The protection of your assets with a brokerage firm

The natural protection of a brokerage firm

Brokerage firms in Belgium are prohibited by law from granting loans to their clients (article 76 of the Law of 6 April 1995). In other words this means that brokerage firms do not have any mortgage lending or consumer credit activities. We focus on our core business: helping our clients to manage their assets. This Law also provides that all investors must, before placing a stock market buy or subscription order, pay a sufficient amount to guarantee payment for the transaction.

If despite this guarantee, a client of the brokerage firm is overdrawn (following a purchase, a margin call or for any other reason, the brokerage firm is obliged to finance the transaction from its own funds, and may on no account use the funds of clients with a credit balance.

It is for this reason in particular that Leleux Associated Brokers as a matter of policy never engages in proprietary trading, so as to ensure that at all times it has the necessary funds available to finance the settlement of transactions vis-à-vis both our counterparties and our clients.

Segregation of securities and cash assets

The Law also makes it compulsory for all brokerage firms to segregate cash assets deposited by clients pending an investment. In other words, the brokerage firm must deposit all the credit balances of its clients into a bank account on a daily basis. This bank account is not a traditional bank account. It is an account governed by a segregation agreement between the brokerage firm and the custodian bank, whereby the custodian bank acknowledges that the assets deposited into the account do not belong to the brokerage firm but to the latter’s clients. In other words, the client’s assets are protected from the creditors of the brokerage firm in the event of the latter’s bankruptcy.

Therefore, all amounts received in favour of a client by way of a cash deposit or a credit to the client’s account (sale, interest payment, redemption, etc.) must be segregated within 3 working days. At Leleux Associated Brokers, we apply an even stricter segregation policy, guaranteeing that all payments made before 14:00 will be segregated on the same day. Payments made after 14:00 are segregated directly the following working day.

In addition, our clients' Euro-denominated cash credit balances are deposited with the National Bank of Belgium, which de facto eliminates any risk of cascading bankruptcy following the possible failure of a commercial bank. Cash credit balances denominated in foreign currencies are deposited with reputable commercial banks whose creditworthiness is checked quarterly by the brokerage firm's Risk Manager.

By depositing liquid assets denominated in Euros with our brokerage firm, you will benefit from full and complete protection of your cash assets.

Distribution of the risk of cash assets between custodians

The Law also requires brokerage firms to divide cash assets deposited by its clients among different banks (each account being covered, as explained above, by a segregation agreement) or with the National Bank of Belgium. The maximum amount that can be deposited by the brokerage firm with a bank is fixed by Law and depends on the brokerage firm’s equity capital.

Although the Law now allows Leleux Associated Brokers to invest up to EUR 30 million per custodian commercial bank, Leleux Associated Brokers has nevertheless decided to give priority to the security of its clients' cash assets and to deposit all of their Euro-denominated cash assets in a segregated account with the National Bank of Belgium. This policy therefore protects clients' cash assets both in the event of bankruptcy of the brokerage firm and in the event of bankruptcy of a custodian bank.

In practice, any deposit of EUR 20 from one of our clients corresponds to a deposit of EUR 20 with the National Bank of Belgium.

Your securities are deposited with top-tiered custodian banks

Brokerage firms are required by law to deposit the securities of their clients either in their vaults or in a securities account opened with a custodian bank. Each securities account opened in this regard must be covered by a segregation agreement, in the same way as cash deposits, whereby the bank acknowledges that the assets deposited on the account belong to the brokerage firm's clients and not to the brokerage firm.

Leleux Associated Brokers has for many years promoted the dematerialisation of securities and the system whereby they are deposited directly with central securities depositories the closest to issuers. In this regard, it is to be noted that Leleux Associated Brokers does not hold securities in its vaults on a permanent basis. Securities are sent directly to high-quality custodians selected on the basis of rigorous and demanding criteria.

Financial products	Custodian
State Bonds	National Bank of Belgium
European securities and bonds	Euroclear Bank, Euroclear ESES
American securities	Bank of New York Mellon
Funds	Fundsettle, Transfert Agents
European derivatives (quoted on Euronext Derivatives)	LCH.Clearnet
American derivatives (quoted on the CBOT)	Pershing
Short term notes issued by Belgian banks	Issuing Bank of the short term note

High-level internal controls

The National Bank of Belgium, which is responsible for supervising banks and brokerage firms in Belgium, requires the financial institutions under its control to put in place a certain number of basic organisational rules in order to avoid any incidents. The aim of these rules which vary in nature is, on the one hand, to avoid any internal fraud and, on the other hand, to ensure that the transactions and assets of investors are properly processed.

First of all, the National Bank of Belgium requires all financial institutions to put in place a good governance structure, whereby the institution’s day-to-day management may be controlled by non-executive directors, who must include one independent director. This first control requirement is part of a system of checks and balances intended to protect the interests of the brokerage firm’s clients.

The National Bank of Belgium then requires a high-level prudential control system to be implemented. The prudential control system in force at Leleux Associated Brokers operates on three levels. The first level consists of first level controls within the operational departments; these may be automated checks or controls carried out by members of the department. The second level consists of the Inspection Department, which monitors procedures within both branches and departments, the Risk Manager, who measures and controls on an ongoing basis the risk levels of the various departments, and finally the Compliance Officer, who ensures that procedures and operations comply with laws in force (combating money laundering and terrorist financing, protection of privacy, etc.). The third level consists of the internal audit department which continuously endeavours to improve the procedures and proper functioning of the second level controls.

Finally, the National Bank of Belgium must validate the appointment of the brokerage firm’s statutory auditor. Its services must approve the choice of auditor and may charge the duly appointed auditor with inspection tasks or execute them itself.