Loxs, forget about the FDIC limit (amount of money protected in case a US bank goes bankrupt), it does not apply to someone in Bulgaria investing through a Swiss broker.
OK, that seems fair enough.
But then, what would be the case for someone in Bulgaria, investing through a Luxemburg (EU) broker (Keytrade) into one of the new Vanguard ETFs like VUSA [1] which is technically an Irish (EU) company (is this correct?) traded at ERONEXT Amsterdam?
Also, could someone explain this situation to me, please? Who in the above situation has what rights, owns what and can do what kind of criminal things to my money?
[1] http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0000YXKB
The Vanguard fund owns the underlying shares.
You own the Vanguard fund.
The fund is registered in Ireland, so it's under Irish supervision. It's traded on the Amsterdam exchange, so everything that has to do with the exchange listing itself (reporting rules etc) are overseen by the Amsterdam exchange and the Dutch authorities.
The broker is under Luxemburg supervision. The account will be insured under Luxemburg regulation.
If your broker goes bankrupt, the shares in your account will still be yours. They stay outside of the bankrupcy. If Vanguard goes bankrupt, the underlying shares are still yours. Only a really bad case of bankruptcy fraud can touch you and even in that case you'll probably be reimbursed.
Also, there is a layer of EU regulation and supervision over the exchange, the broker and the fund manager.
There are many places where criminal activity might take place:
- The companies the Vanguard fund invests in, can be criminal (or some kind of scandal that's not exactly criminal will take place). Once in a while that will happen. Diversification is your best defence.
- Vanguard might be criminal. There have been criminal fund managers before. But Vanguard won't be. It's a big, respectable company. Too much is at stake.
- Your broker (Keytrade) might be criminal. Again, Keytrade is a big, respectable company. The chance of them turning criminal is vanishingly small.
- Someone might phish your account details, log in under your name and plunder the account. If you can convince the police and the broker that it's theft, you'll probably be reimbursed.
A custodian is a company that does the administration of share ownership. Back in the days when shares were paper certificates, the custodian had a vault where all the share certificates were laying. Nowadays, it's a purely administrative function. Custodians are highly regulated and financially insulated from the rest of the company they're part of. No need to worry about that.