The broker using your stocks as collateral doesn’t mean they can seize your stocks. It means they can borrow against your stocks to get liquidity and if there was some sort of total meltdown and they went out of business, your stocks might hypothetically be part of the bankruptcy waterfall.
Which isn’t a great position to be in but, it’s worth making a few observations:
1) Even if your stocks went into the bankruptcy waterfall, you would have a very preferential place in that waterfall so you are highly likely to get paid in full. If you’re in the waterfall your claim is settled using all remaining assets of the bank, not just your savings. The people who made loans to them with your savings as collateral would be behind you in the waterfall most importantly, so they wouldn’t get dollar 1 until you were 100% paid in full.
2) To actually be worse off here (even notwithstanding #1) you’re really looking at some hypothetical financial meltdown where the banks go completely out of business and yet somehow your retirement savings are still worth something. It might not be a very reassuring thought but that’s not a very likely scenario is it?
3) When a broker dealer goes bust even if your assets are totally in segregated funds you don’t get paid back for frikkin’ ages. A person I know had Lehman as the prime broker for their hedge fund and they didn’t get access to their assets for I want to say a year or so.
I asked Gemini to verify this statement from the article, ver batim, "However, Article 8 permits secured creditors to seize customer assets pledged as collateral if a firm cannot pay its debts, even if the securities were improperly pledged." to which it replied in part, "That statement is disturbingly accurate in a very narrow, legal sense, but it describes a "worst-case scenario...". That, if accurate, would seem to refute your statement that the stocks can't be seized which supports the intent of the article.
That doesn’t at all refute my statement. That is the scenario I talk about where your assets go into the waterfall. The broker doesn’t get to seize anything - the other creditors are making a claim against your assets and as I said, they very likely rank behind you in the waterfall, and either way there is a lot of messy and expensive legal wrangling before anyone gets anything.
It’s pretty dispiriting that you think that your conversation with gemini is worth posting to this site btw.
Since the title is linkbaity and there have been objections to it as misleading*, I've taken a crack at replacing it with a more neutral, and hopefully more accurate, sentence from the article.
According to this, this is total FUD. In case of a liquidation, security entitlement holder has priority over secured creditors, who have priority over unsecured creditors.
Whether the market as a whole is structured around direct "ownership" of share or via a central well established custody system - it's functionally identical risk. You're counting on rule of law. And not just you - everyone. If it works it works, or it doesn't in which case the global financial system crashes and we've all got bigger problems. Also custody <> ownership.
Nor can any of this seize retirement savings:
>may seize securities used as collateral in lending arrangements with broker-dealers.
i.e. no different from bank seizing your house if your mortgage arrangement blows up.
I'm a layman, I did try asking Google Gemini this question based on the phrasing in the article, "Can the depository trust company seize securities used as collateral in lending arrangements with broker-dealers?" to which it answered, "The short answer is yes" followed by much information on the subject.
PS I expanded my question as follows: "Can the depository trust company seize securities used as collateral in lending arrangements with broker-dealers in a financial crisis?". The response contains, "...a systemic crisis triggers specific clearinghouse protections that can override normal operations.".
The US is quite good like that in practice, like I had some money in ftx.com and they quite rapidly got my money back and put SBF in jail. On the other hand in places like Russia there's a good chance someone of something will steal your stuff.
You're welcome to use your own research, Google foo, AI, etc. I have and my results indicate the article is correct in its assertions in a highly limited but at least possible scenario.
> i.e. no different from bank seizing your house if your mortgage arrangement blows up.
No, this would be like the bank seizing your house if SOMEONE ELSE'S loan arrangement blows up (specifically your broker's loans from the securities exchange). And yes, this assertion is correct, your securities ownership will be in question if your broker becomes insolvent, especially if it becomes insolvent due to fraud.
But this is just fox news scaring people. They don't even take the scariest laws. If your broker goes bankrupt because it commits tax fraud ... then a much bigger can of worms is opened, which can have even bigger consequences for customers.
And it's Fox News, right. Also from the article:
"Lawmakers could also enact new legislation that weakens current consumer safeguards"
Well, yes. In other news: lawmakers could enact legislation that makes it legal to kill your dog.
The clearinghouse in question has wide latitude, broad mechanisms, and constant aggressive risk management available to manage high volatility market conditions without impacting individual ownership, this is fear driven propaganda.
Isn't the "wide latitude" the whole point of the article in the first place? Elsewhere on this page I noted Gemini's response indicated, "...a systemic crisis triggers specific clearinghouse protections that can override normal operations.", do you feel this information, if accurate, supports the purpose of the article?
If you can enumerate what your tail risk concern might be as an individual investor, I can share resources demonstrating how that risk is managed. FINRA, NYDFS, the SEC, and your brokerage are authoritative resources on this matter, Fox News is not.
Dismissing a story because it's from Fox and I know HN is dominated by left thinkers and I'm in a minority as a retired software engineer who prefers right leaning Fox to the majority left leaning every single other news site on the planet...but that's what I like.
Here are some reference links Google Gemini found, though they all point to the same site it looks like:
I fully agree with the guidelines, but did not think that anything in my comment was a personal attack! Presumably it's "there's something that is not connecting in your mind" but I will reflect on it and ask others to help guide me to the apparent insult.
Yes, that's the part I was referring to. I realize you probably didn't intend it that way, but people commonly underestimate the provocation in their own comments (and overestimate the provocation in others'), which leads to quite a skew.
I am welcome to dismiss a source that has demonstrated a willingness to deceive for political purposes. I am welcome to spend my time on more fruitful efforts than getting the receipts on obvious misinformation.
If you are insulted, that was not my intention, it was a simple observation that your comment and behavior did not match up at all with the discussion.
In addition to spreading this misinformation by posting it to HN, you also encouraged self-destructive behavior with very bad financial practices in your comment:
> We have no more 401K or other retirement accounts and do not invest in the stock market, except for a couple share of IBM I bought years ago when I worked there.
> So we're covered as I see it. We only use banks with money in savings, checking and CD accounts.
One of the more fruitful efforts is trying to point out that this destructive info has no basis in reality. This is not about left/right as you tried to incorrectly frame it, this is about basic information hygiene and not letting bad info stand undisputed.
It is interesting that this setup in which people buy stocks but do not actually own them started in the 1970's and I don't recall ever hearing about it until I saw the story on Fox's site today.
We have no more 401K or other retirement accounts and do not invest in the stock market, except for a couple share of IBM I bought years ago when I worked there.
So we're covered as I see it. We only use banks with money in savings, checking and CD accounts.
The broker using your stocks as collateral doesn’t mean they can seize your stocks. It means they can borrow against your stocks to get liquidity and if there was some sort of total meltdown and they went out of business, your stocks might hypothetically be part of the bankruptcy waterfall.
Which isn’t a great position to be in but, it’s worth making a few observations:
1) Even if your stocks went into the bankruptcy waterfall, you would have a very preferential place in that waterfall so you are highly likely to get paid in full. If you’re in the waterfall your claim is settled using all remaining assets of the bank, not just your savings. The people who made loans to them with your savings as collateral would be behind you in the waterfall most importantly, so they wouldn’t get dollar 1 until you were 100% paid in full.
2) To actually be worse off here (even notwithstanding #1) you’re really looking at some hypothetical financial meltdown where the banks go completely out of business and yet somehow your retirement savings are still worth something. It might not be a very reassuring thought but that’s not a very likely scenario is it?
3) When a broker dealer goes bust even if your assets are totally in segregated funds you don’t get paid back for frikkin’ ages. A person I know had Lehman as the prime broker for their hedge fund and they didn’t get access to their assets for I want to say a year or so.
I asked Gemini to verify this statement from the article, ver batim, "However, Article 8 permits secured creditors to seize customer assets pledged as collateral if a firm cannot pay its debts, even if the securities were improperly pledged." to which it replied in part, "That statement is disturbingly accurate in a very narrow, legal sense, but it describes a "worst-case scenario...". That, if accurate, would seem to refute your statement that the stocks can't be seized which supports the intent of the article.
That doesn’t at all refute my statement. That is the scenario I talk about where your assets go into the waterfall. The broker doesn’t get to seize anything - the other creditors are making a claim against your assets and as I said, they very likely rank behind you in the waterfall, and either way there is a lot of messy and expensive legal wrangling before anyone gets anything.
It’s pretty dispiriting that you think that your conversation with gemini is worth posting to this site btw.
Thanks, but asking AI for anything verbatim is risky.
You’d be better served asking the bot to scour the internet for a link to a source and reading that yourself.
The links all take you back to Fox News instead of links which detail the content. Excluding probably the book the author is selling I didn’t click.
It all comes down to: Margin.
If the market fails, they will give you a margin call. If you don’t have a margin account, your broker didn’t make one for you, then you’re safe.
Since the title is linkbaity and there have been objections to it as misleading*, I've taken a crack at replacing it with a more neutral, and hopefully more accurate, sentence from the article.
(* "Please use the original title, unless it is misleading or linkbait" - https://news.ycombinator.com/newsguidelines.html)
https://www.uniformlaws.org/committees/community-home?Commun...
According to this, this is total FUD. In case of a liquidation, security entitlement holder has priority over secured creditors, who have priority over unsecured creditors.
That's some fox news grade reporting alright.
Whether the market as a whole is structured around direct "ownership" of share or via a central well established custody system - it's functionally identical risk. You're counting on rule of law. And not just you - everyone. If it works it works, or it doesn't in which case the global financial system crashes and we've all got bigger problems. Also custody <> ownership.
Nor can any of this seize retirement savings:
>may seize securities used as collateral in lending arrangements with broker-dealers.
i.e. no different from bank seizing your house if your mortgage arrangement blows up.
There is nothing to see here
I'm a layman, I did try asking Google Gemini this question based on the phrasing in the article, "Can the depository trust company seize securities used as collateral in lending arrangements with broker-dealers?" to which it answered, "The short answer is yes" followed by much information on the subject.
PS I expanded my question as follows: "Can the depository trust company seize securities used as collateral in lending arrangements with broker-dealers in a financial crisis?". The response contains, "...a systemic crisis triggers specific clearinghouse protections that can override normal operations.".
>You're counting on rule of law.
The US is quite good like that in practice, like I had some money in ftx.com and they quite rapidly got my money back and put SBF in jail. On the other hand in places like Russia there's a good chance someone of something will steal your stuff.
SBF went to prison and you got your money back because his victims included powerful people.
The same outcome is easily differentiable had he focised soley on the retail investors.
You're welcome to use your own research, Google foo, AI, etc. I have and my results indicate the article is correct in its assertions in a highly limited but at least possible scenario.
It’s not reporting, it is an advertisement for the authors book… Buried halfway down
> i.e. no different from bank seizing your house if your mortgage arrangement blows up.
No, this would be like the bank seizing your house if SOMEONE ELSE'S loan arrangement blows up (specifically your broker's loans from the securities exchange). And yes, this assertion is correct, your securities ownership will be in question if your broker becomes insolvent, especially if it becomes insolvent due to fraud.
But this is just fox news scaring people. They don't even take the scariest laws. If your broker goes bankrupt because it commits tax fraud ... then a much bigger can of worms is opened, which can have even bigger consequences for customers.
And it's Fox News, right. Also from the article:
"Lawmakers could also enact new legislation that weakens current consumer safeguards"
Well, yes. In other news: lawmakers could enact legislation that makes it legal to kill your dog.
The clearinghouse in question has wide latitude, broad mechanisms, and constant aggressive risk management available to manage high volatility market conditions without impacting individual ownership, this is fear driven propaganda.
Isn't the "wide latitude" the whole point of the article in the first place? Elsewhere on this page I noted Gemini's response indicated, "...a systemic crisis triggers specific clearinghouse protections that can override normal operations.", do you feel this information, if accurate, supports the purpose of the article?
If you can enumerate what your tail risk concern might be as an individual investor, I can share resources demonstrating how that risk is managed. FINRA, NYDFS, the SEC, and your brokerage are authoritative resources on this matter, Fox News is not.
(average age of a Fox News viewer is ~69)
This is a news site known for biased news and incorrect reporting as long as it drives clicks.
Is there a better source for this? I couldn't bring myself to click "Read More" after the intro paragraphs had such a terrible framing of the DTC.
Dismissing a story because it's from Fox and I know HN is dominated by left thinkers and I'm in a minority as a retired software engineer who prefers right leaning Fox to the majority left leaning every single other news site on the planet...but that's what I like.
Here are some reference links Google Gemini found, though they all point to the same site it looks like:
https://www.dtcc.com/legal/rules-and-procedures
https://www.google.com/search?q=https://www.dtcc.com/-/media...
https://www.dtcc.com/managing-risk/financial-risk-management...
https://www.dtcc.com/-/media/Files/Downloads/legal/policy-an...
[flagged]
Please don't cross into personal attack. It's not what this site is for, and destroys what it is for.
https://news.ycombinator.com/newsguidelines.html
I fully agree with the guidelines, but did not think that anything in my comment was a personal attack! Presumably it's "there's something that is not connecting in your mind" but I will reflect on it and ask others to help guide me to the apparent insult.
Yes, that's the part I was referring to. I realize you probably didn't intend it that way, but people commonly underestimate the provocation in their own comments (and overestimate the provocation in others'), which leads to quite a skew.
[flagged]
Please don't respond to a bad comment by breaking the site guidelines yourself. That only makes things worse.
https://news.ycombinator.com/newsguidelines.html
I am welcome to dismiss a source that has demonstrated a willingness to deceive for political purposes. I am welcome to spend my time on more fruitful efforts than getting the receipts on obvious misinformation.
If you are insulted, that was not my intention, it was a simple observation that your comment and behavior did not match up at all with the discussion.
In addition to spreading this misinformation by posting it to HN, you also encouraged self-destructive behavior with very bad financial practices in your comment:
> We have no more 401K or other retirement accounts and do not invest in the stock market, except for a couple share of IBM I bought years ago when I worked there.
> So we're covered as I see it. We only use banks with money in savings, checking and CD accounts.
One of the more fruitful efforts is trying to point out that this destructive info has no basis in reality. This is not about left/right as you tried to incorrectly frame it, this is about basic information hygiene and not letting bad info stand undisputed.
"...and it's perfectly legal."
It is interesting that this setup in which people buy stocks but do not actually own them started in the 1970's and I don't recall ever hearing about it until I saw the story on Fox's site today.
We have no more 401K or other retirement accounts and do not invest in the stock market, except for a couple share of IBM I bought years ago when I worked there.
So we're covered as I see it. We only use banks with money in savings, checking and CD accounts.