What happens to my money invested in stocks if the economic crisis hits or the broker closes?

What happens to my money invested in stocks if the economic crisis hits or the broker closes?

Stockmarket v economy: the impact of covid-19 | The Economist

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answers (3)

Answer 1
August, 2021

Your money is in the settlement system of the exchange, your securities are in the depository. If your broker is closed, he cannot carry your securities and money, since the broker actually only provides you with the infrastructure for trading, that is, it essentially provides a service. For example, a waiter brought you coffee, and then the restaurant went bankrupt - you have the coffee. Even if this happens, other, reliable ones will come to the place of the “retired” broker, and you will be “transferred” to their place. This may take a while. Choose a reliable broker.

Answer 2
August, 2021

Your securities are not physically stored by the broker - and even if someone sends a cyborg killer from the future to blow up your broker's office, you are not in danger.

There are so-called depositories that serve a large number of various brokers, management companies and other participants in the stock market. In addition to other activities, they keep an independent record of who has how many of which securities.

And, of course, you can always contact the depository and get an extract from there about your securities, as well as transfer the securities to another depository or to another broker.

In general, unlike a bank deposit, your securities do not depend on the well-being of your broker.

With the financial crisis, everything is more complicated: here no one can give you any guarantees. And yes, during crises, stock prices tend to decline - and if you sell your shares at that moment, it is quite possible that you will incur losses. On the other hand, you may not sell them at a cheap price, wait for the market to recover - and then sell them. But, again, no one will give you any guarantees that the quotes will return to their previous levels. And to dispute something in this case, arguing it in the spirit of "there was a force majeure - a crisis, give me back the money" - will not work. The risk of negative price movement always lies with the investor.

Answer 3
August, 2021

Let's start with the second part: if a broker closes, for example, his license is revoked, then the shares will remain yours. You submit an order to transfer shares from the depository to the account of another broker and that's it.

The work of a brokerage is different from that of a bank. Clients can bring a conditional 1 million rubles to the bank, and the bank will issue this money for loans to other clients. If the bank closes, then there may not be enough money for all depositors. And this is where the DIA fund comes in.

The broker's process is different - the broker does not own the clients' money or shares. He is an intermediary for the client's transactions - he sends orders to the exchange, accepts money, withdraws them on behalf of the client.

Let's tell you how it works with us. When a client replenishes his brokerage account, the money is transferred to exchange settlement organizations - the National Settlement Depository (NSD) or Bank NCC, where this money is kept. Settlement organizations are legally prohibited from performing their own transactions with financial instruments, as well as transactions for placing funds and lending. This eliminates the likelihood of losing customer funds.

NSD is the central depository of the Russian Federation. If you have been to the Baumanskaya metro station, you could pass by the building where it is located. Bank NCC performs the functions of a clearing organization and a central counterparty in the financial market. Together with NSD, it is part of the Moscow Exchange Group. These entities are regulated by the Central Bank of the Russian Federation.

The rights to clients' securities are recorded in the Nattrader depository. In turn, Nettrader maintains a nominee account with the National Settlement Depository, which records the rights to the clients' securities admitted to trading. The depositary is not legally entitled to dispose of clients' securities. This requirement serves as a guarantee of the safety of clients 'securities.

In case of revocation of licenses, the broker must, within 3 working days from the moment of termination of professional activity, notify clients in writing about the revocation of licenses and, upon clients' request, and according to their instructions, return the money and transfer securities held by a broker, for example, in a depot of another broker.

The procedure for transferring securities to another depository is simple. You can read more about the transfer and crediting of securities in the client's guide on the website of our company.

Concerning the crisis

Despite the fall in quotations, the shares will still remain yours. This is an asset that can bring money in the future - either due to the growth in the market value of shares when the crisis begins to emerge, or due to dividends paid to shareholders.

Perhaps this will be a chance to buy assets that have fallen in price in order to then get big profits. No wonder they say that a crisis is a time of opportunity. A market decline is not always a reason to sell assets. For example, during the crisis, the apartment that you rent and receive income has fallen in price. But this is not a reason to sell it. She also continues to bring you income, despite thereduction of its price. So is a share - its value may fall, but it will continue to generate income - dividends.

But, of course, you need to consider each situation separately, and you cannot give universal advice to hold or sell securities. Either consult the broker's analysts or an independent financial advisor. Together, you must consider all your shares and, based on the tasks and forecasts, make a decision.

For example, Gazprom shares fell in 2008 and are still trading at a price 2 times less than in the pre-crisis time. And, for example, Tatneft grew by 70%. And that's not taking into account their purchases in the midst of the crisis and low prices.

It is important to make a note - if a stock is an asset, then with bonds everything is different. Despite the fact that bonds are considered a less risky investment instrument than stocks, they also carry a risk, and during the crisis they are quite high.

During the 2008 crisis, more than 130 issuers of corporate bonds defaulted and in most cases investors remained with nothing.

Important note: the listed papers are just examples and not a recommendation for action.

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