Online investing is so commonplace nowadays. Your generic blogger / officemate/ casual acquaintance advocates it and many online brokerages have sprung up in recent years which require little to no minimum amount to open an account. But have you thought about whether there are safeguards in case, god forbid, your online brokerage account gets hacked?
Make sure your broker is accredited by the PSE and a member of the Securities Investors Protection Fund
Dan of Stocktrades explains that there are safeguards for online brokerages based in Canada. To find out whether the same goes for the Philippines, I reached out to my own online broker. My online broker informed me that it is a member of the Securities Investors Protection Fund (SIPF) which is a non-stock, non-profit corporation that was organized for the main purpose of creating, maintaining, and administering a fund for the interest and promotion of the securities industry, and for aiding and protecting investors and securities and SIPF members.
The SIPF, which is said to be comparable to the Philippine Deposit Insurance Corp. (which insures bank deposits), seeks to build and enhance investors’ confidence in the stock market and is envisioned to protect the investing public from extraordinary losses, other than the ordinary market fluctuations, arising as a result of fraud, failure of business, or judicial insolvency of Philippine Stock Exchange-accredited stockbrokers (i.e. in case your online broker goes bankrupt).
My broker informed me that this protection is automatic upon the opening an account with a PSE-accredited stockbroker and given by way of compensation for trade-related obligations of stockbrokers to its customers.
As you can tell, the SIPF is primarily designed to protect you, the investor, from your broker which may fall on hard times.
And this is not without precedent. I personally read one Supreme Court case (a very old antiquated one and I cannot recall the case title suffice to say it was very memorable for me as a law student/investor at that time) involving a stockbroker which put up as collateral for its loans the stock certificates* it held in trust for its clients. When the loans fell due and the stockbroker was unable to pay, the creditor acted on the collateral which prejudiced the clients who had to resort to litigation to have the issue resolved in their favor. With the SIPF to pay off the broker’s loans, there would be no need to put up clients’ stock certificates as collateral (ideally but not sure if this is necessarily the case).
It is emphasized that SIPF protection is limited to instances of fraud, failure of business, or judicial insolvency of the stockbroker and NOT the individual corporations you bought shares of stock in. I was previously advised by my broker that in case of hacking or loss of data, my account may be reconstituted from any updated records that I have. This makes you the client, responsible for ensuring your backups of your account details and stockholdings are up to date and secure should the need arise for recovering your records.
What safeguards do you personally take to secure your online brokerage account?
*Referred to as runaway or street stock certificates which are in the name of the stockbroker as a nominee holder of the stock. This is for convenience as it will be tedious for the broker to have each individual certificate in the individual client’s name then have to locate it when the time comes for trading.