No, you need a broker to *purchase and sell* the ETFs. Once you have them in your own name, the broker doesn't own them. However, if you keep them in a nominee account/street name, then the broker owns them and you have credit risk above the government insurance limit for stock brokerage accounts ($250k in US, £50k in UK, fuck all in some places etc).
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Is IB safe enough to use as a bank for > 500,000 USD?
- Thread starter short&naked
- Start date
No, you need a broker to *purchase and sell* the ETFs. Once you have them in your own name, the broker doesn't own them. However, if you keep them in a nominee account/street name, then the broker owns them and you have credit risk above the government insurance limit for stock brokerage accounts ($250k in US, £50k in UK, fuck all in some places etc).
Quote from trading spaces:
What is the alternative? Taking delivery of paper certificates? Cannot use stock as margin then.
Yes that's true. You either take credit risk and get convenience, lower cost, can use them as collateral. Or you take direct ownership, have no credit risk, and pay more and cannot borrow against the stock. Your call.
Personally I think it is wise to have a conservative investment account, with a plain vanilla stock broker with no prop or futures trading business, where you take no credit risk, and to keep your speculative activities in a separate trading account at a different firm, where you can go for small credit risk, lower fees, margin etc.
Quote from Ghost of Cutten:
Yes that's true. You either take credit risk and get convenience, lower cost, can use them as collateral. Or you take direct ownership, have no credit risk, and pay more and cannot borrow against the stock. Your call.
Personally I think it is wise to have a conservative investment account, with a plain vanilla stock broker with no prop or futures trading business, where you take no credit risk, and to keep your speculative activities in a separate trading account at a different firm, where you can go for small credit risk, lower fees, margin etc.
Stay 100% long stock and take a margin loan if IB share price collapses.
Quote from rsi80:
Fine in theory, but isn't it a fact that IB, like all brokers, want customers' stocks to be held in "street name" so that they can be used as funding collateral?
I don't see a compelling reason why these issues necessarily need to be connected.
Even though ownership of your house is registered with you does not prevent a bank giving you a mortgage on it with the house as collateral.
IB can modify it's Terms of service in such a way so they have the right to reclaim ownership of shares and auto-liquidate them in case of a customer margin deficiency.
Or they offer two sub-accounts under their universal account, one "cash" account with shares registered in customer name, and the other a traditional margin account, and give customers the flexibility to switch positions among the two.
In any case, i am not even sure the collateral issue is the reason for "street name" accounts. Even cash accounts are currently street name.
Quote from comintel:
Unfortunately, on checking into this further, Treasury Bills may also be subject to pro-rata reduction if overall funds are insufficient.
So they are not necessarily unassailable after all.
Just to add a further note on the T-Bill topic, it appears that some lawyers in the MF Global case are arguing that T-Bills are not cash but rather are specific property of the client that should be returned to him without reduction under general principles of bankruptcy law.
Also, they are securities so there is an argument that SIPC coverage may apply to them even when it does not apply to the rest of a commodities account.
I expect that this will be fully argued out in the course of the MF proceedings and we will learn more. But for now it seems still possible that they may give some advantages over margining with cash.
Quote from comintel:
Just to add a further note on the T-Bill topic, it appears that some lawyers in the MF Global case are arguing that T-Bills are not cash but rather are specific property of the client that should be returned to him without reduction under general principles of bankruptcy law.
Also, they are securities so there is an argument that SIPC coverage may apply to them even when it does not apply to the rest of a commodities account.
I expect that this will be fully argued out in the course of the MF proceedings and we will learn more. But for now it seems still possible that they may give some advantages over margining with cash.
SIPC coverage is only for firms that are members of SIPC.
FCMs and futures IBs are not SIPC members.
For brokerage firms that are in both the securities and futures business only the securites part of the business is covered by SIPC.
Quote from jeb9999:
SIPC coverage is only for firms that are members of SIPC.
FCMs and futures IBs are not SIPC members.
For brokerage firms that are in both the securities and futures business only the securites part of the business is covered by SIPC.
Yeah I agree with you but I mentioned the argument since someone made it elsewhere.
I believe that MF Global was an SIPC member.
Parts of the business are not always separate legal entities as far as I know.
But accounts are designated as either futures or stocks and these t-bills are probably in the futures account.