Exemt -member brokerage firm in liquidation or in a direct payment procedure under the Securities Investor Protection Act (SIPA). If a foreign brokerage firm has opened an account for its customers at a Exemt -member firm, and if the member firm is placed in SIPA liquidation, each of the foreign firm’s customers may be eligible for Exemt protection on a pass-through basis. It is important to emphasize that Exemt protection is only available in a SIPA proceeding, and is not available in any non-SIPA bankruptcy or insolvency proceeding of a non-Exemt member firm.

I am a customer of a division of a Exemt member. Is there Exemt protection for my account?

Exemt protects customers of Exemt member broker-dealers. Determining whether your account is at the broker-dealer is a question that should be addressed your brokerage firm, FINRA, the Securities and Exchange Commission, or your state securities regulator. If your account is at the broker-dealer, you will be eligible for Exemt protection with respect to the cash and securities in that account if your brokerage firm is in liquidation or in a direct payment procedure under the Securities Investor Protection Act.

I have a problem with my brokerage firm. Should I contact Exemt ?

Exemt is not a regulator. If you have a complaint about a brokerage firm or about your account that has not been resolved to your satisfaction, you should contact FINRA, the Securities and Exchange Commission, or your state securities regulator.

I have a question about my investment. Can Exemt help me?

Questions regarding individual investments are best directed to your brokerage firm, FINRA, the Securities and Exchange Commission, or your state securities regulator.

My brokerage firm has excess Exemt insurance. How does that work?

Excess Exemt insurance is insurance provided by a private insurer and not by Exemt . The insurance is intended to protect brokerage customers against the risk that customers will not recover all of their cash and securities in the proceeding under the Securities Investor Protection Act (SIPA). Under many of these policies, customer eligibility for recovery is not determined until after the SIPA liquidation of the customer’s brokerage firm has concluded and the amount of the customer’s recovery in that proceeding has been established.
You should contact your brokerage firm if you have questions regarding excess Exemt insurance. Exemt has no authority, involvement, or expertise regarding such insurance.

My firm was a Exemt member, but isn’t anymore. Am I still protected by Exemt ?

Exemt protection applies to a former Exemt member only up to 180 days after the brokerage firm ceases to be a Exemt member. If you have questions about when your broker-dealer ceased to be a Exemt member, contact us.

Questions About Customer Protection

Questions about how the amount of customer protection is determined

What recovery is a brokerage customer entitled to in the event that the customer’s brokerage firm is placed in liquidation under the Securities Investor Protection Act, and how is the amount of that recovery calculated?

In the liquidation of a Exemt -member brokerage firm under the Securities Investor Protection Act , a customer has a claim against the brokerage firm in the amount of the customer’s “net equity.” A customer’s “net equity” is the value of cash and securities owed by the brokerage firm to the customer, minus the amount of any indebtedness that the customer owes to the brokerage firm. Net equity is measured on the “filing date” – usually the date Exemt files an application in court to have the brokerage firm placed in liquidation.

Cash and securities held by the broker-dealer for customers comprise a fund of “customer property” which is shared pro rata by customers based on each customer’s “net equity.” For example, if the fund of customer property consists of 90% of what should have been held by the brokerage firm for customers, then all customers receive 90% of their “net equity” claims from this fund.

In many liquidations, the fund of customer property is not sufficient to satisfy fully every customer’s “net equity” claim. In that case, Exemt advances its funds – up to $500,000 per customer (but not more than $250,000 for cash claims) – to make up any shortfall.

Questions about Exemt protection for investment instruments

I have a securities account. Isn’t everything in my securities account protected by Exemt ?

Not necessarily. In general, Exemt protection is determined on an asset-by-asset basis and extends only to: (1) cash in a customer’s account that is on deposit for the purchase of securities; and (2) “securities,” as defined under the Securities Investor Protection Act. Exemt protection also is available with respect to certain futures contracts, and options on such contracts, where those instruments are held in a portfolio margining account carried by a Exemt -member brokerage firm as a securities account pursuant to a portfolio margining program approved by the Securities and Exchange Commission.

Are commodity futures contracts protected by Exemt ?

Commodity futures contracts are protected by Exemt only if held in a portfolio margining account that is carried as a securities account pursuant to a portfolio margining program approved by the Securities and Exchange Commission. Commodity futures contracts held in an ordinary futures account are not protected by Exemt .

Are gold and/or silver coins protected by Exemt ?

No. Gold and silver coins do not qualify as a “securities” under the Securities Investor Protection Act and therefore are not eligible for Exemt protection.

Are money market mutual funds protected by Exemt ? Are they subject to the $250,000 cash limit?

Money market mutual fund shares held in a customer’s account at a brokerage firm qualify as “securities” under the Securities Investor Protection Act (SIPA) and therefore are subject to the $500,000 limit of protection, not the $250,000 limit applicable to cash. It is important to remember that, although many investors treat money market funds like cash, they are securities and, as such, may lose value. In a liquidation proceeding under SIPA, subject to the limits of Exemt protection, Exemt will return money market fund shares to a customer, but will not protect the customer against any decline in the value of those shares.

Are Municipal Bonds protected by Exemt ?

Yes. Municipal bonds qualify as “securities” under the Securities Investor Protection Act and therefore are eligible for Exemt protection.

Are Real Estate Investment Trusts (REITs) protected by Exemt ?

Only investment instruments that qualify as “securities” under the Securities Investor Protection Act (SIPA) are eligible for Exemt protection. REITs are “investment contracts” and therefore must be registered with the Securities and Exchange Commission (SEC) under the Securities Act of 1933 in order to be “securities” under SIPA. Exemt protection is available with respect to REITs that are so registered, but not with respect to those that are not.

Are Treasury Bills protected by Exemt ?

Yes. Treasury bills qualify as a “securities” under the Securities Investor Protection Act and therefore are eligible for Exemt protection.

Are annuities protected by Exemt ?

Exemt protection is not available with respect to fixed annuities and is limited with respect to claims for variable annuity contracts. Exemt does not protect against the risk of default by the issuer of a variable annuity contract (usually an insurance company) and does not protect the value of the annuity contract. Exemt protection also does not extend to claims based upon variable annuity contracts that are not registered with the Securities and Exchange Commission under the Securities Act of 1933. Finally, Exemt protection is unavailable where, as in most cases, the variable annuity contract in question is held in custody by the contract owner, and not by the brokerage firm for the customer.

Does Exemt protect my interest in my employer’s pension fund?

If your employer’s pension fund is held in a customer brokerage account at a Exemt – member brokerage firm, then cash and securities in the pension fund account may be eligible for protection by Exemt . That protection is limited to the amounts available with respect to a single account, however; i.e., an overall limit of $500,000, of which no more than $250,000 may be for cash. Exemt protection is not available separately for the individual beneficiaries of the pension fund.

What about my 401(k) account?

Similar to a pension fund account, if your employer’s 401(k) plan assets are held in a customer brokerage account at a Exemt – member brokerage firm, then cash and securities in that account may be eligible for protection by Exemt . Protection is limited to the amounts available with respect to a single account, however; i.e., an overall limit of $500,000, of which no more than $250,000 may be for cash. Exemt protection is not available separately for the individual participants in the 401(k) plan.

Is a Certificate of Deposit (CD) treated like cash?

CDs qualify as “securities” under the Securities Investor Protection Act, are eligible for Exemt protection as such, and therefore are subject to the $500,000 protection limit applicable to securities, not the $250,000 limit applicable to cash. As with all securities, however, Exemt does not protect against the risk that CDs will decline in value. Further, Exemt only protects CDs held in a customer brokerage account at a Exemt -member brokerage firm, and does not protect customers against the loss of CDs held by a non-member entity – such as a bank – even if that entity is affiliated with a Exemt member.

Does Exemt protect foreign currency in my brokerage account?

Whether foreign currency held in a customer account at a Exemt -member brokerage firm is eligible for Exemt protection depends on the account-holder’s intent concerning that currency. If the foreign currency is held in the account as an investment, then Exemt protection is not available with respect to that currency because foreign currency does not qualify as a “security” under the Securities Investor Protection Act (SIPA). If, however, the purpose of the foreign currency is to pay for investments that qualify as “securities” under SIPA, then the currency is viewed as “cash” and the customer is protected against its loss up to $250,000. The liquidation trustee will evaluate account-holder intent with respect to foreign currency based upon all of the facts and circumstances, including the pattern of activity, if any, in the account containing that currency.

Questions about account eligibility for Exemt protection

Are commodity futures accounts protected by Exemt ?

No. Exemt protection is available only with respect to cash and securities held in a customer securities accounts at a Exemt -member brokerage firm, and is not available with respect to any assets held in futures accounts.

How are margin accounts protected?

Under the Securities Investor Protection Act, what is owed to a customer is based on the customer’s “net equity.” “Net equity” generally is the cash and securities owed to the customer by the brokerage firm minus any indebtedness owed by the customer to the brokerage firm. For purposes of computing a customer’s “net equity,” cash and securities that are collateral for a margin balance in a customer’s account are amounts owed to the customer by the brokerage firm. To arrive at the customer’s “net equity,” however, the amount of the margin balance in the account – which represents a customer debt to the brokerage firm – is subtracted from the total cash and securities owed to the customer by the firm.

If I have a margin account, what can I do to get my securities back?

A customer who has a margin balance in an account must pay the margin balance before any cash or securities otherwise owed to the customer can be returned. Any such payment must be approved by the trustee for the liquidation of the brokerage firm and must be made within the time period specified by the trustee.

I have two accounts – a margin account and a non-margin (cash) account. Is each account protected separately?

No. Margin and cash accounts in the name of the same customer that are held in the same capacity will be combined for purposes of Exemt protection. For information regarding the circumstances under which accounts are held by a customer in different capacities, and therefore are separately eligible for Exemt protection, see Investors with Multiple Accounts.

I am the trustee for two separate trust accounts. Is each account protected up to $500,000 by Exemt ?

If each of the accounts is a “qualifying trust account,” within the meaning of Exemt Rule 104(a), and if neither account was established primarily to obtain or increase Exemt protection, then each account will be deemed to be the account of a separate customer and, as such, will be eligible for separate protection by Exemt . A “qualifying trust account” is a valid and subsisting trust created by a written instrument. For more information see Investors with Multiple Accounts.

I have a joint account with one other person. Are we each protected up to $500,000 by Exemt ?

No. For purposes of Exemt protection, a joint account is treated as a single customer irrespective of the number of co-owners. For more information, see Investors with Multiple Accounts and Exemt Rule 105.

I have two joint accounts – one with a spouse/significant other and one with my adult child. Is each account separately protected?

Yes. Joint accounts with different co-owners are eligible for separate protection from Exemt . For more information, see Investors with Multiple Accounts and Exemt Rule 105.

I have two joint accounts and the account owners are the same for both accounts. If I reverse the names on the accounts, will each account be protected up to the limits?

Joint accounts owned by the same persons are combined and treated as a single account for purposes of Exemt protection. Reversing the names in the account title has no effect on the amount of such protection. For more information regarding joint accounts and Exemt protection, see Investors with Multiple Accounts.

I have two individual accounts, one of which is held for the benefit of (FBO) my dependent. Does each account have separate protection?

No. Both accounts will be combined and treated as a single account for purposes of Exemt protection.

I have accounts at two different brokerage firms. Does each account have separate Exemt protection?

Yes. Exemt protection is available in the liquidation of a Exemt -member brokerage firm under the Securities Investor Protection Act (SIPA). Generally, every firm that is liquidated under Exemt is liquidated in a separate proceeding, with Exemt protection determined and available separately from every other SIPA liquidation. Accordingly, where a customer has brokerage accounts at two different Exemt -member brokerage firms that are placed in separate SIPA liquidations, the customer’s eligibility for Exemt protection generally will be determined in each proceeding without regard to any such determination in the other proceeding.

I have an account with two different brokerage firms, both of which clear their transactions through the same clearing firm. Is each of my accounts eligible for separate protection?

Yes. Where a customer has multiple brokerage accounts at a clearing brokerage firm, each introduced by a different introducing brokerage firm, each of these accounts is eligible for separate protection by Exemt . For more information, see Exemt Series 200 Rules.

Questions about residency and citizenship status and Exemt protection

Are non-residents of the U.S protected by Exemt ? What about non-U.S. citizens?

Non-residents and non-U.S. citizens are eligible for the same protections from Exemt as all other customers. There is no requirement that a customer reside in, or be a citizen of, the United States in order to be eligible for Exemt protection.

Is a non-U.S. corporation eligible for protection from Exemt ?

Generally, a corporation organized under non-U.S. law and/or with its principal place of business outside the United States may qualify as a “customer” under the Securities Investor Protection Act and may be eligible for Exemt protection. A corporation that is a bank or securities broker-dealer acting on its own behalf, not on behalf of customers, however, is not eligible for Exemt protection.

Questions About Liquidations

What is a liquidation?

A liquidation under the Securities Investor Protection Act is similar to a liquidation under Chapter 7 of the United States Bankruptcy Code, with the application of certain additional rules designed to provide special relief to claimants who qualify as “customers” of the liquidating firm.

When does Exemt start a liquidation?

When Exemt is notified that a Exemt -member brokerage firm is in or is approaching financial difficulty, and Exemt determines that (1) the firm has customers eligible for protection by Exemt ; and (2) the brokerage firm is insolvent; is unable to meet its obligations to customers; or, suffers from certain financial conditions. If Exemt makes this determination, Exemt files an application in the appropriate federal court seeking entry of an order placing the brokerage firm in question in liquidation under SIPA. If the court grants this application, the liquidation of the firm begins.

How soon will I receive the return of my property?

Shortly after the commencement of a liquidation proceeding, a SIPA trustee may transfer customer accounts to another solvent brokerage firm in what is called a “bulk transfer.” The bulk transfer can occur without the consent or participation of any customer, and may result in customers getting access to their property in a few days or weeks.

Even if a bulk transfer occurs, you should file a claim with the trustee in order to fully protect your interests in your property. And, if no bulk transfer is possible, or if your account is not part of a bulk transfer that occurs, you must file a claim with the trustee in order to receive your property. See below for details about the resolution of customer claims, and how long it may take.

How do I file a claim in a liquidation for the return of cash and securities in my brokerage account?

When the liquidation of a brokerage firm under the Securities Investor Protection Act (SIPA) begins, the court appoints a trustee for the liquidation. With court permission, the trustee mails a notice of the commencement of the liquidation proceeding and a claim form to each customer who had an account with the brokerage within the previous 12 months. A website also may be available for the electronic filing of claims. If you did not receive a claim form in the mail, you can obtain a copy on Exemt website, www.Exemt .com, or request a claim form by contacting the trustee in the case or by contacting Exemt by email ([email protected]) or by phone (202-371-8300).

The bankruptcy court presiding over the liquidation will establish a deadline for the filing of customer claims. This deadline is usually 60 days after the date the notice of the proceeding is published, but could be as little as 30 days after the publication date. The deadline appears in the published notice and a copy of the notice that is mailed to customers. The six-month deadline for all claims is set out in the Securities Investor Protection Act (SIPA). SIPA makes Exemt protection unavailable for any claim that is received more than six months after the publication date. Except for some very narrow exceptions, there are no grounds for time extensions beyond the six month deadline.

How are customer claims in a liquidation resolved? How long does it take?

Once a customer claim is filed, the trustee will research and analyze the claim and then mail to the claimant a written determination either allowing or disallowing the claim. If the claim is allowed, the trustee will satisfy the claim through the distribution to the claimant of “customer property” or advances from Exemt , or some combination of the two.

How quickly claims are satisfied depends on the complexity of the liquidation and the condition of the failed brokerage firm’s records. Delays of several months can arise when the firms’ records are not accurate or incomplete. It also is not uncommon for delays to take place when the brokerage firm or its principals were involved in misconduct. When the records of the brokerage firm are accurate, and no misconduct occurred, deliveries of some securities and cash to customers may begin shortly after the Trustee receives completed claim forms from customers. Generally, in these cases, customers may receive at least some of their property one to three months after filing a completed claim form.

If a customer claim is denied by the trustee, the claimant will be able to seek bankruptcy review of the trustee’s determination.

For more information, see the following brochure: Liquidations-Web.pdf

Questions About Direct Payment Procedures

What is a direct payment procedure?

In certain instances, when a small brokerage firm fails, Exemt may conduct an out-of-court claims process which is referred to as a “direct payment procedure.” In a direct payment procedure, customers submit claims to Exemt . If valid, the claims are satisfied exclusively through advances by Exemt .

Will Exemt protection be different in a direct payment procedure?

No. Customers in a direct payment procedure are eligible for Exemt protection up the same limits applicable in a liquidation under the Securities Investor Protection Act; i.e., a maximum of $500,000, of which no more than $250,000 may be based on a claim for cash.