Best capitalized brokers which does not hypothecate?

Quote from softdown:

IB-AN, can you explain the hypothecation rules for the margin accounts at IB U.K. ?
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IB UK accounts operate under a clearing agreement with IB LLC (the U.S. broker dealer and FCM) whereby all securities and exchange listed futures activities are cleared and carried on the books of IB LLC. The IB UK clients, therefore, are subject to the same customer protection and hypothecation requirements as the IB LLC clients
 
Beginning last week IB is keeping approx 3600$
in my commocities acct. i traded 1 YM contract a couple
of days before that. Nothing else since then. No other activity of any kind. Lev = 0.
In the past IB zeros out the commdities at the next cycle.

whats going on? Anyone else see this in their acct. ?

Mabe i missed some notice from IB re this ?
 
Quote from IB-AN:

At IB, if you maintain a margin account but are paying for your purchases in full and not borrowing funds, it is the same segregation requirement as that which would exist in a cash account. The securities must be maintained in a good control location (e.g., segregated bank or central depository account) and cannot be pledged or hypothecated.
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It should be pointed out here that in a Portfolio Margin account, all long options positions, even if fully paid for, appear to be automatically pledged to the OCC and/or the broker-dealer. The broker-dealer also appears to have an automatic lien on long securities even if they are paid for within a Portfolio Margin account.

If this does not apply under IB's rules for Portfolio Margin accounts, please let me know.

This is according to #9 in Special Rules for Portfolio Margin accounts:

http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=3051&print=1

"When a broker-dealer carries a standard cash account or margin account for a customer, the broker-dealer is limited by rules of the SEC and of the Options Clearing Corporation ("OCC") to the extent to which the broker-dealer may permit the OCC to have a lien against long option positions in those accounts. In contrast, the OCC will have a lien against all long option positions that are carried by a broker-dealer in a portfolio margin account, and this could, under certain circumstances, result in greater losses to a customer having long option positions in such an account in the event of the insolvency of the customer's broker. Furthermore, the carrying broker-dealer has a lien on all long positions in a portfolio margin account, including margin equity securities, even if fully paid. Accordingly, to the extent that a customer does not borrow against long options and margin equity positions in a portfolio margin account or have margin requirements in the account against which the long options or margin equity securities can be credited, there is no advantage to carrying the long options and margin equity securities in a portfolio margin account and the customer should consider carrying them in an account other than a portfolio margin account."
 
Quote from Options12:

It should be pointed out here that in a Portfolio Margin account, all long options positions, even if fully paid for, appear to be automatically pledged to the OCC and/or the broker-dealer. The broker-dealer also appears to have an automatic lien on long securities even if they are paid for within a Portfolio Margin account.

If this does not apply under IB's rules for Portfolio Margin accounts, please let me know.


This lien provision is applicable to all portfolio margining accounts regardless of which broker they are carried at and is noted in the disclosure agreement that all portfolio margin applicants must acknowledge. The reasoning behind it is a follows:

Customer positions are carried in an omnibus account held by the clearing member at OCC
(i.e., OCC does not know the identity of the beneficial owners of the contracts). Since long options are securities which are paid in full and subject to segregation just like a fully-paid stock position, they are segregated by OCC from customer short options. The effect of this handling is that the broker is not provided any margin relief from one customer's long option contract against another cutomer's short contract. It also means that if the clearing firm were to fail, all the long contracts (i.e., assets) would be available to SIPC as part of pool of collateral available to meet customer claims (whether SIPC decide to liquidate them to cash, transfer or return to clients is at their discretion although as a long option is viewed as a wasting asset and since SIPC likely has no market direction bias, it's reasonable to assume that they will liquidate them to preserve known asset value).

While longs are, by default segregated, a broker is allowed to unsegregate contracts if the Reg T client has a bona fide spread position. Logically, this is intended to provide the broker with margin relief at the OCC level similar to that which he has provided to the client. This is a very straightforward decision in a Reg T account as spread margin relief is offered and can readily be identified on a contract vs. contract basis. This is not the case with portfolio margin accounts in which margin is computed using a modified VAR model and through which margin offset between longs and shorts is provided on a dollar measure via the pricing model as opposed to contract measure. Given the operational impracticality of requiring brokers to execute the large scale calculations necessary to determine which long options and in which quantity to have OCC unsegregate and the fact that portfolio margin clients are generally afforded greater leverage and assumed to be sophisticated individuals subject to higher minimum requirements, the regulatory decision was to simply unsegregate all portfolio margin account long contracts at the clearing level and have this disclosed through the agreement.
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Quote from IB-AN:

Given the operational impracticality of requiring brokers to execute the large scale calculations necessary to determine which long options and in which quantity to have OCC unsegregate and the fact that portfolio margin clients are generally afforded greater leverage and assumed to be sophisticated individuals subject to higher minimum requirements, the regulatory decision was to simply unsegregate all portfolio margin account long contracts at the clearing level and have this disclosed through the agreement.
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I think this explanation refers to the reason why OCC keeps a lien on long option positions held in a portfolio margin account.

But beyond options, is it also true in that in each Portfolio Margin account "the carrying broker-dealer has a lien on all long positions in a portfolio margin account, including margin equity securities, even if fully paid"?

Thanks in advance.
 
Quote from Options12:

IB-AN,

Has IB published any info on whether futures contracts held within a PM account are now SIPC covered? It appears that this coverage was suggested by Dodd-Frank but it is unclear if the rule applies yet.

See this article from 2008:

http://www.allbusiness.com/legal/administrative-law-regulatory-compliance/12018149-1.html
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Futures are not securities. SIPC only covers securities and cash in securities accounts. All broker dealers pay a yearly fee to cover SIPC protection. Because SIPC is rarely required, the current dues are very low. You can't just add futures accounts, because futures brokers don't pay into the fund. If protection is added in the futures, it might be a new fund.
 
Quote from Options12:

I think this explanation refers to the reason why OCC keeps a lien on long option positions held in a portfolio margin account.

But beyond options, is it also true in that in each Portfolio Margin account "the carrying broker-dealer has a lien on all long positions in a portfolio margin account, including margin equity securities, even if fully paid"?

Thanks in advance.
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No. You seem to be implying this in various threads and it's incorrect. The discussion above relates solely to OCC. A broker isn't afforded any greater rights or lien simply because positions are maintained in a portfolio margin account. The determination of any lien is based upon 140% of a cash debit balance just as it is for a Reg T account, examples for which have been well documented in this and other threads. In fact, reread your own posting on this subject where you referenced the FINRA website (bold emphasis added):

"When a broker-dealer carries a standard cash account or margin account for a customer, the broker-dealer is limited by rules of the SEC and of the Options Clearing Corporation ("OCC") to the extent to which the broker-dealer may permit the OCC to have a lien against long option positions in those accounts. In contrast, the OCC will have a lien…”
 
Quote from Options12:

Furthermore, the carrying broker-dealer has a lien on all long positions in a portfolio margin account, including margin equity securities, even if fully paid.
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The section that I am asking about from the FINRA link starts above with "Furthermore..."

This seems to suggest a lien at the broker level.
 
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