Margin account concern, SIPC

Discussion in 'Trading' started by noob_trad3r, May 12, 2009.

  1. So SIPC will not cover me if my brokerage goes under? I have about 470K in securities and (72K cash) which is under the SIPC coverage in my etrade margin account and someone sent me this article regarding margin accounts.

    I have not outstanding margin but I heard that if etrade goes under I could still lose my securities because they are registered in street name and etrade could lend them out even if I am not borrowing. and if etrade goes out I just become a creditor?

    part of the article below.

    I don’t want to add to the panic, but one thing that is getting little in the way of attention here is the question of whether investors should have investments in their name or street name. Many brokerage accounts are automatically opened as margin accounts, or with margin features, which means if a brokerage runs into trouble, you become just another creditor.

    If a brokerage were to be taken over by the Securities Investor Protection Corp (SIPC - the governing authority) for insolvency, says Brunstad, first, customer name securities are distributed back to their owners. Securities held in street name, (the vast majority) however, would likely be included in the pot of customer property, which is later distributed ratably to customers. This could make it difficult for you to recover all of your securities, in some instances possibly tying them up for several years, according to the U.S. General Accounting Office (GAO-03-811 , Report to Congress: (Securities Investor Protection, July 2003, pp. 23.)