BUX Zero in Netherlands - Think twice before you open account

[rodan]

Hi all,

We all love to invest and make money but investment comes with the risk. One of these risks is, of course, the nature of investing and that the price of your stocks can go up and down which is usually reflected in ROI we get. Another risk to consider is the quality of the broker you use. Yes in Europe we got investors protection up to 20k euro (not a lot comparing to USA and SEC protection of $250k) but at least it is something.

BUT

Be aware that if you use some online brokers - in this case, BUX this protection doesn't apply due to the simple fact that the assets you bought via them are lend. Which means if something goes wrong you won't be able to recover them and they don't fall under the European investors' protection act.

ALWAYS READ T&C's - below is from BUX Zero T&C's which you have to accept if you want to open account.

Lending Financial Instruments

12.1 You hereby give consent to BUX to Lend the Financial Instruments held in Your Account. At all

times BUX will be the counterparty in this respect to You and as such will have the obligation to

redeliver the Financial Instruments that are Lent. For more detailed information about the

Lending, please see Appendix I BUX Securities Lending Agreement to this Client Agreement.

12.2 If BUX Lends Your Financial Instruments, then no asset segregation will apply in relation to such

Financial Instruments. Instead, You will have a right of redelivery against BUX. In order to

mitigate the risk that BUX will not be able to redeliver the Securities that are Lent,

Not sure if you want to take extra risk just to get a fancy new app with fancy UX/UI to buy your shares.

That's it!

M.

 

[mikedo]

@rodan The question is: is there a free commissions broker that doesn't work based on this, or other risky/quid-pro-quo (such as data mining, or actually charging fees) principle?

Since most brokers keep hold your portfolio for you (even banks right?), in the event of asset ownership loss or misuse for whatever reason, you are usually not that covered, even by central banks, so lending doesn't scream "shady" for me. On that note, isn't a banking license required to actually have any protections? And aren't most protections for risk-free accounts, such as checking or simple deposit accounts? I'm asking honestly and not tongue in cheek. I'm really fresh on investment shenanigans. Feel free to correct any weak arguments I make too.

 

[mikedo]

@dixieriderxx Thanks for correcting me, basically a fiduciary right? But what happens if the bank/trader needs to settle debt, such as bonds or checking account balances, due to obligations to a central bank, and is forced to use other assets for that?

I'm asking because a local bank went bankrupt (lol) and they decided to split it. On that split, checking accounts went to one side (the "good bank") along with most (or ALL) remaining cash from the entire bank pool, and since it wasn't enough were bailed out by the central bank, while basically every other account, with diversified investments (i.e. savings accounts with risk) lost their entire savings because the "bad bank" no longer had access to the assets (some of which were misused, some of them were probably moved to the good bank). So what is the effective benefit of this custodian, since he is, in practice, someone acting arbitrarily still in the best interest of the bank, and furthermore having to abide to directions of a central bank, which will usually favour checking accounts vs any risk-prone account/investments?

Edit: I guess my question is - if any broker goes bankrupt, how does having a custodian protect you? Doesn't the broker have the obligation of giving it all back eventually, just the same? Does a custodian have more coverage in the event of bankruptcy?

 

[dixieriderxx]

@mikedo

But what happens if the bank/trader needs to settle debt, such as bonds or checking account balances, due to obligations to a central bank, and is forced to use other assets for that?

they can't touch them. Practically they could do it, but it would break your contract and the law, and they do not have to do it since those are not their assets, so it's pointless.

It's like a "what if I am forced to pay some gambling debts, and I am forced to steal from my neighbor?". The law cannot force you and it would be worse for you if you did.

I don't know what happened with your local bank, but I am guessing the people who lost money had something like bank-emitted bonds which the bank failed to pay, the issue is unrelated.

if any broker goes bankrupt, how does having a custodian protect you? Doesn't the broker have the obligation of giving it all back eventually, just the same? Does a custodian have more coverage in the event of bankruptcy?

If the broker goes bankrupt, you don't care, since they do not have your assets on their books, and those cannot be used to pay their debt.

Now, the custodian could still go bankrupt, and they could have wasted your money and told you they didn't, breaking the law, so you are still at risk, but generally custodian banks are considered reputable and robust. Some risk is still there though.

 

[mikedo]

@dixieriderxx Solid info. Thanks

 

[rodan]

@dixieriderxx Agree with above but it only applies if the broker doesn't do the lending. If they do the lending practice there is no protection because asset segregation doesn't apply. So if the sh... hit the fan there is no protection. And it doesn't have to be the bankruptcy of the broker you use but maybe other one to which your assets were lent that is why it is such a risky thing.

 

[mikedo]

@rodan So basically this service you mention is forcing you to forfeit to lending them your assets instead of a custodian. So in short, they act as a holder of your assets, without the obligation to use them in your favour. This indeed sounds like a bad idea.

Thing is we go back to my argument: there are seldom, if any services with 0 commission without this or some worse quid-pro-quo.

Difference is in this case, besides the usual datamining, that quid-pro-quo is you pretty much sign a statement for "hey I'm paying you X for assets which you broker for 0 for commission and the right to do whatever you want with the assets until I instruct you otherwise, so if I win the stock lottery and don't act on it fast, you may very well trade my great stock to yourselves at a bad asking price, and then just sell it to someone at market price and steal my profit".

 

[blackmarch103]

@mikedo It's your assets, held by at third party. If the bank/broker/custodian has any obligations, they will not touch your assets.

Think of it like a parking lot provider. You park your car on their premises. If they go bankrupt, they cannot sell (or loan out) your car.

 

[mikedo]

@blackmarch103 But if a judge or the state (or a regulator) deem the parking lot needs to be demolished next day for safety, or if there's an earthquake, you're not even taking into account (not the best analogy but it works). What I'm saying is there are scenarios where some protection is not really better than no protection at all. But I see your point

 

[karin12414]

@dixieriderxx Im confused, from what i've read, Bux puts your money in custody of ABN amro Clearing (large Dutch Bank).

 

[katescreates]

@mikedo Trading212 doesn't do this and has free, instant buy/sell trades... multiple times per month unlike Degiro. pm me for a referral link where you get a free share on joining

 

[evietheturtle]

@rodan The TV ads that Bux has are terrible, trying to FOMO people into the stockmarket and making stockpicking seem easy. They alone are are reason not to invest with them.

 

[rodan]

@evietheturtle I have not seen Bux TV - can they be found on YouTube? if yes would be great if you could share

 

[evietheturtle]

@rodan E.g. this

 

[rodan]

@evietheturtle So this is the advert for their BUX X app not BUX 0. BUX X is CFD trading app. The big minus there is their spreads which are very big. This is how they make money from this app. Thanks for sharing.

 

[seakingjesus]

@rodan BUX IS SAFE?

BUX STAFF SEND ME THIS MSG:

"......That is not true. All brokers are obligated to do segregation of assets which means your assets are safe in case something happens to us. At this moment we also do not do securities lending. We have that clause so that if we offer it in the future we don't have to ask all users again.

In case securities lending were in effect we would always back your asset up meaning that if the party that lends it cannot fulfil its commitment we would "reimburse the share" which would still mean it's protected through the segregation of assets. This would also never be noticeable on your account.

So once more, if BUX were to fall over at this moment your assets are safe because they are completely segregated from our own assets . ........"