The accounts of thousands of BBY clients are in limbo until the administrators and receivers work out the extent of liabilities of the failed stockbroker.
And it may take some time, at least weeks, for those clients to get their money back or even know what will happen.
BBY was a stockbroker but it wasn’t its trade in equities which brought it to its knees. It was options, where you pay a price for the right to buy or sell at a certain price in the future.
While BBY had just 1% of the broker market, it had built about 8% of the options market by offering very cheap deals per trade.
The rest of the broker industry has been looking on shaking its collective head at the whole situation, from the early warning signs in January when BBY was fined by the ASX because it didn’t have enough funds to cover a $192 million transaction to Monday’s announcement that it was going into administration.
One broker and adviser told clients in an email that not many wanted to be in options because the margins are too slim for most brokers and much larger amounts of capital are needed to cover client trades.
He calls it a “mug’s game” unless you get it absolutely right.
“The most effective use of options for private investors is writing calls against large underlying equity holdings to earn a bit of extra income but it is for investors with a lot of money, some financial sophistication and it is labour intensive and requires a good broker to help you manage and roll positions.”
The broker says the options market is really for high net worth individuals and even they have liquidity and pricing issues.
“The only people who consistently win in the options market are those who collect time value (write options that expire worthless),” he says.
More BBY coverage:
- Some jobs at BBY have been saved, for now
- $2 billion Australian stockbroker BBY is falling apart
- A possible buyer is looking at failed stockbrocker BBY
- Failed stockbroker BBY would have been badly hurt by the reversal in bank stocks
- BBY has bigger capital problems than anyone thought
- Clients of stockbroker BBY scramble to save positions