Muriel ("Mickie") Siebert will ring the closing bell on the New York Stock Exchange today, honoring the 40th anniversary of the day she first took her seat on Wall Street.
I’ve been a fan of Mickie’s ever since I first heard about her during my undergraduate days at UC Berkeley (mid-70s). I wrote a paper about the SEC during my junior year, during which I interviewed several stockbrokers at EF Hutton (Remember them? Are you listening?). One of them knew Mickie personally, and told me that he hoped I’d meet her someday.
Well, I did, and have enjoyed our various conversations over the last decade. I introduced my daughters and my mother to her too. She has some amazing stories and is, I believe, a model of integrity for the industry. She gave up a lot of money to serve the state of New York, serving as the first woman Superintendent of Banking for the State of New York. Although there was a major banking crisis at the time, under her leadership no banks failed in New York State.
Mickie and I share concern about the financial literacy—or lack thereof—of today’s high school students. Mickie, however, has put her money where her mouth is, having created and funded a financial literacy teaching program available free of charge to high schools nationwide in order to address this issue and especially support educational efforts in school districts that might not be able to afford developing or otherwise obtaining an objective program.
According to a press release (which can be found here), the curriculum, entitled “The Personal Finance Program: Taking Control of Your Financial Future,” is now being taught as part of the required Economics course for high school seniors in New York City’s public schools and is in test roll-out in Palm Beach and Miami/Dade Counties in Florida, and other locations. It has received laudatory reviews from the Archdiocese of New York, which has introduced it in its high schools. The Council of the Great City Schools, a coalition of the nation’s largest urban public school systems, has distributed the program to each of its 64 member cities. In keeping with her personal agenda, Ms. Siebert hopes to see this program established nationally.
A COUPLE WEEKS AGO, WE ASKED Barron’s readers what would prompt them to switch online brokers or open an account with a new one. The overwhelming response—over three-quarters of those who took the time to write—was that the primary motivation would be to protect assets.
"What would happen to my account if my broker goes under?” howled a respondent. “I just don’t want to deal with that.”
Brokerages are required to carry insurance backed by the Securities Investor Protection Corp., a federally mandated entity funded by broker-dealers that covers up to $500,000 of stocks, options and bonds per account. Futures contracts, commodities and currencies are among the asset classes ineligible for SIPC coverage.
SIPC insurance has been mentioned many times in the midst of the recent credit crisis, but the details of its coverage still puzzle many. As a reader noted, “Not to pick on E*Trade, but if they go into bankruptcy, what happens to the money in people’s individual trading accounts? Are their stocks protected by SIPC but not their money-market funds? What happens if the account is $1 million? SIPC insurance doesn’t cover amounts that high, or does it? That concern and uncertainty is causing people to move their accounts out of E*Trade and into other firms.” (E*Trade’d sizable mortgage exposure prompted speculation about its financial health. The firm has since received an investment from hedge fund Citadel Investment Group.)
ACCORDING TO SIPC, customers of a failed brokerage firm get back all securities (such as stocks and bonds) that are registered in their name. The firm’s remaining customer assets (including cash or assets not covered by SIPC) are then divided, with the funds shared in proportion to the size of claims. If that still doesn’t cover the losses, then SIPC reserve funds are used, up to the $500,000 per-customer ceiling, which includes as much as $100,000 for claims of cash that were held in the client’s account.
The majority of the brokers we cover in Barron’s have a relationship with a clearing firm, which is where your assets are actually held. These firms work with the securities exchanges to confirm, deliver and settle trades. They’re also responsible for seeing that transactions are settled correctly in a reasonable amount of time.
Most brokerage executives we spoke with said that it would be difficult for a clearing firm to go bankrupt. If one of their member firms did something crazy, such as overextending margin or allowing a customer to trade a product he or she didn’t understand, it could affect the clearing corporation. But there would have to be a huge drop in the market, combined with a lot of trading on margin. In other words, a perfect storm is about the only thing that could cause a bankruptcy at a clearing firm.
Here’s how some electronic brokers arrange their coverage.
Mickie Siebert, CEO and founder of Siebertnet (http://www.siebertnet.com), says National Financial Services handles clearing at her firm and is ultimately responsible for customer assets. If Siebert’s firm went out of business, the customer’s assets would be kept segregated and safe at the clearer, she says. NFS has SIPC coverage in place and also provides, through an industry conglomerate called Capco, additional coverage with no cap.
A bankruptcy of OptionsHouse would have no direct financial impact on the assets of clients, says John Hass, the firm’s CEO (http://www.optionshouse.com). Options House clears through Penson Financial Services, which holds excess SIPC insurance of $200 million in aggregate for all customer accounts, subject to a maximum limit of $900,000 per customer for cash. Of course, Hass makes clear that his firm has another form of protection: “Options House has never had and does not currently have funds invested in subprime or other low-grade securities.”
Another Penson client, MB Trading, has access to SIPC coverage as well as insurance for $34.5 million in securities and $900,000 in cash through Lloyd’s of London, says MB’s executive vice president, David Lipsett (http://www.mbtrading.com).
ChoiceTrade (http://www.choicetrade.com) also clears through Penson, and its coverage is similar to that of Options House: $200 million in aggregate, subject to a maximum cash limit of $900,000 per customer, in excess of the base SIPC insurance, according to President Neville Golvala.
“Firstrade Securities has unlimited excess SIPC insurance, which covers all accounts up to the total equity in the account, including all cash balances,” says Vice President Peter Gschweng. Firstrade (http://www.firstrade.com) clears through Ridge Clearing & Outsourcing Solutions, which carries all its customer assets, so if something negative were to happen to Firstrade, these assets are protected, he says.
SIEBERT, A FORMER BANKING regulator in New York State, is concerned about claims of excess SIPC coverage as provided by the insurer Lloyd’s. That insurance is subject to a cap that doesn’t cover all the assets held by the clearer. A large firm, she says, could have a cap of $600 million for its excess coverage, but its total account assets might be more than 20 times that figure.
Fuad Ahmed, president of Just2Trade (http://www.just2trade.com) and LowTrades (http://www.lowtrades.com), says that firms must have real-time systems to analyze customers’ exposure. “It comes down to risk management and how the individual broker-dealer manages its potential risk exposure both through its own portfolio and through each client’s trades,” Ahmed says.
Adds Siebert, “Someone might think, ‘Gee, I only have $2 million in my account and it says each account is covered to $25 million, so I’m safe.’ But that is subject to the cap for the whole firm. The big firms would go through that kind of money so fast they wouldn’t know what hit them.”
“If my customers are going to lose their money, they want to lose it themselves. They don’t want to lose it on something they thought was safe,” says Siebert.
OUR 13TH ANNUAL REVIEW of online brokers is coming up. What’s most important to you these days as you consider opening—or moving additional money to—an online brokerage account? Let us know at electronicinvestor@yahoo.com .
My current Electronic Investor column, “Are You Covered if Your Broker Fails?” (Barron’s, December 17, 2007), has resulted in the largest outpouring of email from readers in the history of the column. Apparently you are all hungry for more information on this topic.
So Happy Holidays—my next column (December 31 issue) will expand on the topic and answer as many of your questions as I can possibly squeeze into the very limited space in the publication. I’m begging my editor for another page.
I am not related to anyone in this group! I swear. I’ve only spent a few days in Indiana in my entire life and have never set foot on the Indiana University campus. But this performance is still great fun. Enjoy! “And you better not ... in a pear tree.”
While researching my 12/17/07 column, which will focus on how brokers protect your assets, I was sent the November issue of Mickie Siebert’s “Dollars and Sense” newsletter, which was mailed to all Siebert’s customers with their November statements. She has a lot of experience dealing with the safety of the public’s money. I cannot reproduce the entire newsletter, nor do I have room to quote her extensively in the upcoming column, but I thought the following was of great interest and is well worth reading.
Account Protection
You can take comfort in knowing that, when you do business with Siebert, your account receives the highest level of coverage available in the brokerage industry - to the total net equity - with no limit for the amount of cash or securities. And, unlike many other brokers, there is no “cap” on the aggregate amount of coverage for all of our customers’ assets. Let me explain how this works.
There are different kinds of account protection that brokerage firms provide their clients to protect your account against insolvency of the brokerage or its clearing firm. (There is no account coverage that will protect you against fluctuations in the market value of securities.)
All securities brokerage accounts, including your Siebert account, receive coverage from the Securities Investment Protection Corp. (SIPC) as primary protection for up to $500,000, including a limitation of $100,000 for cash. SIPC coverage is required of all registered broker-dealers. Since most “cash equivalent” money market mutual funds are considered securities under SIPC, investments in money market mutual funds held in a brokerage account are protected by SIPC along with your other securities to a maximum of $500,000. You may visit http://www.sipc.org to learn more about SIPC protection.
Brokerage firms also have the option of providing “excess-SIPC” account protection for assets above these SIPC limitations through policies secured from private underwriters.
Muriel Siebert clears on a fully disclosed basis through - and domiciles your accounts at - National Financial Services LLC (NFS), a Fidelity Investments company. We are the “introducing broker” and NFS is the clearing firm, which means that they clear youre trades and execute certain other activities. You see their name along with ours on your monthly statements and confirmations.
NFS has arranged for additional protection for cash and covered securities to supplement its SIPC coverage. This additional protection is provided under a surety bond issued by the Customer Asset Protection Company (CAPCO), a licensed Vermont insurer with an A+ financial strength rating from Standard and Poor’s. NFS’ excess-SIPC protection covers total account net equity for all cash and securities in excess of the amounts covered by SIPC, for accounts of broker-dealers, like Siebert and Fidelity Brokerage Services LLC, which clear through NFS. You may access a CAPCO brochure about “Total Net Equity Protection” at http://www.siebertnet.com/html/convenience___security.html.
NFS has stated to us that “there is no specific dollar limit to the protection that the CAPCO bond provides for any single customer account, nor is there an aggregate dollar limit applied to the total combined customer accounts of any one correspondent broker that clears through NFS.”
Many other brokerage firms do not provide the level of total net equity account protection you receive. Many have excess-SIPC policies that are subject to aggregate limits on the total amount of customer assets that are covered, limits that are a fraction of total customer assets in their custody.
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Before you open a brokerage account, or deposit additional assets that would take you over the basic SIPC coverage levels, be sure you are familiar—and comfortable—with the assurances that your broker is protecting your money.
BARRON’S READERS OBVIOUSLY HAVE NOTICED the stock market’s not looking so well of late: There’s been a surge in requests for details about online bond trading. The Electronic Investor is happy to oblige, although it’s not an easy topic.
It’s tricky because there’s such a huge variety of bonds but only a thin inventory in the secondary market. That means finding bonds and reliable pricing is tough. Brand-new corporate or government-agency bonds tend to be sold to big investors, so not many are available online. A call to your broker is usually required.
There are other avenues to pursue, however. You can pick up new Treasury and savings bonds commission-free by opening an account at the TreasuryDirect site (http://www.savingsbonds.gov); this site also offers very useful information about upcoming Treasury issues and auctions. You can buy and hold Treasury bills, notes, bonds, TIPS (Treasury Inflation-Protected Securities) and savings bonds there. Users designate the financial account for payments and withdrawals, free of any charges. The “Research Center” tab features data that you may find educational, albeit frightening, about the Federal debt.
Another great place for learning about the bond market and getting quotes on a variety of issues is the Securities Industry and Financial Markets Association’s (SIFMA) Investing in Bonds (http://www.investinginbonds.com). This site offers real-time pricing data for municipal bonds, plus timely information on conditions in the corporate bond market. You can also find data on mortgage-backed securities.
We also like Yahoo’s bond page (bonds.yahoo.com) for its collection of articles in the “Bonds Education” section, which will inform the new bond trader while offering added depth of information to those with more experience.
OptionsXpress (http://www.optionsxpress.com) plans to give its bond platform a serious upgrade around the first of the year. We got a sneak peek, and like it so far. Unlike the current bond-screening tool, which is provided by a third party, the new one looks more like the screeners developed in-house. Results are displayed in a matrix, with quick links to trading. It’s a major change, including additional liquidity, and is much welcome.
Fidelity (http://www.fidelity.com) cut its pricing for most types of secondary-bond trading at the beginning of November. Corporate bond commissions were reduced from $2 per bond to $1, for example. Fidelity’s Open Bond Market, originally launched in 2004, offers comprehensive tools and information on fixed-income securities. We like the Bond Compare and the Bond Ladder tools. Apparently, Fidelity customers appreciate the Open Bond Market as well; according to a press release, 80% of the firm’s retail bond trades now are made online, compared to just 30% before the introduction.
Most retail brokers say they don’t charge commissions on trades, but in reality they just bundle those charges into the price of the bond. Fidelity’s goal with Open Bond Market is to offer transparent pricing info, with simplified trading charges distinguished from bond prices, as well as integrated real-time trading data for municipal and corporate bonds.
We discussed the upgraded NYSE bond platform earlier this year ("Giving Bonds an Electronic Upgrade,” May 14); recent visits to the site (http://www.nyse.com/bonds) show that the exchange has been true to its word—adding more bonds every month. You’ll find 20-minute delayed price quotes as well as a look at the market for individual bonds.
The site contains listings of available bonds, and gives users the ability to search the inventory, based on criteria such as maturity date, coupon and industry sector. NYSE’s bond platform started out as a service for its listed firms, but has progressed to provide excellent information for the individual investor as well.
ONLINE BROKER NEWS: Former BrownCo customers who were assimilated into E*Trade (http://www.etrade.com) last year recently got some good news. E*Trade, which had told Brownies that their low rates ($5 for market orders of stocks) would be maintained for a limited time, has decided the rates will continue.
A Barron’s colleague who was a BrownCo client notes that the $5 commissions also apply to no-load mutual funds with transaction fees. Other online brokers might charge as much as $75 for that. And you get access to some great funds, like Fairholme (FAIRX).
OUR 13TH ANNUAL REVIEW of online brokers is coming up. What’s most important to you these days as you consider opening—or moving additional money to—an online brokerage account? Let us know at electronicinvestor@yahoo.com .
In my most recent Barron’s column, which will appear here tomorrow, I concluded with the following query:
“OUR 13TH ANNUAL REVIEW of online brokers is coming up. What’s most important to you these days as you consider opening—or moving additional money to—an online brokerage account? Let us know at electronicinvestor@yahoo.com.”
So far, the overwhelming majority—about 3/4 of the 100 or so responses to date—has been, “How safe is my money?” Today I queried most of my broker contacts as follows:
Given the interesting events at E*Trade recently, I’m asking my broker contacts to comment on the following. I’m turning in another column very soon (by noon Monday) so I’d appreciate a quick turnaround—and apologize in advance for rushing you.
I have to write about how safe one’s investments are at various brokers soon, in light of the mess at E*Trade. Can you get me a comment regarding your firm’s excess SIPC/FDIC coverage, and the safety of an investor’s money at the firm? What would happen to an investor with $1 million invested in stocks and options with you if, for some horrible reason, the bottom fell out tomorrow and you guys went bankrupt?
The responses are coming in, and will be in my next column, which will appear a week from tomorrow.
This is a very poorly shot video of my daughter Kate (in the middle, singing soprano/lead) and two of her friends performing at my in-laws’ 60th wedding anniversary party. They are singing the song, “The Shape I Found You In,” written in 2002 by a group called Girlyman. The a capella arrangement was written by the very talented young lady singing alto, Beth, on the right-hand side of the trio. The performance took place on November 21. In the background you can see a slide show made up of photos from the 65 years my in-laws have been an item; my 10-year-old niece Kristen put that together.
“Shape” is actually a very sad love song the way GM performs it, but Kate and her pals picked up the tempo and made it a bit more cheerful. My in-laws loved it; my mother-in-law (who you can see briefly at the end of the song) is still talking about this performance.
Theresa W. Carey, author of "The Electronic Investor" column in Barron's, has been reviewing sites of interest to online investors since 1991. Welcome to InvestorBrain.com, which brings you news and reviews of tools for investing online.