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I still don’t get the model whereby <lock up> is unsafe with client funds but not broker funds. Were you presenting one? Did I miss it? If you weren’t, you’re

by SilasX 5y ago

I still don’t get the model whereby <lock up> is unsafe with client funds but not broker funds. Were you presenting one? Did I miss it? If you weren’t, you’re not really resolving my confusion here.

gruez 5y ago
>I still don’t get the model whereby <lock up> is unsafe with client funds but not broker funds. "unsafe" is the wrong word here. That would imply the clearinghouse doesn't think the collateral is as good if it came from the customer rather than the broker. This isn't the case. The requirement to use broker funds is not to protect the clearinghouse, it's to protect the customer in case the clearinghouse seizes the collateral (as they're allowed to do) when things go south. By using broker (or their creditor's funds), the customer's funds aren't at risk.
- SilasX 5y ago
  So ... the clearinghouse is perfectly capable of seizing collateral and running off without delivering the promised shares, but client funds "aren't at risk" when the broker puts up separate collateral, even though the clearinghouse could seize that just the same? This still doesn't make sense.
  - gruez 5y ago
    >but client funds "aren't at risk" when the broker puts up separate collateral, even though the clearinghouse could seize that just the same? The collateral is lost either way, but when the broker puts up the collateral the broker is on the hook for the loss, not the customer.
    - SilasX 5y ago
      Why wouldn't they be? You said the clearinghouse could seize the client purchase funds just as well as the collateral. Why couldn't they seize both? At the very least, it's a bizarre threat model that the clearinghouse can seize both, but it will only ever seize collateral (which is what your claim requires to make sense). That is, it's some kind of capricious being capable of seizing and willing to seize any money trusted to them, with no recourse, but somehow the presence of collateral makes it all better, even though that could be seized too.
      - gruez 5y ago
        >Why wouldn't they be? You said the clearinghouse could seize the client purchase funds just as well as the collateral. Why couldn't they seize both? Regulations? Presumably customer funds are segregated from company funds, so the company and the clearinghouse can't raid it if they need money. >At the very least, it's a bizarre threat model that the clearinghouse can seize both, but it will only ever seize collateral (which is what your claim requires to make sense). >That is, it's some kind of capricious being capable of seizing and willing to seize any money trusted to them, with no recourse, but somehow the presence of collateral makes it all better, even though that could be seized too. by "seize" I don't mean the clearinghouse can walk into the offices (or bank accounts) of any of their member and grab whatever they want. They're seizing (or more accurately, refusing to return) the deposit that the member sent on the day of trade.
        SilasX 5y ago
        >Regulations? Presumably customer funds are segregated from company funds, so the company and the clearinghouse can't raid it if they need money. Okay, and again, if "regulations" are enough for one case, why not the other? If a "regulation" can prevent the clearinghouse from holding on to asset they're not entitled to, why not use that instead of requiring the broker to put up money that will compensate the customer when the CH holds on to an asset they're not entitled to? >by "seize" I don't mean the clearinghouse can walk into the offices (or bank accounts) of any of their member and grab whatever they want. They're seizing (or more accurately, refusing to return) the deposit that the member sent on the day of trade. Great, that's how I was using it too.
        gruez 5y ago
        >Okay, and again, if "regulations" are enough for one case, why not the other? If a "regulation" can prevent the clearinghouse from holding on to asset they're not entitled to, why not use that instead of requiring the broker to put up money that will compensate the customer when the CH holds on to an asset they're not entitled to? But the clearinghouse is entitled to it. The clearinghouse member's collateral is used to make up the difference (the credit risk) should the member fail to pay the required amount on the day of settlement. If you prohibit the clearinghouse from seizing it, then that kills the point of the collateral.

by SilasX 5y ago

gruez 5y ago

>I still don’t get the model whereby <lock up> is unsafe with client funds but not broker funds. "unsafe" is the wrong word here. That would imply the clearinghouse doesn't think the collateral is as good if it came from the customer rather than the broker. This isn't the case. The requirement to use broker funds is not to protect the clearinghouse, it's to protect the customer in case the clearinghouse seizes the collateral (as they're allowed to do) when things go south. By using broker (or their creditor's funds), the customer's funds aren't at risk.

SilasX 5y ago
So ... the clearinghouse is perfectly capable of seizing collateral and running off without delivering the promised shares, but client funds "aren't at risk" when the broker puts up separate collateral, even though the clearinghouse could seize that just the same? This still doesn't make sense.
- gruez 5y ago
  >but client funds "aren't at risk" when the broker puts up separate collateral, even though the clearinghouse could seize that just the same? The collateral is lost either way, but when the broker puts up the collateral the broker is on the hook for the loss, not the customer.
  - SilasX 5y ago
    Why wouldn't they be? You said the clearinghouse could seize the client purchase funds just as well as the collateral. Why couldn't they seize both? At the very least, it's a bizarre threat model that the clearinghouse can seize both, but it will only ever seize collateral (which is what your claim requires to make sense). That is, it's some kind of capricious being capable of seizing and willing to seize any money trusted to them, with no recourse, but somehow the presence of collateral makes it all better, even though that could be seized too.
    - gruez 5y ago
      >Why wouldn't they be? You said the clearinghouse could seize the client purchase funds just as well as the collateral. Why couldn't they seize both? Regulations? Presumably customer funds are segregated from company funds, so the company and the clearinghouse can't raid it if they need money. >At the very least, it's a bizarre threat model that the clearinghouse can seize both, but it will only ever seize collateral (which is what your claim requires to make sense). >That is, it's some kind of capricious being capable of seizing and willing to seize any money trusted to them, with no recourse, but somehow the presence of collateral makes it all better, even though that could be seized too. by "seize" I don't mean the clearinghouse can walk into the offices (or bank accounts) of any of their member and grab whatever they want. They're seizing (or more accurately, refusing to return) the deposit that the member sent on the day of trade.
      - SilasX 5y ago
        >Regulations? Presumably customer funds are segregated from company funds, so the company and the clearinghouse can't raid it if they need money. Okay, and again, if "regulations" are enough for one case, why not the other? If a "regulation" can prevent the clearinghouse from holding on to asset they're not entitled to, why not use that instead of requiring the broker to put up money that will compensate the customer when the CH holds on to an asset they're not entitled to? >by "seize" I don't mean the clearinghouse can walk into the offices (or bank accounts) of any of their member and grab whatever they want. They're seizing (or more accurately, refusing to return) the deposit that the member sent on the day of trade. Great, that's how I was using it too.
        gruez 5y ago
        >Okay, and again, if "regulations" are enough for one case, why not the other? If a "regulation" can prevent the clearinghouse from holding on to asset they're not entitled to, why not use that instead of requiring the broker to put up money that will compensate the customer when the CH holds on to an asset they're not entitled to? But the clearinghouse is entitled to it. The clearinghouse member's collateral is used to make up the difference (the credit risk) should the member fail to pay the required amount on the day of settlement. If you prohibit the clearinghouse from seizing it, then that kills the point of the collateral.