What happens if your broker goes bust
Your shares are not the broker's to lose. The risk is not the assets, it is the record keeping.
Know where your assets actually sit, before you need to.
How What happens if your broker goes bust works, in one picture
The same argument as the text, as a chain. Each step is what makes the next one possible.
Why a solvent bank can die in 48 hours
The bank lent your deposit out. That is not a scandal, it is what a bank is. It only becomes fatal when everyone asks for their money on the same afternoon.
- 1
Client assets are supposed to be segregated
A regulated broker holds your shares separately from its own balance sheet, usually via a nominee company. If the broker fails, its creditors cannot take your shares, because they were never the broker's shares.
- 2
The real risk is administrative, not financial
The assets are usually there. The problem is proving who owns what, from a failed firm's records, which can take a long time. In that period your money is safe and completely inaccessible, and markets do not pause for you.
'Safe' and 'available' are not the same word, and the gap between them can be months.
- 3
Compensation schemes cover the shortfall, up to a limit
If assets are genuinely missing, national schemes cover losses up to a cap. Know the cap in your jurisdiction, and note that it is per firm, which is a real argument for not holding everything in one place.
- 4
So diversify the custodian, not just the portfolio
Most people diversify what they own and hold all of it at one broker. That is an unhedged single point of failure, and it is free to fix.
You know the compensation limit that applies to you, and how much sits above it at one firm.
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Your shares are not the broker's to lose. The risk is not the assets, it is the record keeping.
Every one shows its exact method, and the circumstances in which it is wrong. Free, and no account to look.