Have you talked to your stock broker lately?

12 posts / 0 new
Last post
ewilkerson's picture
ewilkerson
Status: Gold Member (Offline)
Joined: Jul 18 2010
Posts: 390
Have you talked to your stock broker lately?

After the collapse of M S Global I read as many articles as I could.  Of course there was a lot written.  I do not know which article it was, but under the Bush Administration the new Bankruptcy Law was passed.  I imagine many of you have seen how weighted towards the bankers the law is.  I had several questions I wanted to ask my broker.  Keep in mind I had already decided to go far less in the market, more in cash, and much more in PMs.  But I help my mother with her finances, so I wanted  clear answers.

I called my broker and he was more than happy to have his complience department write me a letter, which is coming, via slow mail after he printed it.  Everything was fine until my conversation this evening where I asked him about if they failed who is paid first? It has always been the client!!   My understanding is that the derivtives contracts are paid before client accounts can be made whole.  This was purposely done during the writing of the legislation.

I asked my broker about this when we talked today after he had gotten a response on hypothecation and (re) hypothecation (The one he sent slow mail).  When I asked about the fact that BA&ML would make whole their derivatives before my account in case of a bankruptcy  he stopped answering questions.  He would not commit the Bank in any way.  He offered the phone number of their complience department.

I will give him that he really may not have known, but cooperation did stop quickly.  I plan to contact them for my mother's sake, but as one of the articles I read either on here or somewhere else were clear on that subject.  The wall between client accounts and the firm's are being diluted.  The best way it was said was that if you can't be sure you will receive money settling trades OUR LAWS HAVE BECOME LIKE A BANANA REPUBLIC.

Just consider hard times.  Who  do you think will win  YOU OR THE BANK?

All comments and information welcome.

Ernest

SailAway's picture
SailAway
Status: Gold Member (Offline)
Joined: Aug 11 2010
Posts: 404
Re: Have you talked to your stock broker lately?

ewilkerson,

For the Sprott/Global Resource Investement customers, Rick Rules addressed the MF Global the re-hypothecation issue 3 days ago. It seems pretty safe at Sprott:

Here is the podecast, interresting even if you are not a customer:

http://www.sprottglobal.com/educational/rick-rule-4th-quarter-market-commentary

 

 

ewilkerson's picture
ewilkerson
Status: Gold Member (Offline)
Joined: Jul 18 2010
Posts: 390
Thanks sailaway.  Just

Thanks sailaway.  Just wanted to help.

SailAway's picture
SailAway
Status: Gold Member (Offline)
Joined: Aug 11 2010
Posts: 404
Re: Have you talked to your stock broker lately?

 ewikerson,

Thanks for starting this thread, maybe other could provide feedbacks if they have more information about their own brokers. 

I made a little bit of research this morning and it seems that the risk of re-hypothecation with any broker is real if you have a margin account. A cash account seems to be safer.

I found this link this link on the Miles Frankling site and if you scroll way down the author touches the re-hypothecation topic with Schwab and provide a link for more information about E*Trade, Scottrade and Fidelity:

http://blog.milesfranklin.com/rehypothecation

This what is wrote about Schwab:

 

 

Per the comments below about Schwab, I want to explain further, given that I have the small amount of my net worth NOT in my house and PHYSICAL metals in Schwab brokerage accounts.  I have gone over the company’s net-debt free balance sheet at length with the company’s Investor Relations department, and remain confident in the firm’s integrity and relatively low business risk.  If you have any questions for Schwab, please email Chelsea de St. Paer at[email protected], she is very helpful and intelligent.

Secondly, I need to emphasize the ONLY way Schwab can rehypothecate your securities is if they are in a margin account that is currently utilizing margin.  I long ago stopped utilizing margin, a standard I HIGHLY RECOMMEND readers to emulate.  Irrespective, my account, and my wife’s, were still margin accounts, so on Friday we had them switched to CASH accounts, as far as possible from a situation where rehypothecation, a la MF Global, could occur.

Not to say Schwab is IMMUNE from securities industry systemic issues – IT IS NOT – but if you MUST have your funds somewhere in “the system,” you must carefully choose where, and I am remaining with Schwab.  Please do your due diligence on this topic, as I expect the banking system minefield to become more dangerous with each passing day.

 

He also provides this link to the Silver Doctor blog where the author went through the fine print in the customer agreement of E*Trade, Scottrade & Fidelity:

 http://silverdoctors.blogspot.com/2011/12/etrade-scottrade-fidelity-fine-print.html

E*Trade:

(b) Loan or Pledge of Securities

I authorize E*TRADE Securities to lend either to itself or to others any Securities and/or Other Property held by E*TRADE Securities in my Margin Account to the extent permitted by law. I understand that within the limitations imposed by applicable laws, rules and regulations all of my securities and/or other property may be pledged and repledged and hypothecated and rehypothecated by E*TRADE Securities. This can occur without my being notified, either separately or together with other securities and/or other property of other customers of E*TRADE Securities, for any amount due E*TRADE Securities in any Account in which I have an interest; provided, however, that E*TRADE Securities may not undertake such actions from any Account for any amount due E*TRADE Securities in any retirement Account or from a retirement Account for any amount due E*TRADE Securities in any other Account.

https://us.etrade.com/e/t/estation/help?id=1209031000

Scottrade:

All securities and other property now or hereafter held, carried, or maintained by us in or for your account may, from time to time without notice to you, be pledged, re-pledged, hypothecated, or re-hypothecated by us, either separately or in common with other securities and other property.  The values received may be greater than the amount you owe us. 

http://www.scottrade.com/documents/formscenter/SF1011_Margin_Agreement.pdf

Fidelity:

Fidelity can loan out (to itself or others) the securities that collateralize your margin borrowing. If it does, you may not be entitled to receive, with respect to securities that are lent, certain benefits that normally accrue to a securities owner, such as the ability to exercise voting rights, or to receive interest, dividends, or other distributions.

http://personal.fidelity.com/accounts/pdf/usingmargin.pdf?refpr=mmg4

Bottom line is it seems that if you have a margin account, you are at risk of  re-hypothecation.

Finaly, there was this message from Paul Tustain at BullionVault regarding the risk of the gold holding but also the cash that a customer might keep in their bank if not invested in PM:

BullionVault's role is to help people use physical gold to remove

themselves from the web of debtor/creditor relationships which are

steadily unwinding in this extended and deepening credit crunch.  I

stress (I spend a lot of time stressing this) that we are not at all like

a bank.  You are your bank's creditor.  The bank owns what was

your money, and owes it back to you.  That is the deal with

banking and it means the bank might not be able to pay.  But it is

not the deal with BullionVault, where you own your gold.  We are

not lending your gold.  We have acted as your agent in organising

professional and insured custody of your gold - as your property -

so it is not subject to default risk.



The point is that through BullionVault you have extricated yourself

from the creditor/debtor nature of rent seeking, and it is for this

reason that I believe I am justified in saying that BullionVault is a

particularly safe way to store wealth right now.  I keep my own

savings in BullionVault to avoid worrying about banks.  Okay, I get

no interest, and I am exposed to gold price falls (and rises).  I

accept this because I am trying to avoid rent-seeking risks and

money-printing risks at the same time.  BullionVault does it the

way I want it.



Which brings me to bank balances.  When BullionVault users have

deposited funds, but have not yet invested that money in gold or

silver, their money is in a Trust Bank Account.  As with all deposits,

the bank owns this money and owes it to BullionVault users

collectively.  You are safe while the bank is solvent and liquid, but

that is not guaranteed in these difficult times.



So is your un-invested money safe in the Trust Account?  I think

so, but I cannot be sure, because I cannot be sure about banks.  I

believe we are using one of the safer banks in the world, on the

strength of reputation, and stress tests, and because of the credit

of the British government, which I believe would print money to

rescue Lloyds Bank depositors if that were necessary.  But

BullionVault cannot and does not guarantee your cash held at

Lloyds in the Trust Account,
so until you own bullion in one of our

vaults, your uninvested money is subject to default risk.  If this

worries you, you should either buy gold or silver, or withdraw your

money to your own bank.

 

 

 

ewilkerson's picture
ewilkerson
Status: Gold Member (Offline)
Joined: Jul 18 2010
Posts: 390
Sailaway:   Thanks for

Sailaway:

 

Thanks for adding that information.  I had gotten my actual contracts from BAML yesterday , and you were right about cash accounts being safer.  I did not copy and paste the passages because of their legal warnings with the email.  I still believe, and my broker arrogantly confirmed that derivatives would be paid first in the case of bankruptcy.  Disposing of Glass-Stegall has made the financial system a house of cards.

My broker is in the area where they provide more personal service, but I about fell out of my chair when he said oh once they settle things down in Europe the Dow will rise 2000.  I had to laugh at him knowing he was repeating BAML company line.

I did try to register the remainder of my shares that the money isn't in PMs directly with the respective companies, but they have made it so hard and expensive according to my broker I gave up that idea.  I had read on here or somewhere else that if you are registered directly with the company you own shares in you are not comingled in bankruptcy.

After going back and forth with him, I asked him to sell the remainder of my stocks and close my account.  I told him I was not so sure they would survive the collapse of Europe and I did not want my money paying off some.........!

Ernest

P. S.  I just received the letter telling me how safe my money was.  I'll scan and post it later.  There are some glaring omissions such as hypothecatin and (re) hypothecating and what happens in bankruptcy.

dshields's picture
dshields
Status: Platinum Member (Offline)
Joined: Oct 24 2009
Posts: 599
Schwab

I have an account at Schwab.  I talked to one of them about a week ago.  It was a very interesting conversation.  He did not mention MF Global.  He did talk about Europe and debt in general.

 

land2341's picture
land2341
Status: Gold Member (Offline)
Joined: Aug 20 2009
Posts: 402
I'm sorry if I am a little slow on this area

 But, I was looking at my bank statements for my capital account and they have different language at the bottom now than they had before their last merger....

It points out the lack of FDIC coverage for the account but no longer reminds me that SPIC covers it.  I have a call in now to clarify,  but he hasn't called me back.  Does this coverage still exist or is it no longer valid anyway??  Just how panicked should I be feeling?

ewilkerson's picture
ewilkerson
Status: Gold Member (Offline)
Joined: Jul 18 2010
Posts: 390
I'm not so sure SPIC covers

I'm not so sure SPIC covers these accounts at Global.  I don't know why, but all the articles I have read do not indicate it.

land2341's picture
land2341
Status: Gold Member (Offline)
Joined: Aug 20 2009
Posts: 402
rules? What rules?

 There are different rules about different types of accounts,  but they are constantly changing,  obfuscatory and misleading.  And these days I fear that no one is much bothering to obey them anyway.  And this, truly is where the whole shebang falls apart.

If I don't beleive I can trust the systems the system doesn't work any more.  Little pieces of green paper in fiat only have value if we all agree to pretend they have value.  If our shared symbolic interaction falls apart, it falls apart......

SteveW's picture
SteveW
Status: Gold Member (Offline)
Joined: Jan 21 2010
Posts: 490
Insurance

It is my understand that SIPC covers bankrupt brokerage accounts (equities, bonds, cash etc. to specified limits) but does not cover futures and so the MF Global situation.

In Canada our equivalent CIPF does protect against futures as well as equities and MF Canada clients were made whole by the agency.

This does not discount the possible complete failure of SIPC nor any decision to change the rules..

dshields's picture
dshields
Status: Platinum Member (Offline)
Joined: Oct 24 2009
Posts: 599
mf global
SteveW wrote:

It is my understand that SIPC covers bankrupt brokerage accounts (equities, bonds, cash etc. to specified limits) but does not cover futures and so the MF Global situation.

In Canada our equivalent CIPF does protect against futures as well as equities and MF Canada clients were made whole by the agency.

This does not discount the possible complete failure of SIPC nor any decision to change the rules..

I believe that you are correct.  Futures accounts are not covered.  The entire way the MF Global situation has been handled raises some serious questions.  The accounts of the people/companies were supposed to be held separate from their corporate assets.  Just like your savings and checking accounts at your bank are separate.  If you have a checking account at xyz bank and they go under your money is supposed to still be there.  They can not just take it and pay it to JPM to cover some corporate debt there.  I am not a finance lawyer but I did read up on what went on at MF Global and it looks to me like there was some illegal activity.  It would be reasonable to expect some people to go to jail but I doubt it.  If any do it will be the little people.  No big shots will go to jail.  Corzine will walk.  Corzine is one of the very largest democratic party aggregation people. He collects up money from rich people and corporations and turns it over to the DNC and select canidates like Obama.   Just recently he threw a 35,000 dollar a plate dinner for the DNC.  He can't be touched.

ewilkerson's picture
ewilkerson
Status: Gold Member (Offline)
Joined: Jul 18 2010
Posts: 390
I just find is disquieting

I just find is disquieting that JP Morgan went in and had Corzine pay them for their derivatives, and now ordinary people wait. The big bank gets paid.  I'm not sure how SIPC insurance would work here.  All I know is what the Bankruptcy law says about paying derivatives first and someone like BAML has $50trillion derivatives on their books.  Sound too big to fail or sound too dangerous to have your brokerage there? I thought so and closed my account after I got personally the arrogance from my broker. of the big banks.  "Of course the derivatives should be paid first."  The system is seriously broken and this is this first time in my 53 years I own no stocks.  I'm now going more and more gold and silver and using the money to be better prepared.  Oh, and there was that trip to the beach..LOL 

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments