Jar asked in Business & FinanceInvesting · 9 years ago

SIPC on Margin Account?

Please help on understanding SIPC coverage on Brokerage accounts. Site http://www.pinnaclevaluefund.com/reports/StockStra... says that Margin account will have difficulty in case of Brokerage going bust. Has it happened in past ?

Also this question does not ask about excess coverage above $500 K that comes through CAPCO / LLoyd, but just any margin account with in SIPC coverage but with Margin enabled.

4 Answers

  • JoeyV
    Lv 7
    9 years ago
    Favorite Answer

    I wouldn't spend two seconds worrying about this. The point in the article is that securities kept in your margin account could be lent to other companies who in the event of a bankruptcy would hold onto the securities as some kind of bogus collateral on their own claims against the bankrupt company. However, that's pretty fanciful as they simply have no claim on those assets and there is no impicit netting arrangement that goes on in these spots. I think maybe the author hasn't ever been involved in bankruptcies before because the unfairness reall runs in the opposite direction. If you have a series of trades with a bankrupt counterparty, you are still liable for all the trades that the bankrupt party "wins" even if he isn't obligated to pay you on the ones he loses.

    Taking your assets because the bankrupt company screwed them is called theft. It's pretty unlikely and I have never heard of it happening.

    Also, you know that you can have securities held in cash accounts and securities held in margin accounts at the same brokerage, right? If you don't need the margin, you should hold your securities in your cash account for reasons besides this.

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