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What Is Asset Segregation and Why It Protects Investors
Key takeaways
- Asset segregation is mandatory under MiFID II for all EU brokers.
- Your securities are held with a custodian — they are not part of the broker's balance sheet.
- In a broker bankruptcy, your securities remain accessible, though with some delay.
- Cash in a trading account has different, weaker protection than securities.
- Always check who the custodian is — it should be a large banking institution.
Asset segregation (or "segregation of assets") is a legal requirement for brokers to hold client securities separately from their own assets — so that if the broker goes bankrupt, your investments don't disappear into the insolvency estate.
How segregation works technically
The broker does not physically hold the securities itself. It deposits them with a specialized institution — a custodian (securities depository). The custodian keeps records of who owns which shares or ETFs. The custodian is typically a large bank or a specialized depository (such as Euroclear, DTCC, or a major bank's custodian arm).
Your ETFs never appear on the broker's balance sheet at all. Even if the broker ceases to exist, the ownership records at the custodian remain intact.
Why MiFID II requires this
The European directive MiFID II requires investment firms to segregate client assets and periodically verify this separation. Violation is a serious regulatory offence. The strength of the regulator overseeing compliance determines how strictly the rule is enforced.
What happens in a broker bankruptcy
The insolvency administrator or regulator maps out client portfolios, the custodian confirms the records, and proceedings begin to transfer the securities to another broker or return them to clients. The whole process takes weeks to months, access to the portfolio is temporarily blocked, but the securities are not lost.
What to check
- Find a mention of the custodian in the broker's terms — it should be a solid, large institution.
- Verify that the broker maintains "segregated client accounts".
- If the broker hides or does not disclose this information, treat it as a warning sign.
A complete guide to choosing a safe broker is available in how to choose a broker in the Czech Republic.
FAQ
What is asset segregation in simple terms?
Your securities are kept separate from the broker's own money and assets. The broker cannot use them for its own trading, and creditors cannot seize them in a bankruptcy. Technically, they are held by a specialized custodian.
What is a custodian?
A securities depository — a bank or specialized institution that physically records ownership of shares and ETFs. When you buy through a broker, the custodian registers that those securities belong to you.
Does segregation protect my cash held with a broker?
No. Cash in a trading account has different protection — in the EU up to EUR 20,000 through the ICS system, or through deposit insurance if the broker holds a banking licence. Avoid keeping unnecessary cash balances in your brokerage account.
How do I know a broker actually complies with segregation?
Look in the terms for the phrase "segregated accounts" and the custodian's name. A regulated broker is required to provide this information. The regulator (CNB, FCA) also verifies it during licensing.