Nominee account vs direct registration

[longone]

Correct me where wrong:
Most of us 'owning stocks' have them in a nominee account with a broker or bank. They are held in the broker's or bank's name unless you have specifically made arrangements for a paper certificate and direct registration of your name on the stock's particular register. Therefore in the event of the brokerage or bank going down (MF Global for example) then you are somewhere in a list of creditors.
A reassurance often given is that the nominee accounts are ringfenced from any other business of the broker or bank and so protected from going MF Global. Others say that you are naive to think that your stocks are not loaned out, hypothocated or otherwise traded without your permission and that the 'ringfence' will turn out to be worthless in a systemic collapse.
So what do you think, should any sane person, particularly if invested in overseas stocks, be direct registered or not?

[ellroy]

No broker these days will open accounts which are not nominee.

It costs too much to run and generally for piddly little amounts.

And if you seriously think they're lending out these stocks etc etc then your paranoia level needs a reset.

[longone]

ellroy said:

No broker these days will open accounts which are not nominee.

It costs too much to run and generally for piddly little amounts.

And if you seriously think they're lending out these stocks etc etc then your paranoia level needs a reset.

I realise that brokers want to use nominee accounts but it is perfectly possible to have paper certificates and incur the delays and some extra cost. I know because I do it. My own broker though a bit dozy in processing them makes a charge that they are happy with.
As for my paranoia, well ok that's your view. A lot of very smart people out there would not agree. This post was just to gauge how deep is the general understanding of how nominee accounts can be treated in a crisis. I didnt always think this way and wish I had no reason for concern, but I am personally very uncertain it's all ok and let's just go back to sleep.

[bad company]

I have often wondered what would happen to my shares \ funds if my stockbroker or fund platform went 'belly up'. So far it is (I think) a small risk compared to the hassle of holding paper share certificates.

[longone]

bad company said:

I have often wondered what would happen to my shares \ funds if my stockbroker or fund platform went 'belly up'. So far it is (I think) a small risk compared to the hassle of holding paper share certificates.

That's exactly where I was until maybe I read too much. I honestly don't know how to quantify the risk because the ringfence and rules should make it a non-issue, but do they?
I have no problem with the risk my stocks pose from an investment point of view, it's the potential for fraud or my plain misunderstanding of the fundemental position I've entered into that bothers me.
Cyprus has changed the rules regarding what authorities can condone. Very few thought it was realistic that any depositors' money could be confiscated yet that was their first attempt until, more recently, modifying it to those with deeper pockets, if that's actually how it pans out.
The people I've read who did warn that a southern European bank will collapse and take depositors with it have also said 'and stockholders are next'. They do not mean the banks' share holders, they mean ringfenced stocks in nominee accounts.

[bad company]

longone I think and hope that you are wrong. Having said that I prefer to use currently 2 platforms. The problem is that I own a lot of shares and funds and it really would be a pain to hold certificates.

As you can see I currently have 2 platforms / brokers - thinking of spreading to a third - http://www.pistonheads.com/gassing/topic.asp?h=0&a...

[longone]

bad company said:

longone I think and hope that you are wrong. Having said that I prefer to use currently 2 platforms. The problem is that I own a lot of shares and funds and it really would be a pain to hold certificates.

As you can see I currently have 2 platforms / brokers - thinking of spreading to a third - http://www.pistonheads.com/gassing/topic.asp?h=0&a...

I have exchanged emails with one of the people warning of the confiscation of customer funds of whatever type and his sentiments were that the low cost of electronic share dealing gives, to him, the game away. There is, in his opinion a very real potential for attaching liabilities to customer's stocks that are legally in the name of the agent, bank or broker. He saw a clear equivelence between a fractional reserve bank's position and that of a discount broker having access to your stock through name and title.
His clear advice was, so long as you have the stocks for the long haul, and mine were bought for that, then get them out of the system and into your own name.

[bad company]

I think you are being very very cautious. I am going to spread to another platform to spread the risk.

More on this here - http://boards.fool.co.uk/as-others-have-said-the-n...

[longone]

bad company said:

I think you are being very very cautious. I am going to spread to another platform to spread the risk.

More on this here - http://boards.fool.co.uk/as-others-have-said-the-n...

This is a quote from Jim Sinclair's latest warning on the subject. I cant help thinking he's got no axe to grind, he's a multi-billionaire and has been right or thereabouts for as long as I've followed his comments. He gets no benefit from his views other than to warn others. He is certainly right that brokers make it difficult for you to leave the system, I know, I've done it partially before. I can't help wondering why are they so keen for the stocks to be in their name?



'You must eliminate to the greatest degree possible all the agents between you and your assets.
There is no question that leaving assets in street name with your brokers and bankers is a financial death wish. The preferred way of holding shares of stocks has always been in your own name as physical certificates. The second best method, but much better than street name, is to hold your shares in Direct Registration. Do not expect your banks, brokers or companies you are invested in to make it easy to get out of their system. They will fight you all the way, but you have to insist on your rights regardless of their refusal or false dire warning of negative circumstances when you succeed in demanding your rights. Most of it exaggerations of what is really minutia when it comes to protecting yourselves.'

[bad company]

I have been reading some Jim Sinclair stuff. I could be making a grave and very expensive mistake but he reminds me of the 'Flat Earth' society.

[longone]

bad company said:

I have been reading some Jim Sinclair stuff. I could be making a grave and very expensive mistake but he reminds me of the 'Flat Earth' society.

The problem with doubting Sinclair is he's never been wrong by any meaningful amount. His calls have be out by a small amount a couple of times but forecasting over the several-year time frame is not a task most will help you with. How many people in 2003 would have called gold spot at $1650 by 2011? He did and was wrong... it was 2012.
He recently called $1600 the new floor in gold and while it's dropped on the paper market for a few days it does seem it's going to hold at or around 1600. Certainly the PM mining stocks I monitor seem to indicate that.
I have every post he's ever made on his site on CDs and his track record is pretty unique. I have wondered how he does it and have concluded when you've been in his position for 50+yrs you know a lot of people who actually run the world.
The other thing that makes me listen is he isn't trying to sell a book. Yes he owns Tanzanian Royalty Exploration but he's no interest in selling you stock. It's a mining exploration blue chip held by funds.
So that's why I keep digging and wondering if he 'knows' this will end badly.