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What happens if a broker closes shop?
Old 01-13-2019, 01:39 PM   #1
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What happens if a broker closes shop?

I was/am thinking of using Robinhood for trading as I paid over $2000 in commissions in 2018.

The question I have is not about security of my money. I know they are insured.

The question I have is what happens in the case they are bought out or close up shop. If I have hundreds of small positions in various stocks, would I be given time to close these out? What if I didn't want to close them out for tax reasons? Would I have to pay $49 or some ridiculous charge to transfer the stock to another broker...for each stock? What about covered calls? If I had 100 shares of XYZ with a call sold against it, what would happen to this covered call if the broker closed up? Would there be a fee to transfer it?

Is this a reasonable thing to consider or am I being paranoid?
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Old 01-13-2019, 01:43 PM   #2
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SIPC is the answer. Here is their explanation: https://www.sipc.org/cases-and-claim...uidation-works I think the unstated issue is that liquidation can take some time and at least some assets may be hung up as a result. "In some cases, when the books and records are in disarray, finding and organizing the books and records can take weeks or even months."
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Old 01-13-2019, 01:53 PM   #3
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Ok, this line concerns me:

"In a Direct Payment Procedure, securities are valued as of the date that notice was published in the newspaper. If a customer disagrees with the determination, the customer has six months to ask a court to review SIPC’s determination, as explained in the determination letter."

So say I had sold a covered call on a lightly traded company for $5 with a 2020 expiration. When the broker closes up, the bid/ask on that call happens to be something silly, like $15 bid, $2 ask. You see this a lot on lightly traded calls, where there really is no way to assign a value.

Messy.
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Old 01-13-2019, 01:56 PM   #4
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We switched brokers recently with little fanfare. We didn’t liquidate, just transferred the equities and cash to the new broker. We did make sure we had no pending orders or money in motion at the time. Seemed very routine to both brokers and everything was cleared within a couple weeks.
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Old 01-13-2019, 02:26 PM   #5
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https://www.bloomberg.com/news/artic...-speed-traders

These folks are in hot water for supplying your order information to traders. Article may be behind a pay wall if you exceed the free article limit.

Also their "checking" account scheme drew regulators' interest:

https://techcrunch.com/2018/12/14/ro...nsurance-sipc/

I would not do business with this company.
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Old 01-13-2019, 04:05 PM   #6
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Quote:
Originally Posted by Another Reader View Post
https://www.bloomberg.com/news/artic...-speed-traders

These folks are in hot water for supplying your order information to traders. Article may be behind a pay wall if you exceed the free article limit.
E-trade and other bigger discount brokers do exactly the same thing though. It doesn't really bother me as I am not trying to work the pennies.
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Old 01-13-2019, 04:26 PM   #7
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Quote:
Originally Posted by gstillson View Post
I was/am thinking of using Robinhood for trading as I paid over $2000 in commissions in 2018.

The question I have is not about security of my money. I know they are insured.

The question I have is what happens in the case they are bought out or close up shop. If I have hundreds of small positions in various stocks, would I be given time to close these out? What if I didn't want to close them out for tax reasons? Would I have to pay $49 or some ridiculous charge to transfer the stock to another broker...for each stock? What about covered calls? If I had 100 shares of XYZ with a call sold against it, what would happen to this covered call if the broker closed up? Would there be a fee to transfer it?

Is this a reasonable thing to consider or am I being paranoid?
It is a valid concern. Suppose you are the only ER member who can accurately time the overall market. You realize today that within two weeks the market will lose at least another 25%. But, your brokerage house has gone belly up and SIPC is busy sorting things out. My understanding is that you get to wait, watch hour assets go down in price, while they do this. Lucky you.
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