# Do we really own our shares?



## Johnmac (14 January 2012)

An article this week in the US...

http://www.resourceinvestor.com/News/2012/1/Pages/Who-Really-Owns-Your-Gold-Stocks.aspx

...suggests that US share-owners are vulnerable to losing all shares they own, in the event their broker goes bankrupt. This (allegedly) is because brokers there generally register the shares via "street name registration". The brokerage "allows your shares to be included as assets that they can use to do what they want with, your brokerage never actually registers you as an owner of the shares".

I have no idea if this is true even in the US.

But the market I am interested in, of course, is the ASX.

Does anyone know whether "street name registration" is in effect here - or whether there are any other dangers to us as share-owners should an intermediary such as a broker, clearing house or trading agent become insolvent or otherwise disappear?


----------



## young-gun (14 January 2012)

Johnmac said:


> An article this week in the US...
> 
> http://www.resourceinvestor.com/News/2012/1/Pages/Who-Really-Owns-Your-Gold-Stocks.aspx
> 
> ...




definitely makes you wonder. i just checked some of my old contract notes, thinking that they may have come directly from the asx. but they actually come from the broker saying 'broker x' has purchased x amount of shares on your behalf. whether that means they have actually processed them in your name or under something totally different i guess is a very real possibility, but would surely be illegal? you would think asx would be able to identify such activity.


----------



## skyQuake (14 January 2012)

What a load of drivel.

Shares are still in the holder's *beneficial interest*. Its the same with any nominee acct.

Not even an issue in Aus. 

Contract notes are issues by brokers not the exchange. The computershare stuff you get every once in a while shows ur holdings...


----------



## Johnmac (16 January 2012)

Young-gun:

I've called & emailed ASIC, the broker & ComputerShare - no-one has a clue.

However the ASX has promised a reply today, so when I get that I'll let you know.


----------



## McLovin (16 January 2012)

skyQuake said:


> What a load of drivel.
> 
> Shares are still in the holder's *beneficial interest*. Its the same with any nominee acct.
> 
> ...




Exactly.


----------



## wayneL (16 January 2012)

The setup is different in the US to Oz.

In Oz you absolutely own your shares; in the US I'm not so sure.

If IB went down the shyte shute, I reckon it would be a schmozzle getting my capital/shares out.

For all the benefits of US trading, this is a major benefit of sticking to Oz.

Something to think about in these times IMO.


----------



## McLovin (16 January 2012)

wayneL said:


> The setup is different in the US to Oz.
> 
> In Oz you absolutely own your shares; in the US I'm not so sure.
> 
> ...




The SIPC will give you some (but not total) insurance in the event a broker fails and assuming that broker is a SIPC member.

http://www.sipc.org

If you own the shares directly (akin to issuer sponsored here) then the broker has absolutely no recourse to your shares. Depending on the broker you can instruct them to register the shares in the direct ownership registry. Otherwise they are held in the broker's name.


----------



## wayneL (16 January 2012)

McLovin said:


> The SIPC will give you some (but not total) insurance in the event a broker fails and assuming that broker is a SIPC member.
> 
> http://www.sipc.org
> 
> If you own the shares directly (akin to issuer sponsored here) then the broker has absolutely no recourse to your shares. Depending on the broker you can instruct them to register the shares in the direct ownership registry. Otherwise they are held in the broker's name.




Yes.

But you have to be happy with the counterparty risk. 

For the moment I am happy with that, ('cause I trade US instruments), but I am maintaining a healthy suspicion.


----------



## sinner (16 January 2012)

wayneL said:


> The setup is different in the US to Oz.
> 
> In Oz you absolutely own your shares; in the US I'm not so sure.
> 
> ...




For the record, when I signed up a U.S equities account with MBTrading, they gave me the option of holding shares (and options on shares) in my name or street name at the time of registration.

I checked the SIPC insurance policy too, basically, Lloyds of London is the insurer for what seems like every broker everywhere (I guess since AIG went bust?).


----------



## papatee (16 January 2012)

skyQuake said:


> What a load of drivel.
> 
> Shares are still in the holder's *beneficial interest*. Its the same with any nominee acct.
> 
> ...




Hang on . . . wasn't the whole Opes Prime scandal a couple of years back an example of the kind of US scenario we are talking about occuring in Oz???  As I recall most of the investors believed they were the owners of shares purchased though Opes Prime which were seized by ANZ and ML when Opes hit the fan, however it turned out that Opes never actually registered the shares in their investor's names. 

I know that the Opes model was considered unusual in Oz and overwhelming majority of Oz brokers would not fall in that category, however it does suggest that this is more than a simple country by country split and everyone needs to DYOR pretty carefully when chosing a broker even in Oz!!


----------



## McLovin (17 January 2012)

wayneL said:


> Yes.
> 
> But you have to be happy with the counterparty risk.
> 
> For the moment I am happy with that, ('cause I trade US instruments), but I am maintaining a healthy suspicion.




But if you have the shares held directly then there is no counter-party risk. 



			
				papatee said:
			
		

> Hang on . . . wasn't the whole Opes Prime scandal a couple of years back an example of the kind of US scenario we are talking about occuring in Oz??? As I recall most of the investors believed they were the owners of shares purchased though Opes Prime which were seized by ANZ and ML when Opes hit the fan, however it turned out that Opes never actually registered the shares in their investor's names.
> 
> I know that the Opes model was considered unusual in Oz and overwhelming majority of Oz brokers would not fall in that category, however it does suggest that this is more than a simple country by country split and everyone needs to DYOR pretty carefully when chosing a broker even in Oz!!




If you owned CFD's or had a margin account then you were exposed. If you had straight up shares then they couldn't touch them.


----------



## Johnmac (18 January 2012)

I've emailed & rung:

CommSec
ComputerShare
Link Market
ASIC
the ASX
Deloitte (administrator of MF Global)

CommSec said: 'The ownership of your holdings should your broker go bankrupt, shouldn't change. However, I cannot confirm.'

Deloitte said: 'I am unable to give to a definitive answer to your question as I am not a lawyer. However in practical circumstances if you own the underlying shares and are not in a CFD scenario where by the underlying asset is held by a counterparty, those shares should be your property.'

The others have not as yet been able (or prepared) to answer.


----------



## skyQuake (18 January 2012)

Opes was margin/CFD model. 

Aus is fine. You retain legal and beneficial title to ur shares.


----------



## Johnmac (19 January 2012)

*The latest on this from the ASX*

Thank you once again for your email.

Please be advised that the investor retails full ownership of their holding at all times. 

It is important to note that securities are registered in the name of the investor and not in the name of the broker. This document provides more information on how investors Holdings are sponsored by Participants in CHESS:

http://www.asx.com.au/documents/products/chess_brochure.pdf

The Sponsorship Agreement that you entered into with your broker will contain a section explaining what happens in the event the Participant is no longer able to participate in CHESS. 

Section 12.19 of the ASX Settlement Operating Rules deal with suspension and termination of Participants. In simple terms, ASX will not accept any instructions from that Participant with respect to Holdings under its control. i.e Holdings cannot be moved and registration details cannot be changed. 

Clients of the bankrupt broker can instruct ASX to move their Holdings to another broker or convert their Holdings to Issuer Sponsorship. If ASX has not received any instructions from the Holder, ASX may, after providing due notice to the Holder, convert their Holding to Issuer Sponsorship or move their Holding to another controlling Participant. 

I hope this helps. 

If you have any further queries, please do not hesitate to contact ASX Customer Service on 131 279 or +61 2 9338 0000 if calling from overseas.


----------



## Johnmac (19 January 2012)

*Re: The latest on this from the ASX*

*I then asked*:

I guess the essence is that "securities are registered in the name of the investor and not in the name of the broker".

Does this mean that if ANY intermediary goes bankrupt - e.g. clearing house, transfer agent, ASX Ltd - the same applies?

I.e. that no such event can affect my title?


*They replied*:

That'll be correct. 

As mentioned earlier, the securities are registered only in the name of the investor and not in the name of any intermediary parties.


----------



## OzWaveGuy (28 January 2012)

You only have equitable title to shares and do not have legal title. If you believe you have legal title then you would believe nobody else could legally instruct you in their use or be able to control them eg ASIC, ASX, ATO

It's no different to registering a car - as soon as you do, you give away legal title. The owner of the legal title has control eg you can be instructed by the legal title holder not to use the vehicle or have it impounded or told not to go over a certain speed limit etc. However when you sell it, you are the equitable beneficiary.

This is Trust Law


----------



## Tysonboss1 (28 January 2012)

OzWaveGuy said:


> You only have equitable title to shares and do not have legal title. If you believe you have legal title then you would believe nobody else could legally instruct you in their use or be able to control them eg ASIC, ASX, ATO
> 
> It's no different to registering a car - as soon as you do, you give away legal title. The owner of the legal title has control eg you can be instructed by the legal title holder not to use the vehicle or have it impounded or told not to go over a certain speed limit etc. However when you sell it, you are the equitable beneficiary.
> 
> This is Trust Law




:iamwithst


----------



## McLovin (28 January 2012)

OzWaveGuy said:


> You only have equitable title to shares and do not have legal title. If you believe you have legal title then you would believe nobody else could legally instruct you in their use or be able to control them eg ASIC, ASX, ATO
> 
> It's no different to registering a car - as soon as you do, you give away legal title. The owner of the legal title has control eg you can be instructed by the legal title holder not to use the vehicle or have it impounded or told not to go over a certain speed limit etc. However when you sell it, you are the equitable beneficiary.
> 
> This is Trust Law




This is completely wrong. Considering the government has the right to compulsorily acquire any property your argument would seem to imply that legal title does not exist at all. If I own land the council can prevent me from developing that land but I still have legal title.

Buying shares does not create a trust. Buying a car most definitely does not create a trust.

And in case you don't believe me, from the horse's mouth:



> Do I have a choice of where I register title
> to my shares?
> Yes. As a shareholder,* you can choose to register the legal
> title to your shares on either the*:
> ...




Bolding mine...


----------



## OzWaveGuy (28 January 2012)

McLovin said:


> ....your argument would seem to imply that legal title does not exist at all.




Legal title exists - but you're rarely the holder. 

Trust law is used throughout society today for the purpose of controlling property. You're the beneficiary, but not the trustee.


----------



## McLovin (28 January 2012)

OzWaveGuy said:


> Legal title exists - but you're rarely the holder.
> 
> Trust law is used throughout society today for the purpose of controlling property. You're the beneficiary, but not the trustee.




That is simply not true.


----------



## OzWaveGuy (28 January 2012)

McLovin said:


> That is simply not true.




A telling assertion.

I can safely assert based on the responses here that many simply don't comprehend law and trust law or how it is used today esp wrt property, even with vast resources of information around us.


----------



## McLovin (28 January 2012)

OzWaveGuy said:


> A telling assertion.
> 
> I can safely assert based on the responses here that many simply don't comprehend law and trust law or how it is used today esp wrt property, even with vast resources of information around us.




Oh well, I guess 3 years getting a law degree and 7 years working in IB dealing with, amongst other things, company law, trusts, taxation etc on a day to day basis was just a waste. Back to school for me.

Given trust law doesn't exist outside common law jurisdictions, can you explain how, in say Europe, things work?


----------



## OzWaveGuy (29 January 2012)

McLovin said:


> Oh well, I guess 3 years getting a law degree and 7 years working in IB dealing with, amongst other things, company law, trusts, taxation etc on a day to day basis was just a waste. Back to school for me.
> 
> Given trust law doesn't exist outside common law jurisdictions, can you explain how, in say Europe, things work?




Are you suggesting there's nothing left to learn? 

Under civil law in Europe, some countries have/are implementing trust law but I doubt it's close to what we see in the common law countries, since we're not in Europe is this a core relevancy to trust law here?


----------



## McLovin (29 January 2012)

OzWaveGuy said:


> Are you suggesting there's nothing left to learn?




No, I'm suggesting that it's not likely that a core principle of the legal system has changed since I left university. Please though, educate me.

Your assertion that because a country enforces laws on what you can and can't do with an asset means you have transfered legal title and somehow set up a trust relationship (with who I have no idea) is laughable.


----------



## OzWaveGuy (30 January 2012)

McLovin said:


> No, I'm suggesting that it's not likely that a core principle of the legal system has changed since I left university. Please though, educate me.
> 
> Your assertion that because a country enforces laws on what you can and can't do with an asset means you have transfered legal title and somehow set up a trust relationship (with who I have no idea) is laughable.




Does an inquiring mind need to be taught by others? 

Do you believe a trust will always be sent to you for signoff as perhaps you were taught? Break a statute and end up in court - a constructive trust is used -  does someone send you a document asking you to be trustee for the constructive trust? No. But it's operating by presumption and the defendant is always the trustee.

With AU$10k in notes sitting in front of you, do you have both legal and equitable title? Perhaps, Or maybe not?


----------



## McLovin (30 January 2012)

OzWaveGuy said:


> Does an inquiring mind need to be taught by others?
> 
> Do you believe a trust will always be sent to you for signoff as perhaps you were taught? Break a statute and end up in court - a constructive trust is used -  does someone send you a document asking you to be trustee for the constructive trust? No. But it's operating by presumption and the defendant is always the trustee.
> 
> With AU$10k in notes sitting in front of you, do you have both legal and equitable title? Perhaps, Or maybe not?




Bizarre.


----------



## OzWaveGuy (6 February 2012)

McLovin said:


> Bizarre.




The standard response when reaching the limits of teachings perhaps?


----------



## McLovin (7 February 2012)

OzWaveGuy said:


> The standard response when reaching the limits of teachings perhaps?




Nup. The standard response when I see someone making things up about something they clearly don't understand. If you understood what a constructive trust was, you'd realise why what you wrote is completely off the mark (hint: it's an equitable remedy).

Next time you're getting your car registered ask the motor registry who has legal title. The answer will shock you.


----------

