8Mon·

What happens in the event of broker insolvency?

Hey guys! What actually happens to your securities if your broker, such as Trade Republic, goes bankrupt?

👉🏻Lasst let's go through it🔎

You still have money in your settlement account while the broker goes bankrupt? That's where the statutory deposit protection comes in Spiel⬇️

🛡️Einlagensicherung🛡️

Did you know that your deposits are protected up to 100,000 euros per customer and bank? This applies to current accounts, savings accounts, call money and fixed-term deposits. Your securities? They are even better geschützt⬇️

💰 Securities💰

Shares, bonds and funds are special assets - this means they always belong to you and not the bank. So in the event of insolvency, you are safe💯

Ok and why?

Thanks to Sondervermögensregelung⬇️

🛡️Sondervermögensregelung🛡️

Don't worry, your securities (shares/ETFs) are safe! Thanks to the special assets regulation, they remain your property and are not part of the insolvency estate. They are kept separately from the broker's assets and can be transferred to another custody account. In the event of insolvency, however, this is exactly where you would have to take action and initiate the securities account transfer💪

Tip: Securities account number and especially the account statements (from time to time) should be saved digitally/separately so that you have corresponding proof of your shares / ETFs in the event of insolvency hastℹ️

Ok, but what about money such as outstanding dividend payments that the broker still owes me? And that brings us to the next topic, namely so-called "outstanding liabilities in the event of insolvency"

💼 Outstanding liabilities in the event of Insolvenz⬇️

Outstanding liabilities from securities transactions are covered up to EUR 20,000 by the Compensation Scheme of German Banks (EdB), whereby 90% of the liabilities are reimbursed👍

Ok, but what exactly are open liabilities or corresponding examples where I am covered with a maximum of € 20,000?

👉🏻Nicht Settled sales of securities: You've sold shares but the money isn't in your account yet? That's exactly what can happen.

👉🏻Dividendenzahlungen: Dividends have been paid out but haven't reached you yet? That counts too!

👉🏻Zinsen from bonds:

Interest that you have earned but has not yet been credited.

👉🏻Verkaufserlöse from derivatives: Options or futures expired and the proceeds aren't there yet? That's part of it too.

👉🏻Rückzahlungen from fund units: Proceeds from fund sales that are not yet in your account.

👉🏻Verrechnete, but not transferred funds:

Money offset by purchases or sales of securities but not yet credited.

👉🏻Erstattungen of costs or fees: Refunds that have not yet been received by you.

👉🏻Nicht executed order bookings: Money reserved for open orders that have not yet been executed.

--- Conclusion ---

Your securities = special assets and cash holdings up to €100k in clearing accounts are protected and remain safe in the event of insolvency🔒

As you can see, you are well protected even in the event of broker insolvency! 💸📈 Only the outstanding liabilities for outstanding transactions of over €20,000 remain an issue🔎

##################

But now the question arises, how secure is a broker like Trade Republic compared to a bank?

🔍Broker vs. bank🔎

What are the differences between Trade Republic and e.g. Deutsche Bank? And above all, WHERE IS MY MONEY SAFE?

(Just an example - no advertising or similar)

🏦Special assets🏦

Trade Republic & Deutsche Bank: Your securities are protected as special assets. This means that they remain your property and are safe in the event of insolvency.

🔒Deposit protection🔒

Trade Republic: Your deposits are protected up to 100,000 euros by the statutory deposit protection scheme. In addition, liabilities from securities transactions are protected up to 20,000 euros.

Deutsche Bank: In addition to the statutory deposit guarantee, there is often extra protection from the Deposit Protection Fund, which can protect higher amounts.

💼Custodian bank💼

Trade Republic: Use HSBC Germany as your external custodian bank. Your securities will remain safe there, even if Trade Republic goes bankrupt.

Deutsche Bank: Hold your securities yourself or via your own structures. The protection mechanisms remain the same.

🛡️Risikomanagement🛡️

Trade Republic: New, specialized broker with less comprehensive infrastructure.

Deutsche Bank: Established, global and systemically relevant bank with extensive resources for risk management and compliance.

📊Regulatory supervision📊

Both: Monitored by BaFin, but Deutsche Bank is subject to stricter requirements as a systemically important bank.

🟰In summary🟰

Your securities are safe with both! Deutsche Bank may offer an additional level of trust, but the legal protection mechanisms are very robust with both providers👍

My personal opinion? For very large assets, a bank such as Deutsche Bank offers a little more security and it makes sense to split your assets between several institutions anyway, keyword diversification➗

Greetings

Stefan

❕Disclaimer ❕⠀

No guarantee for timeliness, appropriateness or accuracy ⠀

- No liability - No investment advice (§ 85 WpHG)

#insolvenz
#traderepublic
#howto

171

33 Comments

René@Booz

8Mon

Thank you! Very good summary.

What I think is still missing is the question "How and when do I get my money/account/securities back?".
If a broker or a bank really goes bankrupt, you no longer have access to your money or investments, deposit protection/special assets or not - what happens then? When do you get your up to €100,000/deposit contents back and from whom? And what do you have to do as an affected customer?

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Stefan 🏴.@InvestmentQuelle

8Mon

@Booz Thank you. A practical example would be really interesting. Maybe I can find something suitable based on a true story🔎

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René@Booz

8Mon

@InvestmentQuelle That would be great! Of course it's nice to have the safeguards with our banks and brokers, but what to do in an emergency and how long it takes would be really important and interesting.

It's a bit like with insurance companies or lawyers :) It can be quick or the insurance company can do everything to avoid having to pay (e.g. if you don't have watertight proof of your own deposits and have to sue and/or wait forever).

Depending on what comes out in reality, it is all the more important to have your cash in different banks.

We in IT always say "All customers want guaranteed backups but they should actually want recovery". Backing up data is important, but being able to back it up again in an emergency or being able to access the data promptly and completely is the more important part.

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Mark777@Mark777

8Mon

Here is a real example of how you can get your deposits in the event of insolvency:

"Greensill Bank from Bremen provided an example case at the beginning of 2021. Its parent company got into financial difficulties, the bank filed for insolvency and the banking supervisory authority Bafin started the so-called compensation case.

Greensill Bank was part of both the statutory deposit protection scheme for private banks (EdB) and the voluntary protection scheme for private banks (Deposit Protection Fund). The Deposit Protection Fund contacted all savers by letter in March 2021 and informed them about the procedure. In the event of compensation, customers are therefore notified and do not need to contact the fund themselves.

Due to the size of Greensill Bank, the voluntary protection limit in the private bank system was around 75 million euros per investor. This limit varies from bank to bank. You can check it on the website of the Deposit Protection Fund of the private banks. (As explained above, savings banks and cooperative banks cover deposits up to an unlimited amount). To be on the safe side, however, we recommend that you only rely on the statutory cover of 100,000 euros per person and bank and spread larger sums across several banks.

At Greensill Bank, it took a little longer in some cases for the Deposit Protection Fund to pay out the compensation - this was due to outdated contact details or requests for changes to the account, for example. Once the necessary information has been provided, the law stipulates a period of seven banking days for payment. You should always provide banks with your current address and other contact information.

Just under three weeks after the procedure was launched, the banking association was able to announce that the compensation was about to be finalized. By the way: If you find out about your bank's bankruptcy late, you won't miss out on anything. The right to compensation only expires after five years."

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Stefan 🏴.@InvestmentQuelle

8Mon

@Mark777 Good to know - thank you for sharing 😃 Hopefully none of us have to go through such an experience in the first place😇

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Dividendenoldie@Dividendenoldie

8Mon

interesting article, one difference between TR and the German bank is that you have your own account with DB, which you don't have with TR. TR works with a fiduciary collective account, and they distribute your money to different banks they work with, including DB, but it is not your own account at DB, but that of TR. There are countless discussions about what happens if one of them goes bankrupt. TR keeps a low profile and just says everything is good and safe and customers' money is protected. Somehow you're bound to get your money, but just having to deal with this kind of crap really annoys me personally! I am a customer of both DB and TR. I'm happy with both, but I haven't had any problems with the issue here.... :)

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Stefan 🏴.@InvestmentQuelle

8Mon

@Dividendenbezieher](Dividendenbezieher) thank you for your comment with an important point that I would like to include in more detail. (No advertising for Trade Republic or similar)

ℹ️Die Deposit protection of €100,000 per person normally applies to balances in bank accounts held in the depositor's name❕However, for fiduciary accounts managed by a broker, protection depends on several factors:

👉🏻Rechtslage of the trust account: Trust accounts must be clearly identified as such and kept separate from the broker's funds.
👉🏻Einlagensicherung for escrow accounts: If set up correctly, deposit protection can be applied to individual clients so that each client is protected up to €100,000 if the bank becomes insolvent.
👉🏻Verwaltung of customer funds: The broker must comply with legal requirements and be transparent about who owns what portions of the trust account.
👉🏻Regelungen and exceptions: These may vary depending on the country and type of trust account. It is important to check the specific regulations.

🚨At Trade Republic, customers' deposits are secured in trust accounts with partner banks such as Deutsche Bank, HSBC, J.P. Morgan and Citibank Europe🔒These deposits are protected up to €100,000 per customer and account by the statutory deposit protection scheme in Germany. Trade Republic keeps customer funds separate from its own funds so that the deposits are also protected in the event of Trade Republic's insolvency🫡 Even if the funds are collected in trust accounts, the deposit protection applies to each customer individually up to €100,000 🙏🏻

Disclaimer: my own research - no guarantee for completeness/accuracy

Sources:
https://support.traderepublic.com/de-at/743-Wie-ist-meine-Einlage-gesichert
+
https://support.traderepublic.com/de-de/37-Warum-ist-mein-Geld-auf-einem-Treuhandsammelkonto
+
https://einlagensicherung.de/banks/trade-republic-bank/).

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Dividendenoldie@Dividendenoldie

8Mon

@InvestmentQuelle Thank you for your comment and the constructive information. You can see that there are many "ifs and buts" with this topic... You "just" have to be aware of it... Many people don't even know that this is how it is handled at TR, only when it really comes to "damage".

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Stefan 🏴.@InvestmentQuelle

8Mon

@Dividendenbezieher Definitely - keep your eyes open when choosing a broker, including all the advantages and disadvantages and things to consider 😃

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Stefan Schmid@Paladium

8Mon

ETF -> It gets fucked up if the issuer goes bust.
Then the money is gone...

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Stefan 🏴.@InvestmentQuelle

8Mon

@Paladium hi Stefan doesn't quite fit the topic, but regardless of that, your comment is (fortunately) wrong 😃

Don't worry, your money is not gone if the issuer of an ETF goes bust geht☺️ ETFs are protected as separate assets, i.e. the assets of the ETF are separate from the assets of the issuer🫡🔒

Even in the event of insolvency, these assets are not used to settle the issuer's debts👍
A new manager would take over the ETF or, in extreme cases, the ETF would be liquidated and you would receive the value of your shares💶
Your invested capital therefore remains safe 💯

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Stefan Schmid@Paladium

8Mon

With an ETF, I am not the owner of the shares.
Or have I misunderstood?

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Stefan 🏴.@InvestmentQuelle

8Mon

@Paladium With an ETF, the investors are the owners of the shares in the fund 😊 When you buy shares in an ETF, you indirectly acquire shares in all the shares or other assets that the ETF holds.

The ETF is usually managed by an investment company or asset manager who is responsible for selecting and managing the underlying portfolio ℹ️

The most important points sind⬇️
Investor: You are the legal owner of the ETF shares you have purchased.
ETF shares: These shares represent a fraction of the ETF's total portfolio.
Asset manager: The company that launches and manages the ETF holds and manages the underlying assets on behalf of the investors.

Although the asset manager holds the actual shares and assets, as an ETF investor you indirectly own these assets in proportion to your share in the ETF 🙏🏻💯

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Stefan Schmid@Paladium

8Mon

@InvestmentQuelle Ahhh mega.
Thanks for the clarification.
Thought they were the owners and we were just the pro rata owners.

But okay.
You never stop learning.

And thank you very much for your clarification and time.

Greetings Stefan

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Stefan 🏴.@InvestmentQuelle

8Mon

@Paladium I'd love to - I first had to really get to grips with this topic myself 😃

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Daniel S@DaNiO

8Mon

Why the post with reference to Trade Republic, are there insolvency rumors circulating about TR? 😵‍💫
P.S. thanks for the very informative article 👍🏻

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Stefan 🏴.@InvestmentQuelle

8Mon

@DaNiO Thank you Daniel. Not that I know of. I just used Trade Republic as an example because it's a pretty popular broker for most users here 😃

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Gerit@Gerit

8Mon

Awesome! 🙌

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Gerit@Gerit

8Mon

now add a catchy hashtag #️⃣ or pin it to the top of your profile so that people can always refer to this post. 🙏🏻

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Stefan 🏴.@InvestmentQuelle

8Mon

@Gerit Which hashtag would you recommend? 😃

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Thomas@DonkeyKongx

8Mon

Stefan is a stunner!!! 😄👌💯

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Mark777@Mark777

8Mon

Top contribution🥇👍

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Stefan 🏴.@InvestmentQuelle

8Mon

@Mark777 danke 🙏🏻

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Mr. S.@Mr_Stonks

8Mon

First of all, many thanks for this great post. I would be interested to know if anyone here has any idea what happens to, for example, shares in items at Timeless and the like in the event of insolvency.

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Show answer

Immo_Investor@Immoinvestor1981

8Mon

Great contribution 👍.

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Toni M.@INOT

8Mon

👍🏼👌super

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Stefan 🏴.@InvestmentQuelle

8Mon

@INOT 😃🙏🏻

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Till@Stockmarketbird

8Mon

Securities in a private custody account are not special assets and never have been. Even if relevant finfluencers claim otherwise, the term is not legally applicable here. Securities are special assets, for example, if they are held in a fund / ETF.

These segregated accounts to which you are correctly referring originate from completely different regulations than special assets.

I already wrote an article on this a long time ago: https://app.getquin.com/de/activity/KGVzCRmhDP

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Stefan 🏴.@InvestmentQuelle

8Mon

@Stockmarketbird The fact that securities in a private custody account are not considered special assets potentially entails administrative and legal disadvantages

Custodian risk: There may be delays or difficulties in the return of the securities by the custodian.

Insolvency administrator intervention: In the event of the bank's insolvency, administrative delays could occur or the insolvency administrator could attempt to contest ownership of the securities.

Restricted access to services: Access to certain securities services could be restricted until a new service provider is found.

No specific insolvency protection framework: There is a lack of a clearly defined legal protection framework, which may lead to uncertainty.

It should therefore be noted that these disadvantages only become relevant in an absolute emergency and that securities are generally well protected as they are considered personal property💪

That is why I did not want to focus on the depth of this legal framework in my article, as it is obviously quite vague (will be individual) and difficult to predict.

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Till@Stockmarketbird

8Mon

@InvestmentQuelle Yes, there is a legal separation for private custody accounts, even if the securities are not special assets. This is a regulatory requirement. You can't get a broker license without this separation.

It's all there: https://eur-lex.europa.eu/legal-content/DE/TXT/?uri=CELEX%3A32019R2033

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Stefan 🏴.@InvestmentQuelle

8Mon

@Stockmarketbird Where did I say anything different or contradict anything? 😅

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Till@Stockmarketbird

8Mon

@InvestmentQuelle Second paragraph? :D

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Stefan 🏴.@InvestmentQuelle

8Mon

@Stockmarketbird ok deleted and I'll find out more🫡 don't want to get into an argument with you or share incorrect information here

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