FIDC $100k Cover at the bank

[Digs]

I understand that if a bank goes down, a bank can cover $100k cash via insurance for each individual account.

So If my broker has $100k of my cash, I assume I am covered.

But if I have $500k, and I buy $400k of stocks and bonds and I have $100k cash, an I still covered if the bank goes south because I own securities.

I assume that the same if I buy stocks with margin.

Please advise ?

 

[gnome]

Quote from Digs:

I understand that if a bank goes down, a bank can cover $100k cash via insurance for each individual account.

So If my broker has $100k of my cash, I assume I am covered.

But if I have $500k, and I buy $400k of stocks and bonds and I have $100k cash, an I still covered if the bank goes south because I own securities.

I assume that the same if I buy stocks with margin.

Please advise ?

You're mixing the concept of "banks" and "brokers".

1. Nearly all banks are insured by FDIC, which provides $100K insurance per qualifying account.

2. Brokers do not have FDIC insurance, but rather have SIPC insurance.. which covers $500K in assets, but no more than $100K in cash.

3. If any bank goes south, it has nothing to do with a brokerage account (unless brokerage cash has been swept into an affiliated FDIC insured account/institution).

 

[Digs]

Ok thanks.

So if I have $1,000,000 of MSFT shares and the bank goes down that my broker uses,

Are you saying that $500k is at risk ( assuming no margin used).

Hows that, doesnt being the market protect me, as I own an asset ?

 

[nonam]

I also would like some informed opinion on this subject.If your broker goes belly up do you own the positions which are not margined in your account?Or will the court appointed bankruptcy liquidator treat them as assets belonging to the broker?

 

[brokerboy]

Quote from Digs:

I understand that if a bank goes down, a bank can cover $100k cash via insurance for each individual account.

Its 100k for individual accounts but if you add your child as the secondary of the account it goes up 100k each on there name.

 

[TM_Direct]

Quote from nonam:

I also would like some informed opinion on this subject.If your broker goes belly up do you own the positions which are not margined in your account?Or will the court appointed bankruptcy liquidator treat them as assets belonging to the broker?

SIPC is a joke...nothing more then a marketing ply used to convince investors everything is ok...here's how it works:

You have an account with ABC Securities

They clear their trades through say..Penson

you have 150k in cash in a MM fund and a dozen positions in stocks totaling 750k

ABC goes under....No SIPC necessary because your broker doesn't;t hold the stock and cash...

Penson Goes under a week later...a little ore dicey but the reality is SIPC then calls up all the other clearing firms and says : Hey SIPC participants...who wants to bid on all these accounts held at Penson"??

The highest bid that pays off the most debt and gives the clients an easier transfer gets the accounts AND often times SIPC mandates that the firms must sign a new clearing agreement for no less then 3 years ....

so in the end ..SIPC does squat...and yes , Im an expert at this....

Penson's money is held at a back and all security positions are held at DTC...just like every other clearing firm

 

[Digs]

Dear TM Direct,

So I assme the $750k of my money is safe as the other clearing firm buys the account, but is it safe on a $1 to $1 rate ?

Thanks for your input.

 

[Don Bright]

I'm not a particular fan of SIPC either, but for another reason. We, as exchange member floor traders, had to pay SIPC dues for decades....even though we had zero protection, zip, nada, LOL.

Don

 

[dandxg]

Quote from TM_Direct:

SIPC is a joke...nothing more then a marketing ply used to convince investors everything is ok...here's how it works:

You have an account with ABC Securities

They clear their trades through say..Penson

you have 150k in cash in a MM fund and a dozen positions in stocks totaling 750k

ABC goes under....No SIPC necessary because your broker doesn't;t hold the stock and cash...

Penson Goes under a week later...a little ore dicey but the reality is SIPC then calls up all the other clearing firms and says : Hey SIPC participants...who wants to bid on all these accounts held at Penson"??

The highest bid that pays off the most debt and gives the clients an easier transfer gets the accounts AND often times SIPC mandates that the firms must sign a new clearing agreement for no less then 3 years ....

so in the end ..SIPC does squat...and yes , Im an expert at this....

Penson's money is held at a back and all security positions are held at DTC...just like every other clearing firm

Thanks for the lesson. What if no one bids in a credit meltdown? No one gets their money back?

 

[Digs]

..."Penson Goes under a week later...a little ore dicey but the reality is SIPC then calls up all the other clearing firms and says : Hey SIPC participants...who wants to bid on all these accounts held at Penson"??

The highest bid that pays off the most debt and gives the clients an easier transfer gets the accounts AND often times SIPC mandates that the firms must sign a new clearing agreement for no less then 3 years ...."...

Hang on...

So if I own MSFT, no margin, this can be liquidated and I get all my money back.

But if the MSFT is liquidated and its not enough to cover margin then I have lost, and so has the Penson, hence the debt your a talking about.

If there is other debt held a penson thats not the result of account margin calls, then thats Penson problem, not an individual account problem, an account that is net asset positive must be ok, surely.