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From: mazlack@ernie.BERKELEY.EDU (Lawrence J. &)
Newsgroups: net.invest
Subject: Re: Stockbroker selection, discount brokers.
Message-ID: <11165@ucbvax.BERKELEY.EDU>
Date: Fri, 6-Dec-85 16:00:47 EST
Article-I.D.: ucbvax.11165
Posted: Fri Dec  6 16:00:47 1985
Date-Received: Sat, 7-Dec-85 20:19:10 EST
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Sender: usenet@ucbvax.BERKELEY.EDU
Reply-To: mazlack@ernie.UUCP (Lawrence J. Mazlack)
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Organization: University of California, Berkeley
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>> 
>> Absolutely take delivery.  So far this year, there have been 10 broker
>> failures (according to yesterday's Wall Street Journal).  Any of them
>> can fail, for example, Bache did.  Even if they don't fail, they can
>> and do loose track  of certificates.
>>    ...Larry Mazlack
>
>I'm confused.  Aren't brokerage housed insured?  They advertise that your
>securities are insured up to $1 million or some amount like that.  I thought
>that was supposed to protect you against broker failures.
>
>I have never taken possession of my certificates, citing the hassle of
>traveling back and forth from broker to safety deposit box as the reason.
>Am I taking an undue risk by not taking possession?  Has anyone lost any
>money in these recent broker failures?

Right, most of the brokers are insured.  But, the insurance only protects
you against outright loss of the certificate.  It doesn't help you straighten
out your account when they have fouled up because of book work.  And most
of the failures occur because of this kind of problem.

Also, what happens is that your account is *frozen* while they try to
straighten out what who owes what to whom. This is not always so simple,
as your *ownership* of a stock held by your broker could be just a journal
entry for stocks that the broker holds for himself.  These stocks, the
broker will probably be using as security for the broker's own loans.
This in turn makes it murky as to the true ownership of the stock.

The basic problem in having your account *frozen* is that you cannot get
out of a position UNTIL most everything is resolved. Unless one broker takes
over another, this will take months. 

This can hurt if the stock price goes against you
(either down for something you own, or up for something you are short in).
There are also several hedge strategies dealing with options and stocks
that can be devastating if your account is frozen. I'm not sure what happens
to options positions; but I think they are also untouchable (this is what
happens with commodities) and you win or loose accordingly.  (However, as
you can't take possesion of an option's certificate, this isn't germane to
the question of taking possesion of stock/bond certificates.)
 
Another advantage of
holding your own certificates is that you can go to a bank and borrow
against them (of course, depending on your broker, you may also be able
to do this with stocks the broker holds).
...Larry Mazlack