Safety of Money held in a trading account:

Leafdrift

I have a TD trading ISA account with cash in it from shares I sold recently.
I plan to buy if share prices fall but does anyone know how safe that cash is if the stockbroking firm goes bust?
Thanks.

antrobus

Leafdrift wrote: »

I have a TD trading ISA account with cash in it from shares I sold recently.
I plan to buy if share prices fall but does anyone know how safe that cash is if the stockbroking firm goes bust?
Thanks.

See
http://www.tddirectinvesting.co.uk/special-pages/compensation-arrangements/

Leafdrift

Thank you so much, antrobus. That's an important piece of information and the link led me to the UK Financial Services Compensation Scheme ... specifically relating to investments ... but I'm unable to post the link as a new member.

So, the total compensation from the UK Financial Services Compensation Scheme is £50,000 per individual per firm. However overall having read several different articles I am still unclear if cash deposits and share holdings are always compensated separately. It seems to be complicated further by the exact nature of the default. These are just my thoughts and should not be taken as factual or be used as the basis of any financial decision.
So I think to be sure of being safe I shall have to split up and move some ISA shareholdings to another FSCS registered broker who is not financially linked to my current stockbroker. Thanks again.

bigadaj

Leafdrift wrote: »

Thank you so much, antrobus. That's an important piece of information and the link led me to the UK Financial Services Compensation Scheme ... specifically relating to investments ... but I'm unable to post the link as a new member.

So the total compensation from the UK Financial Services Compensation Scheme is £50,000 per individual per institution (where in this case the institution is a stockbroker) and that 50k limit covers both cash and shareholdings.
So I shall have to split up and move some ISA shareholdings to a different broker who is not financially linked to my current stockbroker. Much less convenient but essential. Thanks again.

That's your choice but the fscs compensation system works very differently for investments than it does for bank accounts.

Depending on what investments you hold its likely that you hold shares within funds on a platform. So if the platform or broker goes bust your investments are ring fenced and not owned by the platform. A failure could lead to delays and disruption but wouldn't mean that your investments are lost. Similarly the funds you invest in hold shares in individual companies, as well as potentially other instruments. So for example if invesco went bust, the individual shares in teh funds would still be held by those investors.

Leafdrift

Thanks for your reply, bigadaj.
Yes I have shares in my trading ISA and now quite a lot of cash but I have not opened a personal bank account with the broker where I can keep my cash. So I am not sure where my cash is held pending re-investment. I should clarify that of course.
I know the broker may spread the risk of a cash default by spreading deposits among several financial institutions and not always UK ones.

It reads as if the 'investment' refers jointly to the cash + the value of the shareholdings, which is logical to me. As per the broker's website (paraphrased) there is a clear limit of 50k FSCS maximum compensation per individual investment per firm
.
So I am still unclear if the cash and the shares together make up the investment but the confusion arises from the 2nd amount of 75k compensation mentioned on the broker's website (if there is a 3rd party default). The broker states 'that default by a 3rd party would be eligible for FSCS compensation of 75k for deposits held in the UK. Deposits held outside the UK may not be protected by a similar scheme.' (paraphrased).

So, in my ignorance, I am not sure in what circumstances any 75k maximum compensation would occur. Perhaps that would only arise if cash was in the process of being transferred from A to B and was therefore outside the broker's control.


Yes, I understand that properly ring-fenced nominee share accounts should be safe except if fraud or loss of all records were to occur. So yes one can take a pragmatic view about that risk,
Yet it is probably sensible to have more than one broker account all the same.

Grateful for all your thoughts on this matter. I know I can ask the FSCS and the broker but several heads are usually better than one. Well, better than just my head, certainly :-)

bigadaj

Cash in the account would be at risk and I believe this would be subject to the £50 k limit. Their reference to the £75k limit might refer to their cash holdings within banks.

I would minimise cash holdings within such an account, and certainly ensure they are less than £50k unless possibly trading for a brief period, but the risk of default of funds or shares given it is a nominee account with a regulated uk broker or platform is very low.

I hold more than one platform account, and exceed the limit in all of them, but it desist worry me and is more a combination of history and fees than any conscience worry about the safety of the funds involved.

System

Isn't TD Investing a subsidiary of TD Bank of Canada?

Leafdrift

Thanks for both of the above posts, both have useful points and are much appreciated; it is surprising what facts emerge.
For the record, though not sure if it in any way affects the issue of legal protection, I have found that there is an American bank with multiple branches in the US and the contact address is in New Jersey and the same bank does indeed have Canadian branches.
TD does specify that it uses DNB ... Der Nederlansche Banke based in Amsterdam which has a 100,000 Euro Dutch Deposit protection limit.

Yes, I agree it is best to adhere to the 50k limit in cash.