Brokerage/platforms terrible in Oz

oldpos said:

Thanks for the replies. I don't use margin lending so I along with many investers in sinilar situations would prefer to see not only our shares in our name alone but our cash accounts being operated from a bank account in our name well outside of the IB structure. Nothing against IB here, it's just us looking for real protection.

Click to expand...

If you are questioning IB against Comsuc you have obviously no need for anything but a Mom & Pop broker. They simply cannot be compared. Get over it.

By the way what account in your name gives you insurance & is "well outside of the company structure"?? not any account in Aust.

Trembling Hand said:

If you are questioning IB against Comsuc you have obviously no need for anything but a Mom & Pop broker. They simply cannot be compared. Get over it.

Click to expand...

I think that's way over the top dood.

The fact that Steve still can't adequately explain the CHESS arrangements, and the impact of franking credits etc on tax, leaves a lot of people suspicious.

Especially those of us who have dealt with nothing but incompetent staff from IB. It doesn't exactly fill you with confidence with some of these more tricky details.

From what I can see no Aust account offers any insurance against a company default. not even one held with the "Big four".

Yes the Franking stuff is confusing but I actually think it isn't that unusual in terms of volume traded. They are all held with fortis one of, if not the biggest, custodial brokers in Aust. Most hedgies and Fundies use them.

And Comsuc is rubbish for a trader. If you are lining the two up against each other and still not convinced its because you don't need IB, simple. Stick with a retail internet broker.

Trembling Hand said:

From what I can see no Aust account offers any insurance against a company default. not even one held with the "Big four".

Yes the Franking stuff is confusing but I actually think it isn't that unusual in terms of volume traded. They are all held with fortis one of, if not the biggest, custodial brokers in Aust. Most hedgies and Fundies use them.

And Comsuc is rubbish for a trader. If you are lining the two up against each other and still not convinced its because you don't need IB, simple. Stick with a retail internet broker.

Click to expand...

Insurance wouldn't be an issue if you had ownership rights over your own shares.

I can't see you being terribly amused if you had to wait 18 months or whatever to get your account back, if it all if the insurance company goes broke/ refuses to pay up.

Of course IB is better for trading, but that's not the issue. The issue is the stock ownership, and the rights that that entails.

People are more than entitled to ask questions about their broker, especially at the moment, where brokers have not been able to explain ( can't/ wont) who is legally entitled to their shares.

It's got nothing to do with comparing IB to another brokerage who abides by the CHESS regulations etc, it's simply got to do with ownership rights. That's the single issue.

chops_a_must said:

I think that's way over the top dood.

The fact that Steve still can't adequately explain the CHESS arrangements, and the impact of franking credits etc on tax, leaves a lot of people suspicious.

Especially those of us who have dealt with nothing but incompetent staff from IB. It doesn't exactly fill you with confidence with some of these more tricky details.

Click to expand...

Concerning the recent comments:

While I haven't commented yet I'm glad that members are expressing their views without fear or favour, both here and in other threads. Provided that opinions are well based and argued, everyone is encouraged to debate a matter. It's important for transparency that as many views as possible are presented here on ASF.

If we don't question and investigate the security of our assets in the midst of widespread financial collapses and suspect reporting practices then when will we? 'Caveat emptor' appears to be more important than fiduciary duties or government regulations in these times.

Personally, I have had many of my concerns about IB addressed, mainly via SteveIB and fellow posters here on ASF. Customer service staff have attempted to help but are still familiarizing themselves with their new Australian clients imho so the process can be drawn out and frustrating, despite my best efforts to find information proactively. On a more positive note, I can say that things are getting better, I would recommend IB to most frequent traders, subject to a few caveats.

As Chops has mentioned, the IB asset holding structure is foreign to us Aussies and is of concern to some of us, especially as a US bank, Citibank, holds our cash and stock is held outside the normal CHESS system without an individual HIN. Whether a Commsec account via CHESS is more stable and secure in the face of financial crises compared to an IB account is open to debate. Perhaps the foreign jurisdiction that IB is based in is a source of complication but there is nothing to say that our legal system will be more helpful when if and when we seek their assistance.

Trembling Hand makes some very valid comments in IB's favour. I value his opinion as he is a more experienced trader and client of IB than most of us newcomers. All in all, if I have to be with any broker at the moment, it'll be with IB but I will try to minimise my concentration of cash or other assets with any one broker or institution.

Our relationship with IB is something that must be managed carefully, as with any other 3rd party who has custody of our assets. You only have to look at the price charts of some of the global 'titans' of finance to realize how quickly appearances can change. Vigilance and open debate can only protect and help us in this regard.

oldpos said:

It concerns me that IB operate differently than say, CommSec where IB doesn't issue HIN and keeps our cash account in their name.

What I'm getting at is - Is there a risk to us if IB folds? Do some financer then get a chance to take our current stock and also our cash account?

Click to expand...

oldpos said:

but our cash accounts being operated from a bank account in our name well outside of the IB structure.

Click to expand...

Chops & oldpos my point is that IB is offering MORE protection than an Aust Bank account & from their website do not partake in risky use of funds UNLIKE Aust banks. see ANZ & opes slime & NAB FX scandal.

People seem to think because they have an Aust bank account in their name that they are safe. But that is wrong. Google Pyramid Building Society to see what happens with Aust bank account in their name.

chops_a_must said:

Of course IB is better for trading, but that's not the issue. The issue is the stock ownership, and the rights that that entails.

It's got nothing to do with comparing IB to another brokerage who abides by the CHESS regulations etc, it's simply got to do with ownership rights. That's the single issue.

Click to expand...

From my looking into it the Holdings are in a trust account not held by IB but Fortis. The risk is not with IB, I thunk http://www.fortis.com/companies/ClientCorner_Details.asp?B=119

As to Fortis I am having a meeting with a contact there at the end of the month so I may be able to shed some light on them soon.

BUT my main point is if you are a punter that trades the odd Aust share why bother with IB. but if you do need IB's functions the choice is a no brainer.

Is anyone aware if it is possible to convert a long CFD position with any Australian providers or a long position with IB, to shares that can be transfered to another broker?

Also what is the position if you hold CFD positions or with IB and a company announces something positive like a rights issue - who gets the rights?

Cheers

Dutchie

Trembling Hand said:

BUT my main point is if you are a punter that trades the odd Aust share why bother with IB. but if you do need IB's functions the choice is a no brainer.

Click to expand...

I don't think anyone is going to disagree with you in regards to trading options and flexibility etc.

But how did you get there from someone wanting a comparison between the security of IB and a standard Oz based broker?

Personally, I don't have a problem with the security measures.

But there are a few things that need to be adressed.

It needs to be explicitly and clearly documented on sign up that you don't have full ownership rights, nor full dividend rights and may not be allowed to participate in share actions.

I'm yet to transfer stock out of IB, but given past history, I'm going to have to set aside many weeks and get a prescription for painkillers to do it, if they even let me! So, can't comment on that.

But I think it's those things that people are having trouble working out. Must be an absolute nightmare for anyone with a SMSF through them.

Trembling Hand said:

Chops & oldpos my point is that IB is offering MORE protection than an Aust Bank account & from their website do not partake in risky use of funds UNLIKE Aust banks. see ANZ & opes slime & NAB FX scandal.......

Click to expand...

TH, I don't borrow money to buy shares, I never have and certainly never would in this current climate, so the ANZ/Opes is a poor comparison. I only mentioned it in my first post as all my funds are with IB, ie stock and cash. If IB goes down, so do all my assets. At least in Oz one can have an online broker and their cash account with another bank or Building Society, that way the risk is spread.

Also in Oz with HIN # on issue to me via CHESS, surely the broker has no control over those shares I own, that is the way I see it - I might be wrong, probably am but on the other hand, you could be wrong just for this once.

chops_a_must said:

I don't think anyone is going to disagree with you in regards to trading options and flexibility etc.

But how did you get there from someone wanting a comparison between the security of IB and a standard Oz based broker?

Personally, I don't have a problem with the security measures.

But there are a few things that need to be adressed.

It needs to be explicitly and clearly documented on sign up that you don't have full ownership rights, nor full dividend rights and may not be allowed to participate in share actions.

I'm yet to transfer stock out of IB, but given past history, I'm going to have to set aside many weeks and get a prescription for painkillers to do it, if they even let me! So, can't comment on that.

But I think it's those things that people are having trouble working out. Must be an absolute nightmare for anyone with a SMSF through them.

Click to expand...

You do own the stock, get dividend rights and are allowed to participate in corporate actions.

Australian stock is held on behalf of the client in an Interactive Brokers segregated client account in a Fortis Clearing Sydney CHESS account. The stock is for the benefit of IB customers and could not be lent out or subject to any lien by Fortis. Choosing this way was a business decision, as it is in line with general international practices, how we operate in other countries and also helps to keep costs lower.

Q: If your broker did go under what would be the process that would follow:
A: There are very few examples of SEC-regulated broker-dealers failing. If a broker-dealer is in distress, U.S. regulators typically try to find another broker-dealer to accept the accounts of the failing broker dealer. Assuming that customer assets have been properly segregated (i.e. assuming that the failing broker-dealer had not violated segregation rules), another broker would typically be happy to accept the accounts since all accounts would be fully and properly valued.

If no bulk account transfer were effectuated, the SEC likely would appoint a “receiver” – a person with legal authority to marshal all assets and distribute them to the customers. Again, assuming that the broker-dealer had been following the SEC‘s customer protection (reserve and segregation) requirement, its insolvency would not lead to customer losses.


Q; If cash and securities are held in segregated customer accounts what is the need for SIPC insurance? What is the risk by having no SPIC insurance?

A: SIPC coverage would not come into effect if the broker-dealer that failed had properly been following the SEC‘s customer protection (reserve and segregation) requirements. However, if the broker-dealer was under-segregated or under-reserved, or had engaged in fraud or criminality or misappropriation of customer funds, SIPC coverage and excess SIPC coverage would come into play, according to the coverage terms of SIPC and the excess insurance.

As posted earlier, other security FAQs are available here
http://institutions.interactivebrokers.com/en/general/education/faqs/safetyFAQ.php?ib_entity=inst

As also mentioned IBKR is listed, and currently holds 10% of the group, which at current market valuations puts the group at just under $11 billion value.

Steve-IB said:

Australian stock is held on behalf of the client in an Interactive Brokers segregated client account in a Fortis Clearing Sydney CHESS account. The stock is for the benefit of IB customers and could not be lent out or subject to any lien by Fortis.

Click to expand...

Thanks Steve, the above is the important bit.

Steve-IB said:

You do own the stock, get dividend rights and are allowed to participate in corporate actions.

Australian stock is held on behalf of the client in an Interactive Brokers segregated client account in a Fortis Clearing Sydney CHESS account.

Click to expand...

I would dispute that.

If I don't get the paperwork for my holdings, I don't believe I can fully participate in corporate actions, I don't believe I have full ownership rights, nor full entitlements to dividends.

Is it held in a fortis account under my chess account, or Fortis'?

Because if it is under the number for Fortis, I don't own the stock, Fortis does. And if I do, how come I don't get the proper paperwork?

And what of franking credits on dividends? You say all dividends are paid as 128c on the dollar or whatever, but what if the stock with franking credits is paying 160c on the dollar?

Who gets the extra amount, or the franking credits? And if I DO actually OWN the stock, then how the hell are they allowed to effectively steal that money from me/ other IB clients?

It appears that ownership is effectively just a gentleman's agreement, but in legal terms Fortis would appear to be the ones to actually have the legal rights to ownership...

When discussing 'ownership' maybe we should be careful to distinguish between legal title and equitable title where intermediaries or trustees are involved.

I haven't had any trouble with IB crediting me for the gross dividend amount for some of the holdings I've checked on so far.

As for the franking credits issue: I believe the credits flow from the dividend payment by the company to you, rather than from IB. As long as that payment is sent direct to us as owners of the stock via IB, as Steve says it is, then we're ok on the fc front. But it all hinges on our entitlement to the dividend via our stock holding. The fc is something you claim via your tax return, the amount of the fc is linked to the underlying dividend and the benefit you derive from the fc varies according to the person's tax profile. It might be worth IB getting a ruling from the ATO for customers in this class of affected taxpayers. Over to the tax experts on this one.

The relative security and tracing or ascribing of stock to individual holders per the HIN/CHESS system is still a live issue for me. Something as important as this should be publicly documented clearly and in detail on IB's website. It definitely would have been in a pds had it been an Australian financial product. I haven't thought much about the hassle involved in taking stock out of IB but judging by how very frustrating it was to get stock to them in the first place I'm not looking forward to it.

Sorry chops, I can't change what you don't believe. Fortis can take your stock and runaway to Timbuktu in the same way your bank can take your money and runaway to Ouagadougago. In either case it would be fraudalent and a criminal offense. With your IB account you have insurance for this.

RichKid,
Wrt to franking. Your synopsis is essentially correct. It's your dividend and your franking credit. We assume that all long clients will use the franking, but whether the client uses their franking credits is their own individual choice.

(We are currently reviewing all the Australian tax forms, to see whether we can provide end of year data to our clients to assist in their completion - including a better tracking of franking, in a similar way to what we provide in the US and Canada)

(btw.. we do have pds on the website you can locate them under the Forms and Disclosures page.)


We aren't going to be all things to all people. Stangely the HIN issue is a non-issue to our institutional clients who are used to this kind of custodians/ prime broker set-up. For the client who buys stock occassionally and stores it, then we are probably not the right broker.

We provide an institutional style platform, that is ideally suited for trading, and very beneficial for multi-asset or cross border trading. Essentially, you can deposit your Australian stock, and use the margin generated to trade Mexican futures, Japanese stock or US bonds. At the same time you get industry leading margin rates, super commission rates, a very competitive interest rate, the ability to convert currencies at an interbank rate, and insured accounts.

Steve-IB said:

Sorry chops, I can't change what you don't believe. Fortis can take your stock and runaway to Timbuktu in the same way your bank can take your money and runaway to Ouagadougago. In either case it would be fraudalent and a criminal offense. With your IB account you have insurance for this.

Click to expand...

1. It's not what I don't believe, it's a legal issue.

2. We aren't comparing brokerages with bank accounts, we are comparing brokerages with brokerages in regards to rights to stock.

3. This really needs to be clarified in the wake of Opes Prime etc.

4. Given your inability to give a straight answer, people will have to assume that Fortis does have first dibs to "their" stock, much like the ANZ/ Opes fiasco, albeit with the hope of getting some of it back. Which is what I have been trying to find out/ disprove.

chops_a_must said:

1. It's not what I don't believe, it's a legal issue.

2. We aren't comparing brokerages with bank accounts, we are comparing brokerages with brokerages in regards to rights to stock.

3. This really needs to be clarified in the wake of Opes Prime etc.

4. Given your inability to give a straight answer, people will have to assume that Fortis does have first dibs to "their" stock, much like the ANZ/ Opes fiasco, albeit with the hope of getting some of it back. Which is what I have been trying to find out/ disprove.

Click to expand...

1. Sorry I was answereing what you didn't believe
Your quote: "I would dispute that. If I don't get the paperwork for my holdings, I don't believe I can fully participate in corporate actions, I don't believe I have full ownership rights, nor full entitlements to dividends."

2. The analogy to a bank was to make it simple to understand.

3/4. How much straighter can what I posted earlier be:
"Australian stock is held on behalf of the client in an Interactive Brokers segregated client account in a Fortis Clearing Sydney CHESS account. The stock is for the benefit of IB customers and could not be lent out or subject to any lien by Fortis"

The last sentence means that Fortis do not have first dibs. Nor is it their stock.

I don't want to get drawn into an argument here. If you dispute it, or you don't believe me, then there's nowhere to go, and I suggest you get your own legal advice.

Hope that helps

Steve-IB said:

The last sentence means that Fortis do not have first dibs. Nor is it their stock.
I don't know what else I can say here.

Click to expand...

Thankyou.

Steve-IB said:

(We are currently reviewing all the Australian tax forms, to see whether we can provide end of year data to our clients to assist in their completion - including a better tracking of franking, in a similar way to what we provide in the US and Canada).

Click to expand...

Steve-IB, Perhaps a suggestion from a humble small investor, why not review all Aus tax forms and provide similar procedures to what Aussie's have with Aussie brokers. I'm sure that would settle us all down.

Also thank you Chops and RichKid for pressing my concerns which are still current. I'm sure a lot of others share them with us.

oldpos said:

Steve-IB, Perhaps a suggestion from a humble small investor, why not review all Aus tax forms and provide similar procedures to what Aussie's have with Aussie brokers. I'm sure that would settle us all down.
:

Click to expand...

We are reviewing all of them. If you have specific suggestions, or think that a particular Australian broker does a good job of this, then please send them to me. If you have current broker forms that you think are good but could be improved -then send them to me with your suggestions. It's alot easier for us to incorporate customers wishes from the begining, than it is after we have already produced them.

Steve-IB said:

~~
How much straighter can what I posted earlier be:
"Australian stock is held on behalf of the client in an Interactive Brokers segregated client account in a Fortis Clearing Sydney CHESS account. The stock is for the benefit of IB customers and could not be lent out or subject to any lien by Fortis"

Click to expand...

A lot, we are asking who owns the stock? The Share Registry has to have somebodies name recorded as owner.