May Broker's Failure Trigger a Margin Call?

Discussion in 'Retail Brokers' started by dragonman, Nov 4, 2011.

  1. Hi,

    If a broker goes bankrupt and thereafter the securities (not commodities) account is automatically transferred to another broker, and considering that the positions and the cash in this account are within SIPC coverage limits, is it possible that only part of the account will be transferred to the new broker in a way that may cause the account to be unbalanced and trigger margin calls and forced liquidations?

    I originally thought that as long as there is SIPC coverage such situation is not possible, but according to the following article it is possible that all of the positions will be removed to another broker but only a portion of the cash collateral will be removed along with it, and this may trigger margin calls and cause losses to customers.

    http://www.cnbc.com/id/45159102

    This seems very strange to me, since in fact the customers will have large losses in spite of the SIPC protection. Why to transfer only part of the account in a way that will make the account to be out of balance? Isn't there any other way to really protect the customers in such situations (even if all of the accounts cannot be transferred simultaneously, only transferring "balanced" positions with respect to margin will make much more sense)?
     
  2. I would appreciate any response, thanks.