{"id":76243,"date":"2015-08-03T12:31:43","date_gmt":"2015-08-03T16:31:43","guid":{"rendered":"http:\/\/countingpips.com\/?p=76243"},"modified":"2015-08-03T12:31:43","modified_gmt":"2015-08-03T16:31:43","slug":"why-your-brokerage-account-isnt-as-safe-as-you-think-it-is","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2015\/08\/why-your-brokerage-account-isnt-as-safe-as-you-think-it-is\/","title":{"rendered":"Why Your Brokerage Account Isn\u2019t as Safe as You Think It Is"},"content":{"rendered":"<div id=\"inves-2569949445\" class=\"inves-below-title-posts inves-entity-placement\"><div id =\"posts_date_custom\"><div align=\"left\">August 3, 2015<\/div><hr style=\"border: none; border-bottom: 3px solid black;\">\r\n<\/div><\/div><h4><span style=\"font-size: small;\">By E.B. Tucker<\/span><\/h4>\n<p>Imagine logging into your brokerage account tomorrow and finding out that it\u2019s frozen.<iframe loading=\"lazy\" src=\"http:\/\/trk.caseyresearch.com\/f\/?content_id=1272&amp;code=PIP&amp;editorial=why-your-brokerage-account-isnt-as-safe-as-you-think-it-is\" width=\"1\" height=\"1\" frameborder=\"0\"><\/iframe><\/p>\n<p>Not just<em> your<\/em> account\u2026 <em>every customer account at your brokerage is frozen<\/em>.<\/p>\n<p>You can\u2019t buy stocks. You can\u2019t sell stocks. You can\u2019t move money out of the account.<\/p>\n<p>Your account rep insists the money is still there. It\u2019s just not available now. He doesn\u2019t know when it will be.<\/p>\n<p>When you demand to transfer $25,000 cash out of the account, he says, \u201cI\u2019m sorry\u2026 the system won\u2019t let me.\u201d<\/p>\n<p>You ask to speak to his boss. She can\u2019t help, either.<\/p><div id=\"inves-2923366340\" class=\"inves-in-content inves-entity-placement\"><hr style=\"border: 1px solid #ddd;\">\r\n<div id=\"inpost_ads_header\">\r\n<p style=\"font-size:10px; float:left; color:#666;\">Free Reports:<\/p><\/div>\r\n<div id=\"inpost_ads\"> \r\n<p style=\"font-size:15px; float:left;\"><a href=\"https:\/\/goo.gl\/1ApBOV\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/investmacro.com\/wp-content\/uploads\/2018\/06\/graph_techs_PD.png\" align=\"left\" width=\"80\"  height=\"55\"\/><\/a>\r\n\t     <a href=\"https:\/\/goo.gl\/1ApBOV\"><b><u>Get Our Free Metatrader 4 Indicators<\/u><\/b><\/a> - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter<\/p><br><br>\r\n<br>\r\n<br>\r\n<p style=\"font-size:15px; float:left;\"><a href=\"https:\/\/goo.gl\/f3RrHX\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/investmacro.com\/wp-content\/uploads\/2019\/01\/cot_pie_80.png\" align=\"left\" width=\"80\"  height=\"55\"\/><\/a>\r\n\t    <a href=\"https:\/\/goo.gl\/f3RrHX\"><b><u>Get our Weekly Commitment of Traders Reports<\/u><\/b><\/a> - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.<\/p><br><br>\r\n<\/div>\r\n<hr style=\"border: 1px solid #ddd;\">\r\n<br><\/div>\n<p>This situation sounds absurd to most Americans. There\u2019s no way a major broker could freeze your accounts, right?<\/p>\n<p>Wrong. <a href=\"http:\/\/www.caseyresearch.com\/go\/urzkk-2\/PIP\" target=\"_blank\">It happened in 2011 to 38,000 people&#8230;<\/a><\/p>\n<p>And this wasn\u2019t some no-name broker. It was a highly respected, 228-year-old firm. And Jon Corzine ran it. At one point or another, Corzine was a US senator, the governor of New Jersey, and the CEO of Goldman Sachs. Then he became the CEO of MF Global.<\/p>\n<p>MF Global handled stock and bond trading for some of Wall Street\u2019s wealthiest clients.<\/p>\n<p>It was also one of only 18 \u201cprimary dealers\u201d at the time. Primary dealers are a select group of brokers allowed to participate in the US Treasury auction. Citigroup, Morgan Stanley, and Goldman Sachs are also primary dealers.<\/p>\n<p>Like all US brokers, MF Global was required to keep customer cash and stock separate from its own corporate accounts. This rule is supposed to keep brokers from playing with customers\u2019 money. But the rule only works if brokers follow it.<\/p>\n<p>In October 2011, account holders at MF Global started having problems withdrawing cash and transferring stocks. Turns out that their money wasn\u2019t there. MF Global had made a series of bad bets in European bonds and <strong>illegally transferred $891 million in customer funds<\/strong> to cover its trading losses.<\/p>\n<p>Their cash was gone\u2026<\/p>\n<p>Customers had to hire and pay for their own attorneys. For a while, it looked like they\u2019d never get their money back. But in December 2014, MF Global finally agreed to return $1.212 billion to its former clients. It also paid a $100 million fine.<\/p>\n<p>You might be wondering how this sort of thing could happen&#8230;<\/p>\n<p>First off, you are not the legal or registered owner of the stocks in your brokerage account. You\u2019re just the \u201cbeneficial owner.\u201d<\/p>\n<p>Sure, you put the cash in your account. You logged in and \u201cbought\u201d Apple, GE, Verizon, and other stocks issued by sound companies. You did your homework because you worked hard for your money. Those investments are a key part of your retirement plans. You don\u2019t make risky moves.<\/p>\n<p>And you work with a reputable broker. But your broker or a clearinghouse called Cede &amp; Co. is likely the registered owner of \u201cyour\u201d stocks.<\/p>\n<p>Here\u2019s how it works\u2026<\/p>\n<p>There are three basic ways to hold stocks: street name registration, direct registration, or physical certificate. Street name is the default. Unless you make special arrangements, this is how stocks are registered.<\/p>\n<p>Cede &amp; Co., a subsidiary of The Depository Trust Company (DTC), is likely the registered owner of your stocks. You are not the registered owner. When you buy a stock, DTC holds those shares for your broker. Your broker, in turn, holds those shares for you.<\/p>\n<p>That means Apple, GE, Verizon, and the other companies whose stocks you hold have no record of you.<\/p>\n<p>If your broker mishandles your account, you can sue to get your money back. But, as MF Global customers discovered, it\u2019s not easy. And there\u2019s no guarantee you\u2019ll win&#8230;<\/p>\n<p>If your broker makes a bad bet on Greece and uses your cash to settle the bill, you\u2019re out of luck. Sure, it\u2019s illegal\u2026 but laws didn\u2019t stop MF Global. Customers had to take action, hire lawyers, and sue to get their cash back.<\/p>\n<p>Stable markets hide problems. In 2008, we saw how big problems can go unnoticed for years. A crisis reveals who\u2019s stable and who\u2019s just pretending to be. Some brokers and financial institutions are heavily leveraged. They\u2019re especially vulnerable in a crisis. Some will not survive the next one.<\/p>\n<p>The MF Global fiasco is one of the most important financial stories of the past decade. It showed that the financial system isn\u2019t as safe as you think it is. Even big, brand-name banks and brokerages with years of success can instantly go broke.<\/p>\n<p>The next financial crisis will bring many more shams like MF Global\u2019s to light.\u2028You can protect yourself by keeping plenty of cash and gold in a safe place\u2026 but <em>not in a safety deposit box<\/em>.<\/p>\n<p>And make sure to diversify across financial institutions. You don\u2019t want to get stuck in a situation like MF Global customers did\u2026 waiting years for your money because some executive gambled away the company.<\/p>\n<p>P.S. Because this risk and others have made our financial system a house of cards, we\u2019ve published a groundbreaking step-by-step manual on how to survive &#8211; and even prosper &#8211; during the next financial crisis. In this book, <em>New York Times <\/em>best-selling author Doug Casey and his team describe the three ESSENTIAL steps every American should take right now to protect themselves and their family.<\/p>\n<p>These steps are easy and straightforward to implement. You can do all of these from home, with very little effort. Normally, this book retails for $99. But I believe this book is so important, especially right now, that I\u2019ve arranged a way for US residents to get a free copy. <a href=\"http:\/\/www.caseyresearch.com\/go\/urzpm-2\/PIP\" target=\"_blank\">Click here to secure your copy.<\/a><\/p>\n<p>&nbsp;<\/p>\n<div id=\"xvMdV95u77zU\" style=\"clear: both;\">The article <a href=\"http:\/\/www.caseyresearch.com\/go\/urzan-2\/PIP\" rel=\"permalink\">Why Your Brokerage Account Isn\u2019t as Safe as You Think It Is<\/a> was originally published at <a href=\"http:\/\/www.caseyresearch.com\/go\/urzdp-2\/PIP\">caseyresearch.com<\/a>.<\/div>\n<div style=\"clear: both;\"><\/div>\n<div style=\"clear: both;\"><\/div>\n<div style=\"clear: both;\"><\/div>\n","protected":false},"excerpt":{"rendered":"<p>By E.B. Tucker Imagine logging into your brokerage account tomorrow and finding out that it\u2019s frozen. Not just your account\u2026 every customer account at your brokerage is frozen. You can\u2019t buy stocks. You can\u2019t sell stocks. You can\u2019t move money out of the account. Your account rep insists the money is still there. It\u2019s just [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-76243","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/76243","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=76243"}],"version-history":[{"count":1,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/76243\/revisions"}],"predecessor-version":[{"id":76244,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/76243\/revisions\/76244"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=76243"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=76243"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=76243"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}