Quote from Ghost of Cutten:
One major problem here is that is seems very difficult, even *after* the MF crisis, for a normal customer to be able to find a simple trading account where they know their money is not used for anything other than funding their own trading, where the assets are held in their own name, where the credit risk is essentially zero.
Yes, we know this would be more expensive. Personally my trading volume is pretty low, so I would not mind paying 10 times the commissions in order to reduce credit risk to zero. So, where is the conservative futures broker that offers this?
Furthermore, at the moment we have no clue what the credit risk is at ANY firm on the street. Segregated accounts aren't segregated (and are co-mingled with other traders funds anyway), client funds are legally lent out with huge leverage to sovereigns on the brink of default, then we have this muddy issue of re-hypothecation. The fact is that 99.9% of customers have no clue what the credit risk is, what the legal rights and obligations are in the event of a broker failure, or where there money goes. NONE of the brokerage firms, regulators, or account documents make this at all clear.
So, as you are seeing here on this thread, and others, and all over the net, customers are reacting rationally by withdrawing money and scaling down risk while this lack of clarity persists. Brokers should not kick and scream when their profits get decimated by customer withdrawals.
The clear need here is for transparent credit risk and legal liability/obligation. Clients need to know the following:
i) what credit risks are they taking
ii) how does a conservative customer minimise the credit risk?
iii) if the broker goes bust in a worst case (i.e. a Nick Leeson-type blows up the company), what happens to their capital?
Brokers will now need to provide super-conservative account options e.g. stock held in customer, not street name; genuinely segregated accounts held outside the broker's reach; auto-sweeping from futures to stock accounts of all capital not needed for margin; put client capital into low-risk t-bills, not commercial paper, or Greek garbage yielding >10%.
The first brokerage firm to credibly and competently do this should see an enormous influx of client funds. The costs will be higher but I bet most customers would prefer to pay a fair cost per RT in exchange for having security of funds. No one wants to risk 100% loss of life savings to save $1 per round trip.
