4 ms·
Consider the following sequence of events: 1) Custom initiates $300 purchase of some stock. 2) RH sends customer's $300 to counterparty. 3) After receiving t
by usefulcat 6y ago
Consider the following sequence of events:
1) Custom initiates $300 purchase of some stock.
2) RH sends customer's $300 to counterparty.
3) After receiving the $300 and before delivering stock to RH, counterparty goes belly up.
Forbidding RH to use customer funds in that manner prevents that race condition.
- amluto 6y agoThis particular issue you cite has little to do with customer funds. Look up delivery-versus-payment. In foreign exchange, for example, one can avoid this issue by settling via a provider like CLS [0]. I’m reasonably confident that stock transactions are immune to the problem you’re imagining. In any case, I think it would be entirely ridiculous for one’s stock broker to front the entire purchase price for each and every stock purchase to secure customers against counterparties who might take the money and not deliver the stock. This would involve the broker coming up with 100% of the price, not merely an amount related to the anticipated worst-case P&L. [0] https://www.cls-group.com/ https://www.cls-group.com/ In this particular instance, I do know what I’m talking about. The story of Herstatt Bank is fascinating.