Author Topic: Terms of conditions query of online broker  (Read 1414 times)

Asgard01

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Terms of conditions query of online broker
« on: May 09, 2014, 12:48:42 PM »
Hi all,

I am just wondering if someone can help explain the following in bold. That seems a bit worrying. It seems that most the execution only online brokers contain the same terms. Am I over exaggerating what this might mean?

Quote
11.2 We have legal title to the investments and you retain the beneficial entitlement at all times. In respect of the holding of both cash and investments, our arrangements fully comply with the requirements of the FSA and HM Revenue & Customs rules and regulations.
11.3 Your investments will be pooled with investments held for other clients and held electronically in our safe custody. This means that your investments will not be separately identified from those of other clients and if there is a shortfall in any of the holdings of investments, you may share proportionally in such losses.
11.4 We have accepted responsibility under the FSA Rules for any custodian function that we carry out. We will not disclaim losses arising directly from our fraud, wilful default or negligence. We are wholly owned by the Lloyds Banking Group.

Regards
Chris

clifp

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Re: Terms of conditions query of online broker
« Reply #1 on: May 09, 2014, 01:54:28 PM »
Yes it does. But remember brokerage have SIPC insurance which protect you from the first $250,000 worth of loses if you brokerages goes broke. Many brokerage carry additional coverage, so for example Schwab has Llyods of London policy which provide insurance for up to $1,150,000 in cash.

If you have more than $250,000 in a bank than in theory you could lose some of the money, because your deposits are pooled with other depositors.  In practice customers deposits and customers securities are the first thing to be paid in the even of bankruptcy, so it is very rare for anybody to lose money.

Even the MF Global scandal where $1.5 billion when missing for a while, eventually ended up in the customers being made whole.

marty998

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Re: Terms of conditions query of online broker
« Reply #2 on: May 09, 2014, 05:29:44 PM »
The real problem is if client money is pooled with their own working capital company money.

Otherwise you should be ok if it is definitely kept in a separate custody arrangement.

If there are cockups, the media will be on your side. There's usually a journo out there who will be all over it (like MF Global as clifp mentioned).

Asgard01

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Re: Terms of conditions query of online broker
« Reply #3 on: May 10, 2014, 02:24:43 AM »
Thanks for the replies. I've switched to a flat fee broker per trade rather than percentage broker as I have enough money to start saving money by using 12 trades a year at $8 a trade. I just noticed this whilst reading through the T&Cs

Chris