DOWNTURNS are dangerous times for remisiers. It is in bad times that remisiers tend to be hit by big debts from fleeing customers.

Some have been saddled with their vanished clients' seven-figure losses. Others have had to sell their bungalows and go bankrupt to pay off their clients' bad debts.

Veteran remisiers have seen such heartbreak over the years - particularly in times of economic crisis, such as in 1987 and 1997. And given the state of the global markets in the last few months, they are keeping their fingers crossed that it does not happen to them.

A remisier of 14 years said: 'Within a few days, the markets can sink so much. Even some of my very good clients, I'm scared they cannot pay. They lost by the millions. What to do? Everybody is in bad shape.'

She had a clean sheet for 12 years. Then three of her smaller clients went bankrupt last year, costing her $50,000.

She said: 'To be honest, our job is indeed very risky. We are like guarantors for our clients. If anything happens, we have to go after them. If they can't pay, we have to be responsible.

'That's why we are in control of the (trading) limits... If we allow losses to run into hundreds of thousands, it's really too bad, we asked for it.'

A simple example on how much risk a remisier takes on: Say, for a $100,000 deal, the client pays 0.3 per cent commission. The brokerage firm gets 60 per cent, the remisier gets 40 per cent, or $120.

A remisier of 30 years said: 'If the market drops 10 per cent, like it did in September and October, you are exposed to a $10,000 risk. But your commission is only $120. If the client runs away, you have to take over.'

So why take on such risks?

The remisier said: 'Everything is bottomline-driven. High risk, high reward, the more commission you get. If management pushes you to perform, what do you do?'

The cautious market sentiment has also led to thin trading volumes this year - and that makes it tempting to loosen the trading limits.

Mr Albert Fong, president of the Society of Remisiers (Singapore), said the society has spoken to insurers before about providing coverage against such losses, but it proved 'unworkable'.

He said: 'Nobody dared to take it. They wanted to know the profile of the clients, but there are so many, how do we assess them?'

The high risk involved would also make the premiums too high for remisiers to bear.

Another remisier suggested more transparency - to allow brokers access to data about how much a particular client owes other firms. 'We don't know if they trade with other people, or if they lose money with other places. It's very dangerous,' she said.

Under the Securities and Futures Act, such information is confidential.

By the time a delinquent account is reported to the exchange and blacklisted, it may be too late for other firms with whom the same client has accounts with.

So what can remisiers do to safeguard themselves?

The remisier of 30 years said: 'Follow the KYC rule - Know Your Client.' Observe their trades, see if they are gamblers or low-risk investors, set limits accordingly.

Others advised remisiers to exercise vigilance, especially for foreign clients.

A remisier of three years says that to protect himself, he usually asks clients for at least 20 per cent of the trading limit as collateral. If he is unfamiliar with a foreign client, he will ask for the full amount upfront.

He said: 'It's a test. If they're genuine about being an investor, they will put in the money. If they don't pay, it shows an integrity problem, so why allow them to continue?'

22 Sep

AIG share price is US$5.50. John thinks price will rise. So he puts deposit of US$50,000 and gets trading limit of US$300,000 from his remisier.

Using his Internet trading account, he buys 50,000 shares of AIG at US$5.50 per share. He doesn't really have US$275,000, nor does he intend to pay this money.

He's hoping share price will rise in next 3 days - the payment deadline. He plans to sell shares, pay off brokerage firm and keep any profits.

23 Sep

He buys another 20,000 AIG shares at US$5.50 (US$110,000) and 30,000 shares at US$5 (US$150,000) on following day.

25 Sep

John panics. AIG shares have suddenly plunged. Payment deadline is up, and he hasn't got any cash, so he sells 50,000 shares at loss - for US$3.50. He pays firm US$175,000 from sale. This means he owes firm US$100,000.

John holds on to other 50,000 shares. When he hits payment deadlines, he's forced to sell these shares at a loss too - at US$3. He gets total of US$150,000.

This means he has lost another US$110,000. John has to pay brokerage firm his total losses of US$210,000.

Broke, he flees.

This article was first published in The New Paper on November 22, 2008.