When brokers go bankrupt.

[Stuart D]

My concern is that if my broker goes bankrupt, it might be difficult to recover my shares (that I have bought using their platform). For Australian equities I am using one of our large banks brokerage services because that feels safe. Since joining  the CoBF I have discovered a myriad of interesting Canadian investments (thank you!). Most Australian brokers don't offer access to Canada, so I'm looking for a safe/reliable broker that does.

 

Firms such as CMC Markets have heaps of good reviews, but with their emphasis on CFD trading they kind of feel like a casino and if they went bankrupt I think I would have a difficult time getting my money back.

 

Any recommendations on a safe broker to use for non-Canadian Residents who want to buy Canadian Equities?

[Stuart D]

Ah,

A friend has just explained to me that you can buy shares through a broker, that broker can go bankrupt the next week and it doesn’t matter because you still own the shares. The certificate the broker sent you saying you own them is all that counts. You could take that certificate to another broker and they could sell the shares for you. Is this right?

Thanks,

[Orchard]

If you have a margin account it could take some time for you to get your shares if they were to go into bankruptcy.

[Cigarbutt]

In the 'developed' world, 1-brokers are quite heavily regulated, 2-there are mechanisms in place for clearance and 3-typically, there are funds set aside to reimburse swindled investors as smaller brokerages are not immune to bankruptcy or disappearing funds.

But there are limitations, the process may take time and there are grey zones such as cash held in accounts.

You may want to deal with larger and well established firms.

[Cardboard]

"The certificate the broker sent you saying you own them is all that counts."

 

No idea how it works in Australia but, in Canada and U.S. you have to make a special request and pay fees to obtain stock certificates. All you get normally is a statement indicating that you own such and such.

 

However, if you have certificates in hand then you have no worry.

 

As Orchard alluded to, if you have your shares in a cash account, then all of this is segregated from the broker. However, if you have a margin account, then they are "held" by the firm and they can lend these shares to short sellers. That is when brokerage insurance (fund for all brokers) and government bail-outs kick in if one defaults to reimburse clients but, it could take time and there is always risk.

 

Cardboard

[Stuart D]

@Orchard, @Cigarbutt, @Cardboard ~ thanks for your comments, much appreciated!