When reading a post with a keyboard, you can type the keys , and . to move backwards and forward between posts! You can also press 'return' to read through posts one at a time. There's freedom in Shrewd'm!
- Manlobbi
Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤
No. of Recommendations: 1
Not being a pessimist here, but how safe are our Berkshire shares that are held in "street" name by a brokerage firm? Could a run on Schwab, Fidelity or others harm their client if the value of the shares held exceed the federal insurance coverage?
Just wondering.
Philmordun
No. of Recommendations: 1
I wondered the same thing.. in 2008 , I actually took possession of the paper certificates , a few years ago I put them back in brokerage....you cannot get paper certs anymore I was told.....this question is relevent to all street shares. I looked up the FDIC and SPIC regs on Fidelity website, not re-assuring ..its kind of.. "well if its ours ,its safe" but not if its yours....
No. of Recommendations: 5
No. of Recommendations: 1
That was discussed in length at the old board.
As far as I remember the result was that Munger is correct in saying the only 100% protection is to register them in your name and that otherwise there are scenarios in which you can lose them.
No. of Recommendations: 14
Being a bit paranoid, I looked into this recently for my Berkshire shares. Here is a document on Berkshire's website that should be helpful:
https://www.berkshirehathaway.com/brkshareholderin...The short answer is that one can take possession of physical certificates for Berkshire or hold stock directly with the transfer agent (EQ) via their direct registration system which is supposed to be the digital equivalent of holding physical securities. In contrast, owning securities at a brokerage means they are in "street name", not registered to you directly.
My understanding is that cash accounts (that is, accounts not set up for margin) are considered very safe and currently I have my Berkshire at Vanguard and Fidelity. That being said, more than half of my shares have a very low cost basis and sit in a taxable account. If I ever need to tap those shares, it won't be for a very long time. I have considered putting those shares into the direct registration system at EQ since I would not need to suddenly gain access to those shares to sell them.
One issue with EQ that I've heard about (probably true for all transfer agents) is that the direct registration systems are kind of a pain to deal with. You'll likely need medallion signature guarantees (not just notary guarantees) and medallion signature guarantee is only offered by certain financial institutions. I do not maintain local banking relationships and I have found it next to impossible to obtain a medallion signature guarantee in the past. I would probably have to establish a local banking relationship just to do this, so I've dragged my feet.
But can you imagine the implications of Fidelity or Vanguard going bust in a way that affects securities held by clients in cash accounts? That would be apocalyptic, and I don't think I'm exaggerating!
No. of Recommendations: 3
I am not sure I understand the distinction between margin and cash accounts when it comes to safety in the event of a broker going bankrupt. Is this also the case for a margin account with no margin balance outstanding?
I have set up my taxable brokerage accounts with margin. I did this so that I could buy shares without having cash in the account. If the trade happens I transfer funds via ACH. Broker sweep accounts pay abysmal interest, so I keep no cash there. I have never actually had a margin balance, except once when I was assigned a short put while on a cruise and couldn't initiate a cash transfer the same day.
Also if I remember correctly I had to open a margin account to get approval to trade options. This was a long time ago, and I am not sure this is still a requirement.
Thanks.
No. of Recommendations: 5
This discussion prompted me to call Fidelity to clarify exactly what a margin account means. They have been getting lots of calls on the subject. Like you, I have a taxable brokerage account registered as 'margin,' ostensibly to allow for the bridging and overnight settling of buys and sells of stock to and from my money market fund to the core/sweep fund, but the rep verified for me that I have not taken the extra step to allow for lending of my BRK shares. That is what I was glad to hear.
Also, piggbacking off of rationalwalk's post, the direct registry thingy is something Fidelity did do for some GameStop investors last year. My rep said someone will get back to me to explain how to do it in a more granular way, but admitted that it is a cumbersome process, with some pros and cons, and may not offer all that much more peace of mind for the safety considerations being discussed here, given the headaches. Next, I got to call Schwab, where my 401k resides, and clarify the same issues.
No. of Recommendations: 2
Also if I remember correctly I had to open a margin account to get approval to trade options. This was a long time ago, and I am not sure this is still a requirement.
To be able to simply buy/sell calls/puts 2-3 years ago at Schwab one needed approval for option trading level 1, which did not require a margin account. Only for higher levels a margin account was required.
No. of Recommendations: 4
Interactive broker has extra insurance protection over the SIPC limit. How reliable is such insurance?
https://www.interactivebrokers.com/en/general/acco...).
<Account Protection
Client securities accounts at Interactive Brokers LLC are protected by the Securities Investor Protection Corporation ("SIPC") for a maximum coverage of $500,000 (with a cash sublimit of $250,000). In addition, Interactive Brokers LLC carries an excess SIPC policy with certain underwriters at Lloyd's of London,1 which extends the per account2 coverage by an additional $30 million (with a cash sublimit of $900,000), subject to an aggregate limit of $150 million. Futures and options on futures are not covered. As with all securities firms, this coverage provides protection against failure of a broker-dealer, not against loss of market value of securities.
>
No. of Recommendations: 8
rationalwalk wrote: "One issue with EQ that I've heard about (probably true for all transfer agents) is that the direct registration systems are kind of a pain to deal with. You'll likely need medallion signature guarantees (not just notary guarantees) and medallion signature guarantee is only offered by certain financial institutions. I do not maintain local banking relationships and I have found it next to impossible to obtain a medallion signature guarantee in the past."
I had to deal with Computershare to transfer some stock while settling an estate not long ago, and I couldn't find anyone locally to do it. I think JD Edwards could do them but didn't for non-customers. Wells Fargo stopped offering them. So I ended up using eSignature Guarantee, an online outfit that provides them, recommended by Computershare. They were pretty easy to work with, but it's kinda expensive: $149 per medallion.
The whole medallion thing seems kinda antiquated and crazy.
No. of Recommendations: 1
No. of Recommendations: 4
"I am not sure I understand the distinction between margin and cash accounts when it comes to safety in the event of a broker going bankrupt. Is this also the case for a margin account with no margin balance outstanding?"
I have not studied this in depth, but my understanding is that if you have a margin account, your securities can be lent out. I am not sure if this can only occur if you have a margin balance outstanding. I have never used margin.
No. of Recommendations: 3
"I have set up my taxable brokerage accounts with margin. I did this so that I could buy shares without having cash in the account. If the trade happens I transfer funds via ACH."
My experience at both Vanguard and Fidelity is that they permit me to trade immediately after I transfer funds from my bank via ACH. They do not wait for the funds to clear/settle before they are available for me to trade. I suspect that there would be some hold if the amount is large enough relative to the overall balance of my portfolio.
Lately, I have been keeping most of my cash in treasury bills at Vanguard. So if I need funds to buy stock, I could sell t bills and immediately have funds available to transact. When t bills were yielding nothing, I tended to keep more money in my credit union which was paying 0.5% back when treasuries were at 0%. But I rarely kept more than the FDIC limit at the credit union.
No. of Recommendations: 8
I got the following from the SIPC FAQ:
https://www.sipc.org/for-investors/investor-faqsHow are margin accounts protected?
Under the Securities Investor Protection Act, what is owed to a customer is based on the customer's 'net equity.' 'Net equity' generally is the cash and securities owed to the customer by the brokerage firm minus any indebtedness owed by the customer to the brokerage firm. For purposes of computing a customer's 'net equity,' cash and securities that are collateral for a margin balance in a customer's account are amounts owed to the customer by the brokerage firm. To arrive at the customer's 'net equity,' however, the amount of the margin balance in the account ' which represents a customer debt to the brokerage firm - is subtracted from the total cash and securities owed to the customer by the firm.
If I have a margin account, what can I do to get my securities back?
A customer who has a margin balance in an account must pay the margin balance before any cash or securities otherwise owed to the customer can be returned. Any such payment must be approved by the trustee for the liquidation of the brokerage firm and must be made within the time period specified by the trustee.
From an eligibility for protection, it doesn't matter whether it is a margin or cash account and whether you have a margin balance or not. Your net equity is protected, however, process of recovery may be complicated if you have to pay your margin balance first and then wait to get your securities back.
I also got this information from my broker:
Additionally, Broker provides each client $149.5 million worth of protection for securities and $2 million of protection for cash through supplemental coverage provided by London insurers. In the event of a brokerage insolvency, a client may receive amounts due from the trustee in bankruptcy and then SIPC. Supplemental coverage is paid out after the trustee and SIPC payouts and under such coverage each client is limited to a combined return of $152 million from a trustee, SIPC, and London insurers. The Broker's supplemental coverage has an aggregate limit of $500 million over all customers. This policy provides coverage following brokerage insolvency and does not protect against loss in market value of the securities.
To our knowledge, claims on a private supplemental policy, such as our coverage by London insurers mentioned above, are extremely rare in the history of the SIPC (established by Congress in 1970). This is because most brokerages deposit their customer equities at the DTCC, a depository trust institution from which the equities are readily available to be recovered by SIPC and returned to you. (See www.dtcc.com.) Likewise, any investments in mutual funds or money market funds are also readily available for recovery from the fund.I don't know if there is any scenario in which a broker has failed to register your securities with DTCC.
I hope never to have to find out how easy it is to recover my assets from a brokerage insolvency.
No. of Recommendations: 4
I think it is funny that the discussion of safety of berkshire shares concentrates on the difference between holding in street name, or your own name, the shares.
How do berkshire shares fare in the event of a nuclear war? A pandemic that actually decimates us? A takeover of the American government by people who think that not extending the debt limit of the US Government is fiscally responsible (and thus crater the US dollar)?
I don't think holding our berkshire shares in a fireproof weatherproof safe you have buried underground will help much in any of these situations.
Not to discredit the technical issues being discussed here, but isn't it more likely that the US gov't gets an elected government that craters the US dollar than that Fidelity has some event that causes it to treat margin and cash account holders differently when it comes to "giving" them their stock back? Actually that seems to be an interesting question to me and I don't know the answer.
R:
No. of Recommendations: 1
Re Medallion stamps.
I got one years ago, and mostly what I remember is what a ridiculous, pointless nuisance it was. And this experience was from a regional bank who knew me personally. So, "...eSignature Guarantee, an online outfit that provides them" sounded like a good idea. I looked them up, and looks like they go through the same on-line identification rigamarole as do credit agencies.
I did find this in their fine print, however: " Our medallion stamp is only valid on stocks up to $500,000." So, one Berkshire A share will be beyond their service in another year or two
The whole medallion thing seems kinda antiquated and crazy.
Overall, I couldn't agree more. They sound like the venerable Letters of Credit that travelers used for a few hundred years until American Express ate their lunch with the invention of travelers' checks in the 1960s.
--sutton
No. of Recommendations: 1
Re recent comments here about "street name," I note the following from the statement Schwab released yesterday:
"Investments at Schwab are held in investors' names at the Broker Dealer."
