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Off-Balance-Sheet Risk and Concentration of Credit Risk
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9 Months Ended | ||
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Sep. 30, 2011
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| Off-Balance-Sheet Risk and Concentration of Credit Risk |
Ladenburg,
Investacorp and Triad do not carry accounts for customers or
perform custodial functions related to customers’ securities.
They introduce all of their customer transactions, which are not
reflected in these financial statements, to their clearing broker,
which maintains cash and the customers’ accounts and clears
such transactions. Also, the clearing broker provides the clearing
and depository operations for proprietary securities transactions.
These activities may expose the Company to off-balance-sheet risk
in the event that customers do not fulfill their obligations to the
clearing broker, as each of Ladenburg, Investacorp and Triad has
agreed to indemnify the clearing broker for any resulting losses.
Each of Ladenburg, Investacorp and Triad continually assesses risk
associated with each customer who is on margin credit and records
an estimated loss when management believes collection from the
customer is unlikely.
The
clearing operations for the Ladenburg, Investacorp and Triad
securities transactions are provided by one clearing broker, a
large financial institution. At September 30, 2011, a significant
percentage of securities owned are held at this clearing broker and
$18,750 is due from this clearing broker, which represents a
substantial concentration of credit risk should this clearing
broker be unable to fulfill its obligations.
In
the normal course of its business, Ladenburg, Investacorp and Triad
may enter into transactions in financial instruments with
off-balance sheet risk. These financial instruments consist of
financial futures contracts, written equity index option contracts
and securities sold, but not yet purchased. As of September 30,
2011, Ladenburg, Investacorp and Triad were not contractually
obligated for any equity index or financial futures contracts;
however, Triad sold securities that it does not own and will
therefore be obligated to purchase such securities at a future
date. These obligations have been recorded in the statements of
financial condition at the market values of the related securities
and Triad will incur a loss if the market value of the securities
increases subsequent to September 30, 2011.
The
Company and its subsidiaries maintain cash in bank deposit
accounts, which, at times, may exceed federally insured limits. The
Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk on
cash.
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