I’m trying to open an account with Bison bank. They have been very helpful in guiding us in the process. During our meeting we were assured that our securities are safe even if Bison goes bankrupt.
But when I read the general conditions, I saw a couple of terms that concerned me.
By default Bison Bank can loan our securities to themselves. We have to inform them if we want to opt out of this. If Bison bank becomes bankrupt, while they have our securities through loan, then the securities are in jeopardy.
Bison Bank might use an intermediary to hold our securities. If that intermediary company goes bankrupt, our shares with Bison Bank is in jeopardy as well.
Do all the banks have this condition and it’s just a fine print that doesn’t happen? Or is it specific to Bison Bank?
Knowing this would be really helpful.
Fairly normal stuff.
Stock loan is common with brokerage accounts as a way to raise money. It’s only going to apply for publicly traded stocks where there is a secondary market to lend into. It won’t apply to these kinds of depository shares.
The intermediary is probably Bison Securities Ltd. Which could go bankrupt. But frankly again for these kinds of shares, the risk is probably quite low. In a typical brokerage account, shares are held in street-name, e.g. they’re bought and sold on your behalf but fundamentally they’re still on the books of the broker; it’s not as if there’s some stock certificate sitting around with your name on it. In the case of these funds, there is - you signed documents with the fund, the fund has registered shares to your name. They’re sitting in an account at Bison, but that’s more of an accounting/legal thing than anything - I bet if you were Portuguese, you wouldn’t need Bison, just as if you’re a US investor buying into a US hedge fund, you simply wire money straight to the fund, you don’t need your shares registered on the books of some bank or brokerage. So if Bison did go bankrupt, any creditor would be damn hard-pressed to come after your fund shares as any sort of common asset.
Thanks jb! This is more concerning now. I was planning to hold “IMGA Portugal Accoes” which is a publicly traded fund. I didn’t understand the second paragraph though. So if Bison holds my “IMGA Accoes Shares” and Bison goes bankrupt. Can creditors come after my shares?
I know in the US you can opt out of the lending of shares, and you can request that the shares be held in your name. I would just ask Bison if you can do that there. If your shares are in your name and not being lent then you should be protected.
The question here is whether or not the securities are held in “street name” or whether the shares are registered to you. This would be the same issue as in the US where you can choose to have shares actually registered to you at the company and have certificates issued, but that impacts your ability to actually trade them.
The answer is “It Depends” and you would have to have a discussion with them. It just depends too much on the nature of those shares and how they’re held, there’s too many possible permutations.
In truth I doubt it’s ever going to be an issue. Portugal is a first world country and there should be basic protection and segregation of assets such that the odds of going too weird is just mega-remote. But if it bothers you, then ask.