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Interactive Brokers Hong Kong - What Happens if Your Broker Goes Bust?

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  1. #1

    Question Interactive Brokers Hong Kong - What Happens if Your Broker Goes Bust?

    Hi everyone!

    SITUATION
    I'm looking to invest my money into low-cost ETFs on the HKEX.

    I was advised to open a brokerage account with Interactive Brokers Hong Kong (IBHK) who seem to have very low fees.


    PROBLEM

    What happens if your broker (in this case, Interactive Broker) goes bust?

    Based on IBHK's website "client accounts at IBHK are protected by the Investor Compensation Fund" and "the maximum amount of compensation is HK$150,000 per investor".

    This is a relatively small amount (compared to Interactive Brokers US, who offers protection of up to USD 500,000).



    QUESTIONS:

    1. How do you minimize broker risk, given that protection for investors in HK is so small? Would you advise me to buy my ETFs from a bank (e.g. Hang Seng / HSBC)? Any recommendations? I'm looking to buy-and-hold for a long time, and investing the bulk of my money into low cost ETFs.

    2. Someone else on this forum mentioned "In HK, investors, including retail investors, can open a custody account with the exchange directly (HKEx), and it is extremely cheap. This removes the risk on the custodian completely." How does this work? This sounds like a viable solution, but I'm not exactly clear on how it works and wasn't able to locate more information on this. Can you help shed more light on this?

    3. In an old thread from 2008, someone mentioned you can take physical delivery of your shares. How does this work in HK?

    Thanks!
    Last edited by Aakash123; 17-12-2019 at 06:40 PM.

  2. #2
    Original Post Deleted
    Thanks jrkob! I guessed I missed the full explanation because that quote was all I could find. Is there some place where you've explained that in more detail?

    I understand the concept, but I couldn't figure out logistically how to do this...

    Do I just call up HKEx and say I want to open an account? And then tell Interactive Brokers to move my shares across to them? I called up Interactive Brokers and tried to ask them about this, but the customer service rep was pretty confused - which is why I decided to post on here for help.

  3. #3
    Original Post Deleted
    Thank you
    Original Post Deleted
    ! This is immensely helpful for someone who is just in the very first step of his investing journey.

    Is this the right place to call for info on setting up a HKEX custody account?

    https://www.hkex.com.hk/Services/Set...ces?sc_lang=en

  4. #4
    Original Post Deleted
    Wow, thank you
    Original Post Deleted
    ! This is IMMENSELY helpful. I'll be calling up HKSCC tomorrow to set this up. Very grateful for your help!

  5. #5

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    Original Post Deleted
    - its from this thread:

    https://geoexpat.com/forum/155/thread353120.html

  6. #6

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    I'm also doing the same: investing in ETFs through an Interactive Brokers account. Interested to hear which ETFs you have chosen. At the moment, I have stuck to Vanguard ETFs 3140, 3101, 2805, and 3126. Big fan of Vanguard but I do have some small concerns about the liquidity of these ETFs due to the low AUM: whether or not this worry is warranted, I'm not entirely sure to be honest.
    The chance of Interactive Brokers going bust is very small, so interested to hear that you are looking at opening a custody account with the exchange directly: this is not something I realised you could do, so would love to hear how that account opening goes.


  7. #7

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    @David Ogilvie The thread that I linked to has info from someone who went through the process of opening an acct with HKEX.


  8. #8

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    Yup, saw that and will give it a close read. Thanks. I like Interactive Brokers due to its high fees but not sure if it's a good overall fit for me. Like the original thread to this post, I'm looking at just a few ETFs which will be left alone for the long term and will not be traded. IB is therefore perhaps a little over-complicated for my requirements.


  9. #9

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    I know BlackRock have, but did not know that Vanguard has also done that.
    Agree with you that the custody issue is less important than liquidity etc.

    Aakash123 likes this.

  10. #10
    Quote Originally Posted by David Ogilvie:
    I'm also doing the same: investing in ETFs through an Interactive Brokers account. Interested to hear which ETFs you have chosen. At the moment, I have stuck to Vanguard ETFs 3140, 3101, 2805, and 3126. Big fan of Vanguard but I do have some small concerns about the liquidity of these ETFs due to the low AUM: whether or not this worry is warranted, I'm not entirely sure to be honest.
    The chance of Interactive Brokers going bust is very small, so interested to hear that you are looking at opening a custody account with the exchange directly: this is not something I realised you could do, so would love to hear how that account opening goes.
    Hi @David Ogilvie. I'm actually looking at three of the exact same ETF's - 3140 (S&P 500), 3101 (FTSE Developed Europe) and 2805 (FTSE Asia exc Japan). For bonds, I am looking at 2821 (ABF Pan Asia Bond). I would then be looking to transfer those to the HKEX directly. Chances of IBHK going broke are low, but I plan on holding on for at least 30 - 40 years, and it gives me peace of mind to know I've eliminated broker-dealer risk.

    Alternatively, I may forgo the HKEX and invest via the London Stock Exchange (but for this, I won't be able to transfer custody to HKEX). Two specific ETFs I'm looking at are: VWRA (FTSE All World) and AGGG (iShares Core Global Aggregate Bonds).

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