As-salamu alaykum,
I opened an account with DEGIRO to buy shares but I found that DEGIRO puts all the money they get into Money Market Funds. “DEGIRO is not a bank but an investment firm. In the Netherlands, investment firms are not allowed to hold the money of clients. Therefore, when you become a client of DEGIRO, you give a standing order to invest money into a Money Market Fund. As such, at DEGIRO you do not hold money. For every currency available in the trading platform, a separate Money Market Fund is also available. The objective of a Money Market Fund is to realise a return that is equal to the market interest rate with as low risk as possible.”
Source: https://www.degiro.co.uk/about-degiro/cashfunds.html
I’m in the process of closing that account and looking for a different broker. I looked into other brokers such as Interactive Brokers and found that they spend a portion of client funds to buy securities.
"How We Handle Client Assets
Client money is segregated in special bank or custody accounts, which are designated for the exclusive benefit of clients of IBKR. This protection (the SEC term is “reserve” and the CFTC term is “segregation”) is a core principle of securities and commodities brokerage. By properly segregating the client’s assets, if no money or stock is borrowed and no futures positions are held by the client, then the client’s assets are available to be returned to the client in the event of a default by or bankruptcy of the broker.
A portion of client funds are typically invested in U.S. Treasury securities. Although permitted by CFTC regulations, given the credit concerns over foreign sovereign debt IBKR does not currently invest any client money in money market funds.
As a practice, IBKR holds an excess amount of its own money in these reserve and segregated accounts to ensure that there is more than enough cash to protect all clients."
Source: https://www.interactivebrokers.com/en/index.php?f=2334
Is it permissible to use these brokers if this is a common thing? And that leads me to question the permissibility of using non-Islamic banks because they use client money to give out loans and charge interest.
Jazakum Allahu Khayran