All things STOCKS

#10,927
#10,927
I was seeing some headlines saying that if coinbase goes bankrupt everybody's holdings would evaporate. Sounds like a lie.
 
#10,930
#10,930
mrorange211 said:
Their holdings become credit for Coinbase that was in the earnings call. It's why COIN and MSTR are being destroyed.
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Wait, what? That's like saying if Charles Schwab went bankrupt, the shares of AAPL you hold in an account with them "become credit" for Schwab. That makes no sense. Coinbase is just a crypto trading platform/custodian.
 
#10,931
#10,931
05_never_again said:
Wait, what? That's like saying if Charles Schwab went bankrupt, the shares of AAPL you hold in an account with them "become credit" for Schwab. That makes no sense. Coinbase is just a crypto trading platform/custodian.
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Schwab is SIPC insured for up to $500k/account ($250k cash) in addition to SEC regulations that will kick in if Schwab fails. I’m not sure if crypto assets inside of a Schwab SIPC insured account is covered (maybe Schwab doesn’t offer cryptocurrencies).

The crypto exchanges are not FDIC or SIPC insured.
 
#10,932
#10,932
Thunder Good-Oil said:
Schwab is SIPC insured for up to $500k/account ($250k cash) in addition to SEC regulations that will kick in if Schwab fails. I’m not sure if crypto assets inside of a Schwab SIPC insured account is covered (maybe Schwab doesn’t offer cryptocurrencies).

The crypto exchanges are not FDIC or SIPC insured.
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Why does the security itself need to be insured? Because of securities lending?
 
#10,934
#10,934
Thunder Good-Oil said:
Which security? Schwab “accounts” are SIPC insured, not the SCHW shares individually.

Crypto exchanges don’t have SIPC coverage.
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Stocks or any non-cash asset. I've never understood the SIPC insurance for non-cash assets held in a brokerage account.

Say Schwab goes under. I understand why the cash in your brokerage account might not be there, because they lend it out. No different than a traditional bank. But why wouldn't the 100 shares of AAPL be there? They aren't supposed to be touching that at all. Is it to protect in a case of malfeasance/illegal activity by the broker?

I get that crypto trading platforms/custodians don't have this coverage, but I also assumed that they didn't touch any assets that you had in the account. It sounds like Coinbase said yesterday that isn't necessarily the case - if they file bankruptcy, they can seize the crypto assets in client accounts as their own, for use in the bankruptcy proceeding.
 
#10,935
#10,935
05_never_again said:
Stocks or any non-cash asset. I've never understood the SIPC insurance for non-cash assets held in a brokerage account.

Say Schwab goes under. I understand why the cash in your brokerage account might not be there, because they lend it out. No different than a traditional bank. But why wouldn't the 100 shares of AAPL be there? They aren't supposed to be touching that at all. Is it to protect in a case of malfeasance/illegal activity by the broker?

I get that crypto trading platforms/custodians don't have this coverage, but I also assumed that they didn't touch any assets that you had in the account. It sounds like Coinbase said yesterday that isn't necessarily the case - if they file bankruptcy, they can seize the crypto assets in client accounts as their own, for use in the bankruptcy proceeding.
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SIPC covers the number of shares in a brokerage account, but not the value of those shares if they collapse during the claims process. I assume that the $500k limit is as of the day that the broker fails. If a client has 2,000 shares of a $250 stock on the day that the broker fails and the share price is $100 two weeks later, the client is only covered for $200k at that point.
 
#10,936
#10,936
Thunder Good-Oil said:
SIPC covers the number of shares in a brokerage account, but not the value of those shares if they collapse during the claims process. I assume that the $500k limit is as of the day that the broker fails. If a client has 2,000 shares of a $250 stock on the day that the broker fails and the share price is $100 two weeks later, the client is only covered for $200k at that point.
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Oh I totally get that - I get that it isn't insuring value in the event of a decline. But why wouldn't those shares be in the account in the first place is my question.

Is it to protect against pure theft on the part of the broker (i.e., the broker was at risk of failure, so they took your 100 AAPL, sold them, and pocketed/spent the proceeds)? That's the only way those shares wouldn't be there; they would never leave your account for any legitimate business purpose.
 
#10,937
#10,937
05_never_again said:
Oh I totally get that - I get that it isn't insuring value in the event of a decline. But why wouldn't those shares be in the account in the first place is my question.

Is it to protect against pure theft on the part of the broker (i.e., the broker was at risk of failure, so they took your 100 AAPL, sold them, and pocketed/spent the proceeds)? That's the only way those shares wouldn't be there; they would never leave your account for any legitimate business purpose.
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Your shares at a broker are held in street name and your claim of ownership is an entry on their ledger and is reported to you on a statement. The shares are in the name of the broker.
 
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#10,938
#10,938
Thunder Good-Oil said:
Your shares at a broker are held in street name and your claim of ownership is an entry on their ledger and is reported to you on a statement. The shares are in the name of the broker.
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That makes more sense, but I still don't get it. If you owned 100 shares of AAPL, and your broker went bankrupt, why would the shares themselves not be there? The shares are in the name of the broker, but your claim of ownership still exists, and the shares still exist independent of the broker blowing up. It isn't like the shares themselves vaporize in the same way that your cash might if a bank went insolvent.

That's why I don't understand the point of the insurance, unless the insurance is there to insure against outright theft on the part of the broker. Kind of like if you had a gold bar in a safe deposit box at a bank, and the bank failed, that gold bar should still be sitting there after the bank failed unless they just straight up stole it.
 
#10,939
#10,939
05_never_again said:
That makes more sense, but I still don't get it. If you owned 100 shares of AAPL, and your broker went bankrupt, why would the shares themselves not be there? The shares are in the name of the broker, but your claim of ownership still exists, and the shares still exist independent of the broker blowing up. It isn't like the shares themselves vaporize in the same way that your cash might if a bank went insolvent.

That's why I don't understand the point of the insurance, unless the insurance is there to insure against outright theft on the part of the broker. Kind of like if you had a gold bar in a safe deposit box at a bank, and the bank failed, that gold bar should still be sitting there after the bank failed unless they just straight up stole it.
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Pretty sure that brokers don’t have to actually have those shares on hand. Same as a bank can loan out the cash that you’ve deposited there. Brokers can certainly lend out the shares.

Brokers trade and speculate themselves. They do have rules to adhere to and have over-site from the SEC and other authorities. But I’m not an expert on their back office procedures and regulations.

Lehman, Bear-Sterns, Merrill and others wouldn’t have faced a liquidity crisis if they simply held their client’s investments one-for-one on both sides of their balance sheets.
 
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#10,943
#10,943
Thunder Good-Oil said:
Your shares at a broker are held in street name and your claim of ownership is an entry on their ledger and is reported to you on a statement. The shares are in the name of the broker.
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IIRC, that’s the appeal of many folks to use a service like computershare as the shares are actually registered in the client’s name.
 
#10,949
#10,949
Velo Vol said:
Do you use it?
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Fair question. What I did do is stop selling covered calls before Wednesday. Normally you expect calls to be worth more farther out from expiration (and remember I was selling them, so I want them to be expensive) but with that kind of price movement, they'd go up by factor of 10 or 100 when the life got cut in half. So anyway, I just waited until Wednesday to sell them.

When it happened 2 or 3 times it really got my attention.
 
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