Brokerages allowing "Client name" vs. "Street name"

[EMCTrade]

I've spent the last few months doing research online and on the phone with brokerages in regards to holding assets in Client name rather than in the broker's 'street name'. I've come out empty handed with a lot of closed doors, and 'sorry it's not possible nor efficient' or just simply clueless customer service reps.

It is my impression that unless you are a fund or very high net worth individual to be considered at a custodian bank, we are left with trusting our electronic assets with some sort of internal booking system of ScottTrade, ETrade, TDAmeritrade that says this is your bond and this is your neighbor's bond.

I would like to know if anyone can suggest a brokerage that allow direct book entry in customer name for fixed income government or corporate bonds?

I'm not referring to securities in certificate form, but electronic fixed income instruments.

PS. I know about TreasuryDirect however this is for US citizens & residents only.

 

[ChiliPepr]

I would be surprised if you will find anyone willing to do that without charging a hefty premium or you have hundreds of millions of dollars with them. Mainly because it is not efficient on their side and the margins and overhead would not make it worth their time/effort.

 

[brewer12345]

Why on earth would you bother?

 

[EMCTrade]

I would be surprised if you will find anyone willing to do that without charging a hefty premium or you have hundreds of millions of dollars with them. Mainly because it is not efficient on their side and the margins and overhead would not make it worth their time/effort.

Exactly my findings. I found that some custodian banks deal with funds and institutional investors with accounts 50M+.

 

[EMCTrade]

Why on earth would you bother?

See MF Global, Lehman London, Sentinel Securities failures. When a brokerage fails, assets (cash, securities, bonds) of all clients are pooled together to come up with the shortfall and everyone gets a pro-rata return of assets. SIPC would ideally make up for the shortfall up to a certain amount (if the broker is SIPC insured).

The problem with 'street name' registration is that the asset you hold in your account is essentially just an internal book-entry in the broker's records of who owns what. It's up to the broker to keep those records intact and you to hold on to your statements to claim in case of a bankruptcy at a brokerage, what is yours.

 

[brewer12345]

See MF Global, Lehman London, Sentinel Securities failures. When a brokerage fails, assets (cash, securities, bonds) of all clients are pooled together to come up with the shortfall and everyone gets a pro-rata return of assets. SIPC would ideally make up for the shortfall up to a certain amount (if the broker is SIPC insured).

The problem with 'street name' registration is that the asset you hold in your account is essentially just an internal book-entry in the broker's records of who owns what. It's up to the broker to keep those records intact and you to hold on to your statements to claim in case of a bankruptcy at a brokerage, what is yours.

So deal with a SIPC-insured broker, stay wth the biggest names, or if you are really worried about this just take delivery of the securities and store them however you wish.

 

[DoingHomework]

I'm also not sure I understand WHY you want to do this. I realize that failure to segregate client accounts is an issue with MF Global.

But if you really want to do this I would look at some of the smaller Swiss banks, especially the kantonal banks. Many will provide custody services, which is what you want.

If you are just looking to buy and sell bonds though, why can't you do this yourself and be your own custodian? We used to have some individual bonds that we bought directly from the issuer without going through a broker and later we sold through a broker. The coupon payments came directly to us from the issuer's bank. That was about 20 years ago though so maybe no issuers do this any more.

If you do this I would expect higher commissions to pay for all the additional work you are creating. That is only reasonable IMHO.

 

[EMCTrade]

I'm also not sure I understand WHY you want to do this. I realize that failure to segregate client accounts is an issue with MF Global.

But if you really want to do this I would look at some of the smaller Swiss banks, especially the kantonal banks. Many will provide custody services, which is what you want.

If you are just looking to buy and sell bonds though, why can't you do this yourself and be your own custodian? We used to have some individual bonds that we bought directly from the issuer without going through a broker and later we sold through a broker. The coupon payments came directly to us from the issuer's bank. That was about 20 years ago though so maybe no issuers do this any more.

If you do this I would expect higher commissions to pay for all the additional work you are creating. That is only reasonable IMHO.

I'm not sure that the buying corporates direct is possible anymore with the exception of TreasuryDirect.gov. Most bonds issues are underwritten by the big investment banks so unless you have an account directly with them, you'd have to use a broker who can get them on the secondary market or has access to the auction.

Swiss banks They are great, but they know they are great so they love to charge accordingly. Normally they have a custody fee of around 0.5-1% of assets annually, and transaction fees laughable compared to discount brokers (0.2-0.5% each way).

 

[DoingHomework]

I'm not sure that the buying corporates direct is possible anymore with the exception of TreasuryDirect.gov. Most bonds issues are underwritten by the big investment banks so unless you have an account directly with them, you'd have to use a broker who can get them on the secondary market or has access to the auction.

Swiss banks They are great, but they know they are great so they love to charge accordingly. Normally they have a custody fee of around 0.5-1% of assets annually, and transaction fees laughable compared to discount brokers (0.2-0.5% each way).

I have not bought a bond directly from the issuer for a LONG time so maybe you are right. But I have heard advice very recently regarding bonds to buy directly from the issuer to avoid markups so I think it is possible. I'll try to email you the number for an issuer for an upcoming issue. You can make the call and see what they say.

As for a 0.5%-1% fee, I agree that is high. But you are essentially looking for another form of insurance. You can't expect that to come for free. I don't have the same fear of holding stuff in street name that you do. But if I had that worry I would not consider 1% for insurance to be unreasonable. It's a personal call. I think those banks offer the service you are looking for. If you don't like the price then maybe your fear is not as bad as you think.

 

[EMCTrade]

I have not bought a bond directly from the issuer for a LONG time so maybe you are right. But I have heard advice very recently regarding bonds to buy directly from the issuer to avoid markups so I think it is possible. I'll try to email you the number for an issuer for an upcoming issue. You can make the call and see what they say.

As for a 0.5%-1% fee, I agree that is high. But you are essentially looking for another form of insurance. You can't expect that to come for free. I don't have the same fear of holding stuff in street name that you do. But if I had that worry I would not consider 1% for insurance to be unreasonable. It's a personal call. I think those banks offer the service you are looking for. If you don't like the price then maybe your fear is not as bad as you think.

Very good points. Do you have any information about how to keep up to date with what issues are being auctioned? Is there like a 'bond calendar' around or it's best to just contact the issuer that I'm interested directly asking if they are planning a new issue or if they are selling secondary market stuff from previous issues.

 

[NYEXPAT]

Why on earth would you bother?

Wallpaper the bathroom?

 

[DoingHomework]

Very good points. Do you have any information about how to keep up to date with what issues are being auctioned? Is there like a 'bond calendar' around or it's best to just contact the issuer that I'm interested directly asking if they are planning a new issue or if they are selling secondary market stuff from previous issues.

Reuters publishes a calendar of upcoming corporate bond auctions. It's a slow time of year so I could not find any information more recent than a couple of weeks ago. One bond at the time was being auctioned by Caterpillar. Their website seems to indicate they will deal directly with individuals but I did not spend much time looking in depth.

The bottom line is, I'm sure this is not as easy as buying the "normal" way. But if you spend a little time working at it I think it is still possible.

 

[brewer12345]

Assuming we are talking about retail sized purchases, you are very unlikely to be able to purchase directly. Even institutions who buy through the investment bankers running the deals are having a tough time getting what they would like to buy.

 

[Texas Proud]

For some reason my reply got lost....


I was a bond trustee for a few years... one of the problem you will find is that most of the bonds are in electronic form ONLY... and this was more than 10 years ago...

IOW, you can not get a bond in your name because they just do not exist...

 

[Texas Proud]

Reuters publishes a calendar of upcoming corporate bond auctions. It's a slow time of year so I could not find any information more recent than a couple of weeks ago. One bond at the time was being auctioned by Caterpillar. Their website seems to indicate they will deal directly with individuals but I did not spend much time looking in depth.

The bottom line is, I'm sure this is not as easy as buying the "normal" way. But if you spend a little time working at it I think it is still possible.

I would be very surprised if you would be dealing with Caterpillar.... they hire an investment bank to do all the work... if you contact Caterpillar I bet they just forward you to that investment bank....

 

[EMCTrade]

For some reason my reply got lost....


I was a bond trustee for a few years... one of the problem you will find is that most of the bonds are in electronic form ONLY... and this was more than 10 years ago...

IOW, you can not get a bond in your name because they just do not exist...

So even in electronic form, the entity registered with the issuer will always be the bank/broker-dealer that is selling the bond to the client and holding it in custody on behalf of the client?

 

[Texas Proud]

So even in electronic form, the entity registered with the issuer will always be the bank/broker-dealer that is selling the bond to the client and holding it in custody on behalf of the client?

Actually, no. The only paper bond is owned by CEDE & Co. They 'own' trillions of dollars of securites. And to let you know, there is only one paper bond for the full issue.

Now, all the bank/broker-dealers have an electronic custody account with CEDE & Co. So, Citi owns an amount, Goldman, Chase etc. etc. Each of these bank/brokers have their own electronic book showing who owns their share. And some of these hold for small brokers (lets use small local broker as an example)... that small broker would have a list of their owners etc. etc.


If you bought your bond and it was already owned by your broker, then all that happens is your broker makes an entry on its books that it moved from the previous owner to you. If it were owned by another broker, then they would settle up with CEDE.

 

[EMCTrade]

Actually, no. The only paper bond is owned by CEDE & Co. They 'own' trillions of dollars of securites. And to let you know, there is only one paper bond for the full issue.

Now, all the bank/broker-dealers have an electronic custody account with CEDE & Co. So, Citi owns an amount, Goldman, Chase etc. etc. Each of these bank/brokers have their own electronic book showing who owns their share. And some of these hold for small brokers (lets use small local broker as an example)... that small broker would have a list of their owners etc. etc.


If you bought your bond and it was already owned by your broker, then all that happens is your broker makes an entry on its books that it moved from the previous owner to you. If it were owned by another broker, then they would settle up with CEDE.

Very informative, thank you for that clear explanation. So essentially, the faith is with the broker/bank that they are keeping proper records, backed up etc.. so in case of disaster/failure, they still know who owns what.

 

[brewer12345]

Very informative, thank you for that clear explanation. So essentially, the faith is with the broker/bank that they are keeping proper records, backed up etc.. so in case of disaster/failure, they still know who owns what.

You got it. That s why I think it is wise to stick with the largest, most stable names out there. They are the most likely to have significant regulatory oversight and have the budget to fund a decent compliance, recordkeeping, internal audit and other control systems.