I would be curious to know, their website says For more information please contact our Customer Care Centre: 0848 25 88 88 (+41 44 825 88 88)
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I wonder why you find it important that a brokerage registers securities in a specific client’s name. The normal practice by brokerages is to use omnibus accounts for securities. Those omnibus accounts are in clients’ name (aggregated over all clients, not specific client name). The clients’ assets cannot be touched in case of a broker’s bankruptcy, the equity belongs to the clients.
The situation where you can loose your equity is when two things happen simultaneously, brokerage bankruptcy and brokerage fraud (or missing records attributing aggregated equity to specific clients). If brokerage conducts fraudulent activities, I don’t see how a dedicated account for specific client name would help.
In case IBKR, I think they get a lot of attention that should prevent massive fraud. Having 500 billion of client equity, I cannot imagine fraud that goes into tens of billions. Moreover, specifically for the VT ETF, IBKR custodies (juridically owns) some 6,5% of all VT shares, which makes them a special case.
I think broker diversification is a good thing to do. In case of IBKR the risk I am more concerned is on the side of cyber security (they don’t compensate if you are hacked), then a possibility to loose a substantial part of the portfolio in a bancruptcy.
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Yes, they claim to check their books daily, sounds like good risk management. But it would not prevent fraud as these are internal controls. What I think prevents massive fraud is that they get lots of attention from the market, clients, rating agencies and regulatory bodies.
Another advantage of IBKR is that they mostly don’t use sub-custodians (for Japan they use a Japanese bank as sub-custodian?), but keep the securities directly at the central depot DTC in the U.S. and Clearstream in Europe. I have no idea if Swiss brokers use sub-custodians, what I know is that Saxo uses City Bank as their sub-custodian.
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Using that as a framework to quantify risk:
- As for rating agencies, IBKR has a BBB+ rating (like Botswana). AFAIK, this is the only one of the factors you mention that we can independently assess.
- In terms of size, larger clients may have different custody arrangements, I do not know what proportion of their AuM enjoy these additional guarantees. Please let me know if you find out.
- I also don’t know how much attention they get from the SEC and/or it’s UK equivalent. Please let me know if you know more about this.
Do you have a reference to back this up? My understanding is that IBKR holds assets in shared accounts at unnamed “financial institutions” in “various countries”. They declined my request to tell me which.
I started looking at this in the context of the Synapse debacle, where the crux of the problem was the inability to link client entitlements to assets held with sub-custodians.
However, I don’t think that’s the only or the most important thing to look at.
I suggest that people should consider how much exposure they are comfortable giving to a single broker/stock/country/whatever other correlated risk. That threshold is probably not the same for Bottswana as it is for Switzerland (if we’re talking about countries). And likewise, for me it’s not the same for IBKR as for PostFinance.
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I asked IBIE where they custody their assets, hier is the list https://gdcdyn.interactivebrokers.com/Universal/servlet/Registration_v2.formSampleView?formdb=4350
IBIE custodies VT in IBKR U.S., which according to the customer service, has a direct account at the DTC and custody there. That’s why they say that if you invest in U.S. situs assets you may be eligible for SIPC compensation in case of missing equity after bankruptcy.
The tripartite agreement you referring to, in my interpretation, is a way to specify to IBKR where you want to custody your assets. Why should you prefer a bank over IBKR – have no idea. In case IBKR screws up records, your own records should be taken into account when untangling process starts.
There are indeed some brokerage-related risks, but they are unavoidable. We can only mitigate them by spreading our assets between brokerages, and between the custodians of the funds (i.e. if both Vanguard and Blackrock custody at State Street (just saying something), you are not diversifying really if you hold iShares and Vanguard ETFs).
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I’m giving up on pointing out the difference between brokers and custodians, but I applaud you for pointing out that if you – as the customer – end up with your securities at one and the same custodian, you’re exposed to the risk of having that custodian, especially if that custodian holds your securities in the street’s name versus in your name.
There’s yet another central entity that tracks which securities are held by whom, per jurisdiction (plus agreements across jurisdictions), which is your final risk of who tracks what you think you own, even if you elected to have securities held in your name.
Forgive me, I cannot fully understand your message.
The ultimate place of custody for all securities is the central depository. DTC in the U.S. and Clearstream in Germany (hope i am correct with the names). Some brokers / banks may have direct accounts at depots, some don’t and hence have to use sub-custodians. For IBIE is IBKR LLC subcustodian for US equity.
I’m also a little light on the details here, but in my understanding – limiting ourselves to Switzerland – SIX is an exchange, a clearing and settlement agency and a central securities depository.
When you trade with Swiss equitities with your Swiss bank (involving many other entities, listed here), your shares appear on your bank’s custody account but in reality they are centrally tracked at SIX’s central securities depository.
In the US, this seems to be DTCC which is also the clearing and settlement entity.
The point of my reply to your message was merely to point out that brokers and custodians are different things (you seemed to indicate that brokers and custodians are the same thing?) but maybe I misunderstood.
Ah, OK. Your broker is of course a custodian of your assets, but not the only one. There is a custody chain, which begins at your broker and ends at the central depository. In between there could be sub-custodians, as for instance City Bank for Saxo.
My point was that I don’t see much of a disadvantage of street name accounts, as in all cased you may suffer in case of fraud. In any case it is a good practice to keep your documentation such as account statements up to date.
I dream of the day when we can hold shares in self custody without intermediaries as we hold Bitcoin.
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Bearer shares used to be a thing. Actually saw some yesterday myself: Any Stockpickers out there? - #474 by Your_Full_Name
Glad the self-custody is a thing of the past as I wouldn’t know where to store those pieces of paper securely myself … let alone exchanging them when I want to. 
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This thread is morphing to a prepper thread. 
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Had an interaction with ZKB once, same story there. They will not refund you if you are being hacked. Well, they meant they never had such an issue 
I assume, this applies to other Swiss banks as well.
Noob question: what is the risk our the broker account being hacked? Normally brokers allow withdrawals only to accounts in the holder name, can hackers bypass this somehow or the hacking is limited to do weird trades with your funds?
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Sure. I made a post on bogleheads some time ago, there you’ll find the links to documents and detailed arguments.
https://www.bogleheads.org/forum/viewtopic.php?t=421552
IIRC we had a similar discussion here. IBKR is different compared to Vanguard and Fudelity, as well as Dutch banks, who do compensate in case of a hack. How important is that i don’t know, but in my assessment you have more risk here than in case of bankruptcy.
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I see a business model in using Vanguard, Fidelty or those Dutch banks: a friend sophisticated hacker “hacks” my account and siphons off funds and we split the profit (and the bank re-imburses me for the funds stolen).
More seriously: those Vanguard etc terms basically is the CYA for Vanguard in case you do get hacked: you in all likelyhood will have violated one of Your Responsibilities.
No offence, but the ultra bad & smart Blackhat with a bunch of zero day exploits under his belt who might be able to hack your account without you violating Your Responsibilities won’t be after you or me.
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I like your responses and knowledge. The thing in this case is that the proof that you violated basic digital hygiene is on the side of the banks or Vanguard. In the case of IBKR, you are on your own.
But I hope you’re right and the chances of digital screw up are negligible. ChatGPT, for what it is worth, asses the chance of equity loss on IBKR of around 0,1% over a period of 20 years.
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the first company who did this in ch back in 2018
I like and respect your views and responses, too.
I tend to look at security threats from an attacker’s perspective – decades of déformation professionelle at work here – or at best how the service provider can protect against such attacks. Only once did I really have suffer through a victim’s response (for a corporation).
But you look at things from a potential individual victim’s perspective, totally valid, and a fresh alternative to my own well trodden paths.
I still rate the chances of you or I getting hacked as low, but I recognize that your own personal perspective is different if you’re an affected victim that should have had an only a 0.1% chance of being a victim.
<Literature and philosophical excursion>
In fact, I feel reminded of one of my favorite formative books from back in the day: Homo Faber by Max Frisch. I won’t spoil the plot – though nobody’s going to read it because of this post – but my personal take-away at the time (being a total math and physics geek, still am) was that there indeed are probabilities, and they’re true, but if you as a sample and individual fall outside of those, life can suck.
</Literature and philosophical excursion>
Anyhow, let’s both hope we don’t fall victim to any of these schemes. I feel regardless of whether you’re with IBKR – you need to prove you didn’t do anything wrong – or your nice Dutch bank – they need to prove you did something wrong (?) --, you’ll be facing fun exchanges with those companies’ lawyers …
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