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Broker trust accounts

  • #1
  • First Post: Jan 27, 2020 5:01am Jan 27, 2020 5:01am
If a broker goes bust are traders able to access their funds directly from the trust account at the relevant bank or are we left having to gain compensation from whichever regulatory organisation?

As an example in the UK I believe the FSCS only covers initial deposits (up to 85k) and not traded profit. If the trust account is in a UK bank I am wondering whether we could access this to gain 100% of the funds. If the trust account is overseas maybe we are left with the FSCS.
  • #2
  • Jan 27, 2020 9:59pm Jan 27, 2020 9:59pm
Quoting richhand
If a broker goes bust are traders able to access their funds directly from the trust account at the relevant bank or are we left having to gain compensation from whichever regulatory organisation? As an example in the UK I believe the FSCS only covers initial deposits (up to 85k) and not traded profit. If the trust account is in a UK bank I am wondering whether we could access this to gain 100% of the funds. If the trust account is overseas maybe we are left with the FSCS.
answer is no.
clients do not get direct access to the trust acccount, you will require the regulator to appoint a liquidator to tele the finances etc before reimbursing whatever remaining funds to clients..

the only way you can have access to a trust account is when u are a big client, in excess of 10mill deposits for reputable prime brokers. u can request brokers to open a joint bank account solely for your use and yours alone for settlement.
  • #3
  • Jan 28, 2020 2:03am Jan 28, 2020 2:03am
Relating to the UK I've found out that 2 accounts with the same broker would both be given the same potential compensation claim ie 85k each, presumably linked to the same trust account.
  • #4
  • Jan 28, 2020 4:27am Jan 28, 2020 4:27am
Quoting richhand
Relating to the UK I've found out that 2 accounts with the same broker would both be given the same potential compensation claim ie 85k each, presumably linked to the same trust account.
the 85k compensation which you talk about is not from the trust account, but FCA's compensation account which all UK brokers contribute to.

how compensation works is as follow

upon a company declaring insolvency, regulators (FCA) is informed
FCA will then appoint a liquidator to do the books for the company. (balance sheet etc)
once creditors are paid/liquidators get their fees. whatever remains in the trust account will be reimbursed to clients

usually the aforementioned process takes months. so the FCA has a compensation scheme of $85k.

a client can only choose one option
FCA's compensation scheme of $85k or from the reimbursement from the client trust account after the liquidators has gone thru the books.
  • #5
  • Jan 28, 2020 5:28am Jan 28, 2020 5:28am
Quoting Bicarus
{quote} the 85k compensation which you talk about is not from the trust account, but FCA's compensation account which all UK brokers contribute to. how compensation works is as follow upon a company declaring insolvency, regulators (FCA) is informed FCA will then appoint a liquidator to do the books for the company. (balance sheet etc) once creditors are paid/liquidators get their fees. whatever remains in the trust account will be reimbursed to clients usually the aforementioned process takes months. so the FCA has a compensation scheme of $85k....
That makes sense although my broker has stated that the creditors can't touch the trust accounts. I don't necessarily believe them.

Is the 85k the max compensation no matter how many accounts a trader may hold with a broker? Not 85k per account?
  • #6
  • Jan 28, 2020 6:01am Jan 28, 2020 6:01am
Quoting richhand
{quote} That makes sense although my broker has stated that the creditors can't touch the trust accounts. I don't necessarily believe them. Is the 85k the max compensation no matter how many accounts a trader may hold with a broker? Not 85k per account?
Creditors(liquidity providers) are definitely prioritized before clients. its in their prime broker agreement (between LPs and the broker). that is why there's always a shortfall. you'd probably be looking at getting 60-80 cents on the dollar should a firm fail and you choose this method of fund recovery.

on the other hand,
fca's compensation is 85k per entity. so if you have 10 accounts under your name, you still only get 85k*1 from the FCA.
  • #7
  • Jan 28, 2020 10:14am Jan 28, 2020 10:14am
Quoting Bicarus
{quote} Creditors(liquidity providers) are definitely prioritized before clients. its in their prime broker agreement (between LPs and the broker). that is why there's always a shortfall. you'd probably be looking at getting 60-80 cents on the dollar should a firm fail and you choose this method of fund recovery. on the other hand, fca's compensation is 85k per entity. so if you have 10 accounts under your name, you still only get 85k*1 from the FCA.
How interesting! That means one needs to diversify its portfolio and trade with 4 to 8 brokers at the same time .
Risk Management is of utmost importance!
  • #8
  • Edited 1:30pm Jan 28, 2020 1:20pm | Edited 1:30pm
Quoting RCtrader
{quote} How interesting! That means one needs to diversify its portfolio and trade with 4 to 8 brokers at the same time .
no you dont, thats the worst thing to do. you just need a good broker with proper prime relationships. simply because at the end of the day, there is only 5-6 banking counter-parties. as a institutional trader, i can tell you straight up that areas of confluence which attracts more market activities(no of orders, not volume executed) are always first targets on the radar. thats where people start complaining about stop hunting. but it's not. its simply that when a few dominoes fall, the fallen will help exacerbate and the rest will merely follow. its all about liquidity..

that is why proper firms all execute only via a single prime broker. but in blocks for large order
  • #9
  • Jan 28, 2020 4:29pm Jan 28, 2020 4:29pm
Quoting Bicarus
{quote} Creditors(liquidity providers) are definitely prioritized before clients. its in their prime broker agreement (between LPs and the broker). that is why there's always a shortfall. you'd probably be looking at getting 60-80 cents on the dollar should a firm fail and you choose this method of fund recovery. on the other hand, fca's compensation is 85k per entity. so if you have 10 accounts under your name, you still only get 85k*1 from the FCA.
The above statement is false. Trust account only contains money for traders. All creditors do not have access to this. Creditors have only access to the company operational asset (including working bank accounts). Even if the broker borrow money from the bank, the bank still cannot access the Trust account.

In the past, brokers shift money from Trust account into their operational account. This means when liquidators are called in, they will find a shortfall.
ASIC put a stop to this by having all brokers reconciling all traders account (MT4 balances) and trust account at the end of each week and report to ASIC and audited at least yearly.
This is why it is harder for smaller brokerage to comply with all these new rules that came into effect last year.
  • #10
  • Jan 28, 2020 8:57pm Jan 28, 2020 8:57pm
Quoting reddevil
{quote} The above statement is false. Trust account only contains money for traders. All creditors do not have access to this. Creditors have only access to the company operational asset (including working bank accounts). Even if the broker borrow money from the bank, the bank still cannot access the Trust account. In the past, brokers shift money from Trust account into their operational account. This means when liquidators are called in, they will find a shortfall. ASIC put a stop to this by having all brokers reconciling all traders account (MT4...
interesting. thanks for the new regulator information.
  • #11
  • Mar 18, 2020 3:46am Mar 18, 2020 3:46am
Should use a broker with FCA license, but I think ASIC is ok. and it's not easy to verify your account
  • #12
  • Mar 26, 2020 11:42pm Mar 26, 2020 11:42pm
VantageFX is also reliable because they have an ASIC license
  • #13
  • Last Post: May 10, 2020 1:33am May 10, 2020 1:33am
to me, I also think ICMarkets and FPMarkets are trustworthy, each of them has a unique advantage
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