Clarification on SIPC coverage

[drukes1234]

I’m trying to get a better understanding of my coverage and I’ve done my best to read all the documentation myself but I still have some questions.

I read that futures and options accounts aren’t covered, however I’m unclear as to what makes an account a futures/options account. If I have traded options/futures in the account and am authorized to do so, but am currently holding only equity positions (no futures, no options) is my account covered?

To be covered to I have to have an account that has NEVER traded futures/options and an account that has no authorization to do so?

Is the coverage based on what I am currently holding (only equity) or is it based on what I have ever traded in the account?

 

[Options12]

Options on equities should be covered. Options on futures are not.

Your futures, and options on futures, will be traded in an account that is separate from your securities account.

The positions in the futures account (regulated by the CFTC) will not be covered by SIPC in the event of your broker's failure.

However, check everything with SIPC directly (asksipc@sipc.org) as there is some incorrect information posted on ET regarding SIPC coverage.

 

[drukes1234]

Quote from Options12:

Options on equities should be covered. Options on futures are not.

Your futures, and options on futures, will be traded in an account that is separate from your securities account.

The positions in the futures account (regulated by the CFTC) will not be covered by SIPC in the event of your broker's failure.

However, check everything with SIPC directly (asksipc@sipc.org) as there is some incorrect information posted on ET regarding SIPC coverage.

Thanks. But what if in my account I trade futures and equities and at the time of bankruptcy or whatever the case may be, I'm not holding any futures contracts. Is the account covered because I am not holding at futures contracts or is the fact I traded futures at any point in that account mean it is no longer qualified to be covered?

TIA

 

[Options12]

Quote from drukes1234:

Thanks. But what if in my account I trade futures and equities and at the time of bankruptcy or whatever the case may be, I'm not holding any futures contracts. Is the account covered because I am not holding at futures contracts or is the fact I traded futures at any point in that account mean it is no longer qualified to be covered?

TIA

You have two accounts if you have traded futures and equities.

Your broker may have assigned you one account number, but your futures (CFTC) account is segregated from your equities (SEC) account.

In the event of a bankruptcy, SIPC would be reviewing your claim only as it relates to the types of securities they cover.

You would not be disqualified from SIPC coverage of SIPC-covered securities because you have traded futures in your commodities (CFTC) sub-account.

But verify all of this with SIPC and your broker before making any trading decisions based on this info.

Also, are you under Portfolio Margin or Reg T Margin?

 

[rmorse]

Quote from Options12:

Also, are you under Portfolio Margin or Reg T Margin? [/B]

How would it change the situation if it were reg-t vs pm? Either way it's a covered account if the account holder is a customer and not a BD.

 

[Options12]

SIPA may be amended to make futures and options on futures in a portfolio margin account eligible for coverage.

There was a recommendation on this passed in 2009. It's worth watching the progress of the Bill.

The Bill also amends the SIPA to add “futures contracts and
options on futures contracts received, acquired, or held by or
for the account of a debtor from or for such accounts, and the
proceeds thereof,” to the definition of “customer property” in the
case of portfolio margin accounts carried as securities accounts
pursuant to an SEC-approved portfolio margining program. This
would provide SIPC protection to futures and options on futures
positions in such accounts.

See page 4 of:
http://www.winston.com/siteFiles/Publications/House_Financial_Bill_12_23.pdf

 

[drukes1234]

I'm definitely not portfolio margin.

So basically the only positions that would not be covered would be OPEN futures positions? As long as it's closed and everything is back in cash I assume I am covered?


Thanks for the responses

 

[rmorse]

Quote from drukes1234:

I'm definitely not portfolio margin.

So basically the only positions that would not be covered would be OPEN futures positions? As long as it's closed and everything is back in cash I assume I am covered?

Thanks for the responses

Sorry, that's not accurate. Futures accounts are segregated accounts held separate from "margin" accounts and cash accounts at brokerage firms that have cash and securities. Any cash or futures or options on futures held in that account is NOT covered by SIPC. In the past, before MFG,these accounts were considered very safe because of segregation. The MFG situation appears to a form of theft. There is currently no "insurance" for that in a futures or FX account.

SiPC only covers accounts protected by SIPC, because SIPC members, all broker dealers, have been paying dues for years. These account have securities and cash. The cash is there with the intent to buy securities. That's what's covered up to the SIPC limits.

As someone else here indicated, some brokers give the illusion that if you trade FX, Futures and Equites and Options, that you have one account. That is not accurate. If you trade all three, you have three different accounts, that each have their own margin requirements. The FX and Futures accounts are not protected by SIPC. The cash in those accounts are not protected either.

If your concerned, make sure unused cash balances are moved to your equity/options margin or cash accounts when not needed to pay for trades. Or, wire the funds to an FDIC bank when not needed.

Bob

 

[Options12]

drukes1234, who is your futures broker?

 

[drukes1234]

Quote from Options12:

drukes1234, who is your futures broker?

My futures broker is IB and I do choose to have my funds swept into a securities account but either way I conduct my futures trading in a separate account from my main account and I keep the balance in that account extremely small.

I was concerned that options weren't covered but if by options not being covered they meant options on futures then that clarifies things as long as things like AAPL call options would be covered.