3rd party GIC held inside trading account CDIC protection | GIC discussions | Discussion forum

Great question, savemoresaveoften, and I can answer it!

There's actually two insurances at play here. The Canadian Investor Protection Fund protects your cash and positions, including those held in GICs, to $1 million per trading account from misappropriation by your broker (i.e., your broker taking off with all the funds in their accounts) or in the event of the brokerage firm's insolvency). In the case of stocks or bonds, it doesn't protect against losses due to your positions falling in market value, but it does protect you in the sense that if you have 2000 shares of CM (CIBC), 1000 shares of TFII (TransForce International), 750 shares of CAS (Cascades), and 1000 shares of XIX (iShares Core S&P/TSX Composite Index ETF), you'll be protected in that you will still own those positions.

How that relates to GICs is, since the funds are held in a brokerage account, you're protected in the sense that your position holding in terms of "units" of your GIC will be protected.

GICs are separately insured themselves in the event of the issuer's (bank's) insolvency by CDIC and, though the GICs are held in your broker's name (technically, they're held in the name of The Canadian Depository for Securities, Ltd., as administrative agent for your brokerage firm, in the case of non-registered accounts, and for your brokerage firm's trustee/custodian in the case of registered accounts), they're beneficially owned by you. Thus, they're fully CDIC insured to applicable $100,000 per depositor and deposit type limits. That's definitely an advantage to holding your deposits in a brokerage account because it's very easy to remain fully CDIC insured in a multi-million dollar portfolio within a single registered account.

As you might've guessed by my answer, in your example, CIPF would not apply because your brokerage firm is still solvent. In that case, yes you'd be fully CDIC insured and protected. In all likelihood, though, you likely would anyway as CDIC has rarely, if ever, had to tap its deposit insurance reserves to cover deposits. In most cases, they simply compel a transfer of all deposits - insured and uninsured - to a new CDIC financial institution. How that would happen in terms of your brokerage account is they would likely arrange for the new institution to assume that GIC fund code and then that institution would likely update the fund code, if they wanted to remain in the brokerage channel, or they would pay out your GIC at maturity to your brokerage account.

Cheers,
Doug