Friday, December 9, 2011

E*Trade, Scottrade, Fidelity Fine Print: "All of My Securities May Be Repledged & Hypothecated & Rehypothecated"

I just bought Phyzz. I
overnighted it to your place
Last night we discussed the issue of re-hypothecation of client margin collateral by Jefferies and JP Morgan.
Jim Willie also stated he expects to see over 1 MILLION private accounts vanish before this crisis is over. 
As such, we thought an examination of the fine print at 3 of the most commonly used online trading platforms, E*Trade,Scottrade, and Fidelity was in store.
The BIG PRINT giveth, and the fine print taketh (re-hypothecates) away.
How much more does The Doc need to say to convince you to GET PHYSICAL!?!
Buried somewhere in the E*Trade customer agreement fine print......

(b) Loan or Pledge of Securities
I authorize E*TRADE Securities to lend either to itself or to others any Securities and/or Other Property held by E*TRADE Securities in my Margin Account to the extent permitted by law. I understand that within the limitations imposed by applicable laws, rules and regulations all of my securities and/or other property may be pledged and repledged and hypothecated and rehypothecated by E*TRADE Securities. This can occur without my being notified, either separately or together with other securities and/or other property of other customers of E*TRADE Securities, for any amount due E*TRADE Securities in any Account in which I have an interest; provided, however, that E*TRADE Securities may not undertake such actions from any Account for any amount due E*TRADE Securities in any retirement Account or from a retirement Account for any amount due E*TRADE Securities in any other Account.

Oh, well that's nice to know. They won't steal your margin collateral if its your retirement account. 
As for the rest of ya'll....

And likewise Scottrade's fine print:

All securities and other property now or hereafter held, carried, or maintained by us in or for your account may, from time to time without notice to you, be pledged, re-pledged, hypothecated, or re-hypothecated by us, either separately or in common with other securities and other property.  The values received may be greater than the amount you owe us.

And Fidelity (at least Fidelity uses English when they describe how they're going to f*** you- seriously, how many of you had re-hypothecation in your vocabulary prior to yesterday!?!)

Fidelity can loan out (to itself or others) the securities that collateralize your margin borrowing. If it does, you may not be entitled to receive, with respect to securities that are lent, certain benefits that normally accrue to a securities owner, such as the ability to exercise voting rights, or to receive interest, dividends, or other distributions.

Its 1 am and The Doc is tired of investigating the fine print.  If its in the fine print at E*Trade, Scottrade, and Fidelity, its in the fine print everywhere.
Meaning- if you trade on margin, expect that your margin is currently re-hypothecated by your broker.  As in loaned out to itself or THE MORGUE!
Which means that if your broker goes the way of the Dodo bird (as E*Trade came within hours of doing in Oct of 2008), you can kiss your cash goodbye, just like MF Global clients have.
If your re-hypothecated collateral has been used to purchase derivatives, the counter-party to your brokerage who re-hypothecated your assets WILL LAY CLAIM TO YOUR BROKERS' ASSETS (YOUR COLLATERAL) AS THEY HOLD SENIOR STATUS UNDER CURRENT BANKRUPTCY LAW!! 
This is what just went down with MF Global and JP Morgan, and why Mr. Dimon is walking around with a big grin on his face.