Wednesday, December 4, 2013

Detroit now Chapter 9 eligible..whos next in Rhode Island?

  The deterioration in Detroit finances has been long coming and pervasive.Like lava flowing down the mountain the debt was pouring out and disintegrating everything in its path. It was so obvious. How obvious? Detroit issued Pension Obligation bonds in 2006 totaling $2 billion dollars in a futile  attempt to get more liquid and kick the can down the road. Wise people took that action as  a big "red flag" and left the city, thus avoiding a big part of the tax crunch.That, in turn, caused a further collapse in home prices. Well the tax crunch has started in Providence and the smart ones will start moving now. There is really no way Providence can survive without raising taxes dramatically.
         I am team leader in my Graduate School Course at Stanford University Business School.The course subject matter is

The Finance of Retirement & Pensions

By Joshua Rauh, Stanford Graduate School of Business

Our teams focus was on the City of Providence and its finances over the last 4 years  before Taveras and his Category  5 Hurricane proclamation and  when Cicilline lied his way into Congress. Then 2 years  later Taveras administration sought  " way to little ,too late" reforms through resolutions, renegotiation of contracts and ordinances. This will give him a few months of political breathing room, as he now attempts his escape from the sinking ship called "Providence". With Detroit in the headlines once again this will cause a review of the cities and towns and their precarious  financial conditions across the State of Rhode Island. let me save you the suspense.It is an unadulterated mess.
  Our findings on Providence are alarming and at some point we will release a final version of that report. For now, are undergoing peer review of our project at Stanford and we are reviewing other projects.This course was outstanding.
    On Thursday December 5 th there will be a webinar and a special guest speaker , Mark Dingley 
Deputy Treasurer for the State of Rhode Island. The public is welcome to join in and the link is below. Or you could just stick your head in the sand like most Rhode Islanders

mg Riley

Friday, October 11, 2013

Riley Answers Critics of Raimondo Pension reform says unions are dead wrong

 What follows below is a recent discussion from an article By Stephen Beale in GOlocal .co

For so long now, obfuscation and misleading information have been  emanating from a well organized union effort to save defined pension plans in the public sector. To me its been obvious from the start that the unions are being well, you know ...unions. Unfortunately . to the uninformed or slightly informed this mildly clever organized effort to bash Gina Raimondo's pension reform act of 2011 has some merit. But their premise is wrong and chillingly naive. I believe  that the more we allow two sided  debate on this subject , then  the more apparent it  will become that deliberately false information has been proffered simply to influence a gullible and complicit media. Some of the medias conclusions have been  just stupid . Others just part of their progressive agenda.
    This is so unfortunate because this issue of Public Employee Guaranties is HUGE. Trillions of dollars have been diverted from average taxpayers by corrupt politicians and unions. The beneficiaries are the politicians who keep getting re elected , the public employees who receive outrageous guarantees and benefits and the union bosses who collect from the workers.
   The loser ?  you guessed it. Us. We the people. The other 89% of the population who are not  public union employees. This  compensation and the resultant bankruptcy of Cities and Towns across Rhode Island  is unacceptable , un-American and just plain wrong. The cause of this disastrous predicament is the very corrupt Public  Defined Benefit Schemes at local and state levels.Recently I saw an employee  who had contributed roughly $60,000 total over her entire  career to her own pension plan. She retired at age 47 and has already received $700,000 of the $1.8 million that  unions say is guaranteed her. So let me ask you Mr. non-public employee or unemployed person.. How does your retirement look? How do you feel about the fact you guarantee her retirement with your tax dollars?

      Back to Raimondo . The unions charge that Raimondo has hired  hedge funds that have created unnecessary risk in the portfolio , hurt portfolio  returns and enriched her wall street buds.Criticism  lead by the spitting  and abusive mudslinging of AFSCME  hired gun Ted Siedle has been nonstop and laughable, but  apparently effective because even a bright ,well meaning guy like Barry Schiller has been mislead. 
    It is my goal to shed light and analysis on pension funds , rectify  the  false accusations about them and  subvert the massive union efforts to save a destructive compensation scheme that enriches 11% of our population at the expense of the other 89% of us.

below is  today's commentary and analysis  I did  for Barry...   this  analysis refutes the ridiculous union and Siedle led notion that because the s&P  500 index returned more than nearly every pension fund in the US someone is cheating.... the whole  article and all the attached  commentary is on the link  above and i recommend it

please contact me if you want to fight this corrupt practice and those who are lying about it

heres the clip:

barry schiller

My follow-ups:
On low fees, Mike R makes a good point its not a good idea to put all pension fund resources in stocks. But firms such as Vanguard have a wide selection of low cost diversified bond funds as well as real estate to balance a portfolio at low cost. I juat don't see why the public needs to pay 2%+ plus 20% of profits. The lead sentence on the post, if accurate, says fees of about $580,000 were paid on an investment of about $5 million. The time frame is not given but it shows the order of magnitude of the problem, if Vanguard's .14% were used on $5 million over 7 years that would total about $50,000 not $580,000.

Redd Ratt

Mike, I have to agree with Marcia Reback that $580,000 going to point Judith, while the state saw $965,000 is very expensive. Did Marcia Reback approve of this deal as a member of the commission?

michael riley

Excellent Barry
So at last we can have a real discussion and throw into the garbage head the ridiculous notion of comparing the return on our State Pension fund to the S&P 500 or some other stock index.Anyone who managed pension assets and put 100% into stocks would be sued and rightfully so.
So lets accept your premise that we get rid of all or most of the 75 outside managers of our fund. That's all of the following .. U.S.equities, us equity hedge fund,international equity, Private Equity, Venture Capital,Real Estate, Absolute return hedge funds, fixed Income, International fixed income ,hedge fund credit strategies. Instead we have 3 Vanguard Index Funds.
Normal weightings for a pension fund would be 60% stocks and 40% fixed income when speaking in the broad categories. For the following analysis I am going to say 65% stocks 35% fixed income. This will benefit your case as stocks have done well , bonds not so well. In stock weightings we will do a fairly normal 40% us stocks and 25% intl blend.

Barry's Portfolio
40% vanguard s&P 500 index return 15.82% fee .08
25% Vanguard Intl VTSGX return 12.9% fee .16
35% Vangauard aggregate return -1.95% fee .14
total weighted return = 8.87% fee= .121

Raimondo performance return= 11.07% fee= .90

Final analysis

Both the Barry portfolio and the Raimondo portfolio performances are after fee(no need to double count)

Barry return to Rhode Islanders 7.2 billion in assets * 8.87%
= $ 638,600,000
Raimondo return to rhode Islanders 7.2 billion in assets * 11.07%
= $ 797,000,000

Barry you cost us $ 158.4 million dollar or (797 mil- 638.6 mil)
you also took approximately 20% greater risk with your portfolio….

so if you ask me … Gina has a great risk adjusted return

I would be happy to analyze why Siedle ,afscme,  Marcia Reback etal think saving $45 million to lose $160 million makes sense but I would need some psychiatrists to help analyze their thinking.

Tuesday, August 27, 2013

Pensions, Psychology and Leadership


  Among the many things I have learned in my career this fact truly stands out. Psychology matters. It is the swing in psychology that gets people into the biggest trouble. This is true whether referring  to investors whose behavior I have witnessed for nearly 40 years, or the politics and politicians of the 4 States I have observed in my adult life. The professionals, the public and the media focus on  hot topics and are caught up in emotions en masse and invariably swing in the wrong direction at the wrong time. When things are going well people become greedy and overly enthusiastic, and when times are troubled, people become fearful and reticent. They stick their heads in the sand. That’s just the wrong thing to do. It’s important to control fear and greed.
Another mistake that people often make is that they compare themselves with others who are making more money than they are and either conclude that they should emulate the others’ actions by taking risk or seek to “even” the playing field through envious actions. This is the source of the herd behaviour that so often gets them into trouble. We're all human and so we’re subject to these influences, but we mustn't succumb. In my world .This is why the best investors are quite cold-blooded in their professional activities. I believe similarly that  the best politicians solve problems through courageous action not from polling and running ideas of a flag pole.. Rhode Island and the United States have some very obvious problems currently being uniformly ignored by the elected leaders of today.
     In Rhode Island so many towns and cities are on the verge of insolvency, that its truly frightening. But it seems this is  just too hard for our leaders to tackle. No one seems willing to do the right thing. Kicking the can is no longer working and the idea “du Jour” is to adjust way too little, far  too late. Just 10 years ago town finances seemed  ok and the crash of 2000 happened. This should have been a wake up call, but towns just kept on making promises oblivious to the fact that health care obligations were and are unfunded and rapidly exploding. Their greed was in full bloom until 2008 when towns were exposed. Some by town criers and some by the toothless Auditor Generals reports. Willful ignorance on the part of elected leaders and voters, as well as beneficiaries continued unabated and have lead to the toxic mix that now stands before us. Recently our best real effort for reform , such as it is, was the Towns and Cities Pension Crisis Commission. Their task, as set out by legislation and by the leadership from Gina Raimondo and Rosemary Beth Galoogly has been to identify those cities that are in “crisis” or near death.(under 60% funded) This modest task only addresses liabilities arising from pensions, not health care. The result of this effort has been revealing and somewhat helpful. Yet nothing “real” is being accomplished and even the modest goals they have set out, now appear to be completely unattainable. The last two meetings of this group have been cancelled without explanation. Have we now as a State shifted the moral burden from where it should be? On the voters and the taxpayers ? Have we now  let elected leaders off the hook for lying about finances? I fear this commission is yet another delay tactic. The time has come to face facts.
 In the investment world we can infer psychology from investor behaviour, and that allows us to get an understanding of how risky the market is, even though the direction in which it will head can never be known for certain. Yet Rhode Islanders have deluded themselves into believing that they can guarantee salaries many years in the future as well as health care costs.   I know we can not and by now you should also know they can not. But more importantly ,why do we do this for 12% of our population, guarantee millions? and let the rest figure it out on their own? The reason lies in the psychology of uninformed town leaders and politicians for the last 50 years. In the early 1970”s they were influenced by union advances in the Northeast and within the first  20 years of the programs ,  no problems existed. The dual tailwinds of favorable demographics and inflation made promises appear easy to achieve.   Soon retirees of all stripes realized inflation was a killer. So within the construct of politics politicians handed out promises for votes .They handed out our promise to 12% of the elite government workers.  And so on. But now, the game is over. Inequities exist of laughable proportions. It makes little sense for a middle school librarian to receive a million dollar annuity when masters and PHD librarians that are not publicly financed  have retirements of roughly $50,000 total. Should Janitors have retirements guaranteed by you in the hundreds of thousands? While the hard working private sector worker has no such guarantee? Why are we doing this and why isn’t anyone addressing this?

     I believe the answer to such lack of leadership  is obvious. Voters do not reward politicians for telling the truth. (witness the results of Doherty vs Cicilline). A real leader would be courageous and  would suggest immediate  action.

                                  MY Plan for real results

·          Eliminate town run Defined Benefit Plans for new hires.
·         Create Defined Contribution plans or hybrid plans fair to the active employees.
·         Do not haircut anyone who is more than 10 years retired or earns less than 35000 a year.
·         We should haircut all those who earn more than 35,000 but not by much maybe 10 % per year.
·          Freeze all colas for 10 years.
·          Then tax residents ( 15% to 20% of current UAAL) in a  big chunk in  2014 for allowing this tragedy to continue and for continually voting in incompetent or cheating politicians.
·         Fire every town manager who was in charge for the whole period during the explosion in liabilities over the last 15 years.
·          Mandate every Town Council pay Annual Required Contributions going forward  before any raises are allowed or they are subject to recall.

            Remember the following  advice so that we can make this mess less likely for our children and grandchildren. Mass emotion is very predictable and there are those individuals  who are unscrupulous enough to take regularly advantage of it. Too little skepticism by voters  and too much eagerness by leaders  in an up-economy – just like too much resistance and pessimism in a down-economy – can lead to  very bad investment results.
            Warren Buffett once said, "The less prudence with which others (government) conduct their affairs, the greater the prudence with which we must conduct our own affairs." Let all of us handle our own retirements and don’t obligate us to guarantee others.

 Do the right thing fix this…now ..

Thursday, August 8, 2013

Projo melting away? ..Sheldon ,Chafee could buy the whole thing

       Newspaper companies are changing hands left and right these days at prices well below what they traded for 10 years ago. The Boston Globe was sold for $ 70,000,000 to John Henry after being purchased for over $1 Billion a decade back. Jeff Bezos ,of Amazon fame, purchased the venerable Washington Post for  $250 million dollars. So naturally it got me to thinking about the plight of the Providence Journal which is quite literally the  Ocean States paper as well as Providence's paper.
      The answer is not much. I used available public information and back of the envelope metrics that are used in the investment banking arena to produce the following table.

                              PROJO Value July 2013
Metrics  recent multiples Projo data  Valuation
Ebitda 3.5 $3,675,000 $12,862,500
Per Subscriber $294 78000 $22,932,000
Revenues 0.32 $85,000,000 $27,200,000
Using Boston Globe Multiples
Ebitda  4.2 $3,675,000 $15,435,000
Per Subscriber $285 78000 $22,230,000
Revenues 0.21 $85,000,000 $17,850,000

     So my back of the envelope calculation values the Newspaper at somewhere around $20 million dollars which is a very far cry from the implied $500 million price tag in 1997. Additionally I haven't been able to reconcile the pension obligations a new owner would have to take on or added the real estate value of the Main Building in Providence (approx 8 million) or the remaining parking lots they haven't sold yet ($5-10 million).

                    Projo 1997 value $500 million 

      NOW !

                  Projo 2013 Value $ 20 million

maybe Taylor swift wants it?

Wednesday, August 7, 2013

Seeing the forest through the trees: a traders view of Charlie Munger and hydrocarbons

     Years ago in the mid  1990's I was managing some derivative  traders on the American Stock Exchange and monitoring their risk . I those days there was an advantage to physical proximity to the Specialist and order flow that arrived ata certain physical spot every day. Traders stood in pits. Just like in any walk of life they often chatted even though they were most likely competitors and discussed all kinds of things usually having to do with the companies traded in their pit.
    Traders are a very different type of person. Usually self confident and independent thinkers and well educated either in the games world or at Universities..The majority of our traders were trained by us and recruited from Wharton, Columbia , Chicago and NYU. My current partner was MIT. I was lowly UConn. only a few of the traders we had did not excel at games playing and loved to think several moves ahead. Whether it was our Bridge players, Backgammon, poker or chess these games players love to figure things out. It was their strength and also their weakness.
     You see sometimes these traders , more than sometimes in fact, they got side tracked with
over-thinking a situation. A recent article in Seeking Alpha reminded me of an incident in American Airlines where I had financed a trader.

      There aren't many people smarter than Charlie Munger  so when he goes on a rant like he did recently and he clearly has a different than consensus viewpoint, its definitely worth the time to try to understand his thought process. This was exactly the kind of article that appeared in the mid 1990's and was being discussed among the half dozen or so regulars in the AMR pit. The discussion was so lively that the traders had decided and apparently they weren't alone, that oil prices could have a dramatic impact on American Airlines profitability. In this particular case concern was if oil is up then  AMR  would go down. For many reasons this was a more tenuous relationship than the traders believed.These guys were skilled in identifying "mispriced options" and  not so skilled in being securities analysts. But they were all so bright they quickly grasped many concepts and soon could repeat leading analysts research opinions verbatim. This,as would often happen on the floor, morphed into group analysis and group think.
     One morning my trader came to me worried about the exposure he had being:" net short some puts" in AMR and it was his opinion that middle east tensions could cause oil prices to rise and anyway the trend in oil prices was clearly up in his opinion. It turns out the whole crowd felt that way. But I was amazed to find out that not even a single trader in that crowd had thought to buy oil as a hedge,. They had each developed theories and interrelationships having to do with other airlines or Gold or AMR weighting in indices , all of which were ok and reasonable, but it stuck me that some of the smartest people i knew couldn't see the easiest path and the simplest hedge. The one thing they could come to complete consensus on was that oil was going higher yet none of them bought oil.From the article above I got the impression that all i needed to do was buy oil with my dollars, because over the long term the dollar value of oil is going up.The Author and Mr Munger are both quite smart but I wonder if they actually own oil? and if not what do they think is better?

Tuesday, August 6, 2013

Will personal wealth tax be imposed before the current U.S. tax code is simplified? YES

The most obvious way to promote growth and investment in our economy is simplification of the US tax code. Nearly everyone says the 70000 page code  a nightmare but the problem is that tax code exemptions are  the currency of lobbyists and politicians so unless voters focus on voting for Representatives looking to end the IRS and the tax code we should expect very marginal changes.This would be only  to save face and will be quickly followed by even more taxes so those folks in Washington can advance their power base. This acts to increase the federal governments  control over individuals in the United States.
    You can always look to Europe for really bad ideas like" VAT" taxes or national health care or public pensions but most of us assumed that there was no way Americans would allow their personal assets already taxed to be taxed again as "wealth " taxes.
    But wealth taxes are coming, and the idea fits perfectly into the elitists concept that both Washington DC elected officials and un-elected bureaucrats would be much  more  productive with your money.  This mindset believes that every dollar of "wealth tax" collected would be   available to invest in new factories, new technologies, and all the other  fabulous progressive projects. But the sad truth is just like all taxes, the money goes into the hands of un-elected bureaucrats who think they know better than you do what to do with your hard-earned dollars.

    So why do i think this is coming soon? Because I have learned over that last 5 years that it is the unscheduled ,offcamera or spontaneous remarks have revealed this Presidents agenda far more clearly than his  planned addresses like State of the Union. His real character believes in "stepping on the throat of business", redistributing wealth as the candidate famously said to Joe the plumber,30% taxes above a million income. It   thrilled him to no end when Warren  Buffett agreed. But wealth taxes? Come on he wouldn't do that.
     Think again and think seriously.Several countries have already  imposed wealth taxes outright. This  philosophy believes that even though the wealth has already been taxed once or twice at rates higher than the rest of the population its now time to simply take it before they die rather than wait for the death of savers and take it in estate taxes. 

    Is the lesson to spend everything I have before I die and come with my hand out to the government for my retirement? Exactly how will that work? So far the government has relied on the  voluntary collection of taxes. In Europe this devolved quickly into  corruption and black markets . People lied, bribed and hid wealth. tax collector became rich and Governments collected less.This is  not ancient history this is today in Greece ,Cyprus and France etc. .

          We have already been experiencing confiscation in the subtle form of "financial repression" and  ZIRP ..(zero interest rate policy) have already redistributed massive amounts of wealth from real savers to in debt borrowers  in order to bail out Wall Street and other crony capitalist friends of the modern Democrat. The next step is to overtly tax wealth at 1.5%  above some threshold.  If you have managed to work and save expect your friendly IRS to start accumulating data on what you own and your net worth. That will be the sign you have about 6 months left before implementation. I cant think of a more communist or collective strategy than confiscating and redistributing the wealth of others . There was a time when Americans would have fought and died to protect their own earned personal property and yes, that includes savings. That time may come again.

Tuesday, July 30, 2013

Media strikes out in RI Hedge Fund Debate

Last Week  one of the largest alternative asset management  conferences in the United States  took place right here in Newport Rhode island. I am a two time veteran of this conference having presented my tiny Rhode Island based Hedge Fund in 2007 and 2008. I did not attend this years conference  and I fully expected to read all about it in the local media which for a while now has been  virtually obsessed with Treasurer Gina Raimondo’s  decision to use Hedge Funds in her asset allocation mix. This mix is  for plan assets  funding the  State of Rhode Island Pension Plans. This conference is usually a sell out and I assume it was again this year. It has been well attended by Rhode Island officials as well. That’s why today I sit here shocked at the lack of coverage by Rhode Island media. What does this mean? Does Ted Nesi really not care or is he just a groupie for RI Future? Does Go Local really have an article everyday blasting Raimondo’s on her pension policy and then miss the largest conference relevant to the subject matter?  It was held directly under their nose in Newport, Rhode Island? How pathetic is that? I know the Providence Journal has chimed in on the subject where were they?
      So given the media blitz by several RI media outlets covering a Forbes blogger and the subsequent Afscme hiring of this reporter to investigate Raimondo, I figured all eyes would be on this annual conference. The Public Summit It would have been quite interesting. And it would have been interesting ,as well, to get the media spin ,because for anyone really in the business of managing money, the anti Raimondo campaign comes off as a political hack job. The media, if it had chosen to, could have gotten a real education about pension funds and answered a lot of the questions that have been thrown against the wall. The Public Summit Funds East was a virtual “smorgasbord” of ideas and real world uses of alternative assets used in managing pension funds. Three days of meetings included presentations by managers on their use of Private equity and hedge funds when investing for their pension plans. Among the presenters  and panelists were the   NEW YORK CITY UNIFORMED FIREFIGHTERS ASSOCIATION, MINNESOTA STATE BOARD OF INVESTMENT,  CITY OF HARTFORD MUNICIPAL EMPLOYEES' RETIREMENT FUND,  LOUISIANA STATE EMPLOYEES' RETIREMENT SYSTEM, NEW HAMPSHIRE RETIREMENT. Early on the first day an appearance was scheduled for a Board member from Rhode Island  pension commission discussing the current  “State of the United States Pension System “. Later on  in the treasurers’ roundtable, the state Treasurers for South Carolina, Utah, Oklahoma and Iowa were to discuss multiple topics and field questions from the audience. But alas none of the so called concerned activists or reporters were there.

        Virtually every topic was reviewed over the three day period by experts and users across the nation. You would think Go Local or the Providence Journal or Nesi Notes would have been starving for this event to round out their knowledge and to look into the accusations they themselves have printed multiple times. At least that is what I expected. I had hoped that then , reporters once having been educated ,would report more fairly what is going on in the pension world and what investments are truly acceptable as part of an overall strategy. Sadly , I have concluded that what probably happened here in Rhode Island Media  was someone with an agenda notified friends in the press about the labor sponsored  campaign against hedge funds and Gina Raimondo . Spoon-fed articles with very shaky facts were proffered. And while it was clear to me that some of the reporters and promoters really knew very little about this business, the public was a gullible mass just like the Dems hoped. I welcome the opportunity to educate the public. I hoped this was a chance for someone other than me to set the public and the media straight.  But no, just when the local media could have contributed mightily to the public debate on defined pension plans and the management of pension funds by simply attending  and reporting on the 3 day conference in Newport, they failed. Instead there was no coverage at all, no educating the public, no clarifying the difficult issues. This was a wasted opportunity; it never occurred to me that our media would miss this chance to inform the public. What a loss.

Tuesday, February 12, 2013

Rhode Island Shrugged: ETF Conference Inadvertently slights founder

Rhode Island Shrugged: ETF Conference Inadvertently slights founder: My letter to Index Universe Dear Sirs,                                              I am very happy for the conference you are putting o...

Monday, February 11, 2013

ETF Conference Inadvertently slights founder

My letter to Index Universe

Dear Sirs,
                                             I am very happy for the conference you are putting on. But i am also very upset for the lack of recognition for Ivers W Riley who was the driving force behind the original ETF Spider as well as other innovative financial products and exchanges. As you celebrate the 20 years of wealth this industry has produced  you should be aware of Ivers contribution. He is very well known in the industry and a true yet humble pioneer. Ivers is in the Futures Industry Hall of Fame and many of the people at your conference either worked for My father or directly benefited from his work. It 's  a shame that everyone has forgotten him. My father has never been a self promoter and people love that about him he never became rich as he preferred to lead and invent rather than get paid. Still  I am sure he is personally hurt by this neglect of his contribution to this amazing product. i know I am hurt by it as well.

                                                                                 Michael G Riley 

Wednesday, January 9, 2013

tax code nightmare

       I ran for Congress on a platform called the Riley Plan. One important plank was fixing the far too complicated tax code. The proposals proffered in the news today don't go far enough but at least there is a focus on simplification.The tax code is the "currency" used by politicians to maintain power and run for office. The simpler the code the less lobbying and money in Washington DC. 
    National  taxpayer advocate recently released a report on the IRS . I have attached the article link below the quote from Dave Camp.

Undaunted, the top tax writer in the House says he is determined to pass reform legislation this year.
“This report confirms that the code is 10 times the size of the Bible with none of the good news,” said Rep. Dave Camp, chairman of the House and Ways and Means Committee. “Our broken tax code has become a nightmare of loopholes and special interest provisions that create added complexities and costs for hardworking taxpayers and small businesses.”
“Comprehensive tax reform will make sure everyone is playing by the same rules and help businesses create more jobs and invest in their workers,” Camp said.

REGULATION is a full time business and is completely out of is a sample of a course that most banks and investment firms will have to pay for their employees to attend and learn...dont get me wrong this is an important rule and goal..but cmon

SEC Customer Protection Rule 15c3-3

February 27, 2013
Bayards, New York City (Downtown)
7 CPE Credits

See Agenda

This intensive course, which sold out the last time it was offered, will review the details of the Customer Protection Rule 15c3-3 of the SEC. It will go into detail as to how contents of a customer’s account, portfolio positions and money balances, are required to be protected by the securities industry. It will also detail how various calculations are preformed on a daily, weekly and monthly basis to ensure this protection. It will define specifics of what protection means and how it is achieved in the broker/dealer community.

The seminar includes various exercises to ensure the student has a thorough, real-world understanding of the material covered. The course does not require more than basic math skills.

Course Outline 
1. Definition of “customer” as it pertains to rule 15c3-3
2. What does the rule mean by “possession or control?”
3. What components of a customer’s account need to be afforded protection and what components do not. 
4. How do we accomplish protection of customer securities as well as customer funds?
5. What if protection of customer assets is not achieved?
6. Examples of how to calculate protection requirements for both portfolio securities and money balances.
7. Review of Reserve Fund Calculation
8. What is a “qualified security?"

-Fully – Paid Security
-Margin Security
-Excess Margin Security
-Qualified Security
-Free Credit Balance

Physical Possession or Control
-What is P&C?
-What needs to be in a Broker/Dealers P&C?
-When does P&C need to be obtained?
-Exceptions to P&C

Control of Securities
-Clearing Corporation
-Custody of a bank under specific circumstances
-Special Omnibus Account
-Items in transfer
-Foreign Depository
-Other Bank Depositories
-Items in transit
-Other approved locations

Requirements of P&C
-Determination made each business day
-Monthly for inactive margin accounts
-Time frames for
-Stock Loan
-Fail to Receive
-Bona Short Position
-Written Procedures

Special Reserve Bank Account
-Computation date
-Deposit and Withdrawal Time Frames
-Allowable deposits
-Notification of Banks
-Hindsight Deficiencies

Formula Computation
-Purpose of Computation
-Includable - Excludable items
-Stock record allocation
-Components of formula

Proposed Rule Change
-PAB Accounts
-Cash Balance Limitations
-Permitted Deposits
-Definition of Qualified Securities
-Reduction of Aggregate Debit Items
-Seg deficits allocating to proprietary and non-customer locations


the cost ? $1000 per employee+ thousands of man hours...reduced productivity...yadda yadda yadda