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Am I really a shareholder? Brokers have provided an answer to a burning question for many investors

Jamie Cameron
22. 10. 2022
8 min read

A topic that arouses a lot of emotions - am I really a shareholder? Are my investments safe in case of a problem? This article will bring you a concrete answer to this question in the form of brokers' statements!

Brokers have provided an answer to one of the most pressing questions

Few questions bring as much ambiguity, inaccuracy and confusion as this one. What makes it even worse is that there is either fragmented or unverified information on the internet. So I asked the support of six of the most widely used brokers and bring you a comprehensive list of answers. Do we really own the shares?

I asked all the brokers the same question:

I would like to ask the question of stock ownership. There is mixed information on the Internet. Who (or in what form) owns the shares when buying on your platform? Especially from a tax and accounting perspective.

I have sent an English equivalent to brokers without Czech support, accompanied by a request for a reply for an investor from the Czech Republic (due to possible differences from other countries). I am giving their answers in English and in my (hopefully) correct translation.

1) Interactive Brokers

While clients are the beneficial owner of all securities held in their account, all such securities are held in 'Street Name' meaning that they are registered in the name of Interactive Brokers on the books of the issuer. Interactive Brokers, in turn, holds them for you in what is known as 'Book-Entry' form meaning that we maintain a record on our books that you are the owner of the securities

While clients are the beneficial owners of all securities held in their account,all such securities are held inStreet Name, which means that they are held in the name of Interactive Brokers on the books of the issuer. Interactive Brokers, in turn, holds them for you in what we call"book-entry" form, which means that we keep a record on our books that you are the owner of the securities.

2) Lynx

Your trading account is held with an Irish entity called Interactive Brokers. The cash you see in the account is held in various bank accounts and is of course segregated from the broker's assets. The securities that you hold in your portfolio are held in the securities depositories relevant to the exchange. Client assets must by law be segregated from broker assets.

Interactive Brokers is the owner of the securities listed in the custodian. The broker then grants ownership rights to the client so that the client, and not the broker, reaps the benefits (and disadvantages) of ownership of the stock. The client is then always the so-called ultimate beneficial owner. This procedure is standard and preferred because of the speed of buying and selling shares and the administrative costs. This is the so-called street name registration, which you can read more about here: https://www.investopedia.com/ask/answers/185.asp.

3) Trading 212

Generally, Trading212 holds the shares you invest in on your behalf, in custody at Interactive Brokers. They are the biggest broker in the world by the number of daily trades, holding 160B US dollars in client assets.
It applies to all of our clients, regardless of the country of residence!

Generally, Trading212 holds the shares you invest in on your behalf in custody at Interactive Brokers. It is the largest broker in the world by number of daily trades and holds $160 billion in client assets. This applies to all our clients regardless of country of residence!

4) eToro

When you open a non-leveraged BUY (long) position on a stock, you are investing in the underlying asset, and the stock is purchased in your name. This also applies to fractional shares: for example, on eToro, you can invest as little as $50 to purchase part of a share whose price per unit is $1,000. eToro also offers additional functions using CFD trading. With CFDs, you can open SELL (short) positions and use leverage. Keep in mind that if you hold a CFD stock position, you do not actually own the stock. Any CFD trade will be marked 'CFD' in the trade line. The eToro investment platform is not an exchange or a market. This means that you can BUY or SELL stocks within the eToro investment platform, but it is not possible to move open positions out of your eToro account to another broker or to another person.

When you open an unleveraged BUY (long) position on a stock, you invest in the underlying asset and the stock is purchased in your name. This also applies to fractional shares: for example, on eToro you can invest as little as $50 to buy a fraction of a share whose unit price is $1,000. eToro also offers other features using CFD trading. With CFDs you can open SELL (short) positions and use leverage. Keep in mind that if you hold a CFD position on a stock, you do not actually own the stock. Each CFD trade will be labelled "CFD" next to the trade description. The eToro investment platform is not an exchange or a market. This means that you can buy or sell shares within the eToro Investment Platform, but you cannot move open positions from your eToro account to another broker or other person.

5) XTB

Legally, you are indeed the owner of the shares you hold, but it is common these days for a broker at an end-dealer to hold your shares under their name in a bulk so-called omnibus account. This is primarily to just minimize the cost of depositor services, which then may not be passed on to the end investor, but key depositor services are retained. You, as an individual investor, will not notice this in practice as share transfers, dividend credits or various corporate events are always ultimately executed in the same way as if the shares were registered with the end depositary in the client's name.

6) Degiro

You are the ultimate beneficial owner of the shares. We can provide you with a UBO certificate that showcases that, additionally, you can find more information here.

You are the ultimate beneficial owner of the shares, We can provide you with a UBO certificate that shows this. You can find further information here.

Due to Degir's fairly brief response, I have pulled and translated the link you mentioned here. It reads as follows:

How are my investments held?
In the financial world, there are several ways to hold financial assets. A common method that is often used throughout the financial world is to hold assets in what are called omnibus accounts. This is a type of account in which many different items can be held at once, rather than the need to have many different and separate accounts. These accounts are usually held by a custodian: a bank or other financial institution that holds and maintains (records) the assets of its clients.

If you trade financial instruments through DEGIRO, you trade through this aggregate structure. The omnibus accounts used to hold your assets are held with our custodian(s) and are held in the name of 4 different separate legal entities, called Special Purpose Vehicles (SPVs). The sole purpose of these SPVs is to protect and manage your assets. All shares bought and sold by our clients are written off or credited to the relevant SPV. Our SPVs are established as foundations (called "stichting" in Dutch) under Dutch law. Foundations have so-called legal personality, which means that they can own assets - including (bank) accounts - and accumulate debts. However, foundations have no members or shareholders, which means that they are completely (bankruptcy) distant from DEGIRO. Further details on these special purpose vehicles can be found in our client agreement (in particular articles 1, 17 and 18) and in the ISI - Investment Services.

What does this mean for me?
One of the most important implications of this way of holding financial assets is that a pooled account can significantly reduce the transaction costs associated with trading in the financial markets. Whereas a structure where all assets are held in separate accounts would mean many different transactions and therefore higher transaction costs, using a omnibus account means that all the different transactions made can be aggregated, thus keeping costs low.

In addition, because your shares are held by our SPVs, they are segregated from DEGIRO. This means that if something were to happen to DEGIRO, DEGIRO's creditors cannot touch these funds - and their assets.

So it's very clear that at any broker, the shares are not yours - in the very pure sense of the word. But all brokers take more or less the same route, which means one thing - there's no point worrying and dealing with it, because you have nothing else to do. At least if you're deciding between these (definitely the most common) mainstream brokers that offer their services. I hope the overview has helped someone at least a little, made their job easier and made the issue a little clearer.

What about you? Are you addressing the form of share ownership? Is this issue important to you?

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Disclaimer: This is in no way an investment recommendation. This is purely my summary and analysis based on data from the internet and a few other analyses. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.

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