CDIC insurance.

Senior Member Join Date Oct 2013 Posts 426

Ah. I misunderstood. I thought you were talking about your personal GICs being protected by your personal bankrupcy.

So, if investment products (stocks, GIC’s longer than 5 years, bonds, etc.) are not covered by CDIC, does that mean that a bank could seize them to pay off any debts in case of bankruptcy? (Or is that not an issue because they are actually in the stock owner’s name, not the bank’s name?)

Banks don’t seize any of these things. You have to start thinking in terms of liability, or monies owed. The cash you see in your Questrade account doesn’t exist, there is nothing to seize. it’s a promise.

When you deposit money in a bank, or when you have cash in a brokerage balance that amount is really an amount that the brokerage owes you. The brokerage has a liability, they owe you money.

If you read your brokerage agreements carefully you’ll see that they indicate that any excess cash balances are amounts that the business may use at their own whim. You just get a promise from them that they will REPAY you.

So the only question here is one of promises. Will the brokerage make good on their promise to repay you the cash?

Any amount that’s uninsured, is at risk of not being repaid to you as owed. The exact same thing would happen if you lend me money. Maybe you’ll get your money back, maybe you won’t!

If Questrade fails, the biggest danger is that they won’t repay you the cash amounts in your account (any credit cash balances). You could then seek recourse via CIPF, which is not a government insurance fund. Like any other private insurer, CIPF will drag their feet, and will try to not pay out money in an insurance claim.

CDIC is different in that their mandate is to preserve faith in the Canadian banking system. CDIC will pay you out. CIPF will (eventually) pay you too, but you may have to sue them first. Like any insurer.

My advice: don’t leave credit cash balances at brokerages.

Money in the form of stocks is a bit safer, because (provided the brokerage isn’t engaged in fraud), you do have shares. In that case, it doesn’t matter if the brokerage fails. Your shares are simply transferred to another brokerage.

Except in case of fraud, where the brokerage fails to actually have your shares.

But I would say the bigger risk is for CASH balances at brokerage. Try to hold little or no cash at brokerages. Instead, put cash into CDIC insured bank accounts.