Monday, July 21, 2008

Is your broker about to undergo a liquidity crisis?

In business, cash is king. In banking, capital is king. In ibanking/brokerage, capital and leverage are king and queen. In layman terms, if a broker can't pay you when you sell your shares or doesn't buy shares in a timely manner, then its because its simply doing too much business compared to its capital.

In the light of this, I looked at this table and you can tell which brokers will or have been attracting a lot of complaints based on slow dispersal of funds to clients.

The golden rule here should be that a broker shouldn't be doing more than 100 times their capital because if there is run on a particular stock, they simply won't have the funds to pay-out clients in time which will in turn lead to panic selling and further withdrawals.
Look at Nyaga, Discount (CMA had an issue and so have investors who frequent our local chatterline), Apex (I haven't heard many complaints but again that is way too much business for its capital levels). I also fear the same for Ngenye. Are D&B's capital numbers correct because that means its heavily under-utilised.

So to add to this post, make sure you get sight of a broker's accounts and especially how much turnover its doing against its capital.


Ssembonge said...

Lol. I have my brokerage account with Apex.


Can you post a larger pic of the table,or perhaps post the link as I would like to read it...print is a bit small for me.


MainaT said...

Ssem, I haven't heard any complaints about missing refunds or overly delayed orders.
Kularaha-Click on the table, if its still too small, I can email to you as I took as its on excel.



pls email it to me dropmyload at gmail dot com