Many brokers have "excess SIPC coverage", but that has its own per account and aggregate limits.
at what point would you use multiple broker accounts to improve your insurance coverage?
Is it possible for brokers to hold your securities in "direct registration", or does that mean they will not be reflected on your broker statement?
what else should I be asking here??
thanks.
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brokers are supposed to keep your securities segregated from their assets, so if they go belly up, that means all your securities are still there for you.
1a. somebody (SEC??) audits the brokers to make sure they are doing this.
1.b the broker makes periodic reports showing they are doing this.
Q1: how do we really know this is happening, or will "stay" happening when the broker starts gasping for air?
during the hiatus between the time you execute and order and the (soon to be "your") securities are segregated from the broker's assets, they are at risk.
Q2: how long is this hiatus? I think this does not equate to the period required for you to settle your account, but is likely some additional time required for the broker to push paper/bytes around.
In the event a broker goes under, your cash is SIPC protected to 0k. Above that, cash may be protected by "excess SIPC" insurance, to a maximum amount per account, and a maximum aggregate account. And, as you point out, what is the strength of the insurer?
In the event a broker goes under, your securities are SIPC protected to 0k (less any SIPC cash protection). Of course, if all your securities are properly segregated, they are still there for you. If not, or you have securities in the hiatus period, you will be looking to SIPC for protection.
Q4. Are securities borrowed from your account to accommodate short sellers still segregated for you??
In the event a broker goes under, you securities losses above 0k (less SIPC cash protection) may be covered by "excess SIPC protection". This has a limit per account, and an aggregate limit. I note that E-Trade's aggregate limit is 0M, which sounds like a lot, but I wonder. they have a lot of accounts, and a lot of customer securities.
Q5. Uh, what was my original question??
oh, I guess I wonder if there is a way to ensure that "my" securities are properly segregated. If they are held in street name, I suppose you are at the mercy of the broker (and the auditors) to see that this is true. But, if you can have your securities held at a broker held by you via "direct registration", segregation seems assured. So, are my shares held at a broker held in my name via "direct registration"? If not, can I request the broker do so? Would this necessarily require paper certificates sent to and held by me (I prefer not to do this)?
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this doesn't ease my concerns. What if you have more than $500k and there is misappropriation or negligence?
I think if your shares are held in "direct registration" by the issuing corporation, there is less likelihood of misappropriation or negligence, but still not a 100% assurance.
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Still working on this, but a couple of things occurred to me.
I believe some mutual funds will hold an account for you, so you have a registration in your name and bypass a broker. I'm not sure that improves safety - it may reduce it.
The SIPC website would be a place to start digging into the specific rules and regulations - they may have something there to indicate an answer to your question - registration in your name as opposed to street name (the name of the brokerage). The repeal of the Glass- Steagall ACt (nine years ago) may not have affected rules for segregation of accounts. A long time ago, I asked the question you have asked about stock certificate registration, and as I recall the explanation was that while the shares are registered with the Registration Agent in the Broker's name, the Broker segregates those shares into a Client Account, together with the cash, where all transactions take place. So it is somewhat like having a checking account at a bank - the bank keeps your funds in a Client Account. (I'm not sure which is safer.) I hope that makes you feel a little bit safer, but the real issue is knowing the facts, so that you know, exactly, the regulatory mechanics and what might or might not happen.
There is a difference of course between the 500k SIPC Insurance on the stock portion and the cash portion. Cash in excess will not be covered (300k stocks, 200k cash = 400k SIPC coverage). In practice, I believe the cash is usually returned first, and the shares weeks (or months) later.
A question related that I don't believe you asked is what happens in a margin account, and how that is different from a cash account. Some transactions cannot be done in a cash account, but can be done in a margin account. I asked (a long time ago) if shares in a margin account were being loaned to short sellers - I didn't fully understand the answer, but apparently they were not being loaned. The margin account seems to me to be a bigger issue than the registration of shares, although obviously if you hold the certs in a bank vault, they can't be loaned.
There are companies who will hold your shares in your name, but will not trade them for you. You have to request a transfer of those shares to an entity (such as a broker) that will trade them for you.
There are also differences between the ways a Broker handles accounts, and the way a Bank Owned Broker handles accounts.
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