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Brokers that are not into re-hypothecate stuff.
- Thread starter Peternam
- Start date
Correct me if I'm wrong, but it seems to me that when a futures broker "segregates" the customer funds, there isn't actually an individual bank account per customer that the funds go into. It seems to me that all the money for all the customers gets put in one giant bank account by the clearing agent, and the clearing agent's internal accounting is what keeps track of the balances in each individual trading account. Is this correct? I'm just trying to understand the way things work.
If the above is correct, then who is to say that a big trader with many, many, millions of dollars at risk, levered up to the hilt, couldn't ultimately blow out his/her huge account and cause all the "little" traders to lose their money? In other words, suppose a huge trader were levered up to the hilt and nearing a margin call. Next, suppose, a flash crash were to occur and the broker's computers were not able to automatically close out the huge trader's positions, causing the huge trader to have a big NEGATIVE account balance. Couldn't that cause all the other traders with the same clearing agent to lose money due to the big trader blowing up? If not, then what would would prevent that from ever happening?
If the above is correct, then who is to say that a big trader with many, many, millions of dollars at risk, levered up to the hilt, couldn't ultimately blow out his/her huge account and cause all the "little" traders to lose their money? In other words, suppose a huge trader were levered up to the hilt and nearing a margin call. Next, suppose, a flash crash were to occur and the broker's computers were not able to automatically close out the huge trader's positions, causing the huge trader to have a big NEGATIVE account balance. Couldn't that cause all the other traders with the same clearing agent to lose money due to the big trader blowing up? If not, then what would would prevent that from ever happening?
"Subject to such segregation requirements, Customer hereby
grants to Dorman the right to pledge, repledge,
hypothecate, rehypothecate, or invest, either
separately or with the property of other customers,
any securities or other property held by Dorman for
the accounts of Customer or as collateral therefore,
including without limitation to any exchange or
clearing house through which trades of Customer are
executed. Dorman shall be under no obligation to
pay to Customer or account for any interest, income
or benefit derived from such property and funds or
to deliver the same securities or other property
deposited with or received by Dorman for the
account of Customer. Dorman may deliver securities
or other property of like or equivalent kind or
amount"
From google:
"PDF]
Rosenthal Collins Group, L - Mirus Futures
www.mirusfutures.com/.../RCGAcctForms/RCG_LLC_PARTNER_A...
File Format: PDF/Adobe Acrobat
Customer hereby also grants to RCG the right, and authorizes RCG, to pledge, re-pledge, hypothecate, re-hypothecate, invest or loan, either separately or"
Quote from Jreality:
Correct me if I'm wrong, but it seems to me that when a futures broker "segregates" the customer funds, there isn't actually an individual bank account per customer that the funds go into. It seems to me that all the money for all the customers gets put in one giant bank account by the clearing agent, and the clearing agent's internal accounting is what keeps track of the balances in each individual trading account. Is this correct? I'm just trying to understand the way things work.
If the above is correct, then who is to say that a big trader with many, many, millions of dollars at risk, levered up to the hilt, couldn't ultimately blow out his/her huge account and cause all the "little" traders to lose their money? In other words, suppose a huge trader were levered up to the hilt and nearing a margin call. Next, suppose, a flash crash were to occur and the broker's computers were not able to automatically close out the huge trader's positions, causing the huge trader to have a big NEGATIVE account balance. Couldn't that cause all the other traders with the same clearing agent to lose money due to the big trader blowing up? If not, then what would would prevent that from ever happening?
That's all true. Which is why I like IB. Relatively high margin requirement's plus auto liquidation, plus 5 billion in equity capital.
Quote from Peternam:
Looking at the account agreement , the following brokers will do
www.ctsfutures.com
www.crosslandllc.com (www.deepdiscountfutures.com , a guanranteed IB)
Any more ?
Just as a point of information, a more direct link to Cunningham clearing is
http://www.cunninghamllc.com/
or
http://5dollarfutures.com/
(The CTS T4 site you posted contains links to other clearing firms as well that license the T4 software).
[Thread: Which are the best capitalized brokers that do not hypothecate, and which offer a way to trade that is free of hypothecation through the entire order execution and delivery process (execution, clearing, etc)?]
http://www.elitetrader.com/vb/showthread.php?s=&postid=3384600#post3384600
http://www.elitetrader.com/vb/showthread.php?s=&postid=3384600#post3384600
Quote from maxplanck:
[Thread: Which are the best capitalized brokers that do not hypothecate, and which offer a way to trade that is free of hypothecation through the entire order execution and delivery process (execution, clearing, etc)?]
http://www.elitetrader.com/vb/showthread.php?s=&postid=3384600#post3384600
It appears that there are only a few such brokers and they are small.
Could you consider deleting the new thread and let's just discuss it here? Why start all over in another thread?
That is exactly how it works and what you describe as risks, while not a comprehensive list, are risks.
For more info see this thread:
http://www.elitetrader.com/vb/showthread.php?s=&threadid=231475
For more info see this thread:
http://www.elitetrader.com/vb/showthread.php?s=&threadid=231475
Quote from Jreality:
Correct me if I'm wrong, but it seems to me that when a futures broker "segregates" the customer funds, there isn't actually an individual bank account per customer that the funds go into. It seems to me that all the money for all the customers gets put in one giant bank account by the clearing agent, and the clearing agent's internal accounting is what keeps track of the balances in each individual trading account. Is this correct? I'm just trying to understand the way things work.
If the above is correct, then who is to say that a big trader with many, many, millions of dollars at risk, levered up to the hilt, couldn't ultimately blow out his/her huge account and cause all the "little" traders to lose their money? In other words, suppose a huge trader were levered up to the hilt and nearing a margin call. Next, suppose, a flash crash were to occur and the broker's computers were not able to automatically close out the huge trader's positions, causing the huge trader to have a big NEGATIVE account balance. Couldn't that cause all the other traders with the same clearing agent to lose money due to the big trader blowing up? If not, then what would would prevent that from ever happening?
Lost in the fine print of many of the posts,is that IB raised their margin requirement to 100 percent for stocks that have 250million or less in mkt cap.In their account agreement they go on to say that their prop side can take the other side of any customer margin liquidation..Correct me,but that doesn't sound very Kosher.