FCM with SIPC- or FDIC-like insurance

[lukas]

Is there any FCM that offers a "cash sweep" feature similar to that used by brokerage firms registered with SEC? Under this scheme, all cash balances are moved to an FDIC-insured bank account, thus providing an extra level of security and insurance up to $250,000 in case of brokerage firm's insolvency.

Alternatively, any FCM that allows collateral other than cash, such as:
- a letter of credit from a bank,
- cash/securities in the client's brokerage account "blocked" for the benefit of FCM (like in an escrow account),
- gold certificates/physical gold etc.?

It is stunning that after so many notable FCM failures (MF Global etc.) the industry has still not come up with SIPC-like protection for clients' assets.

 

[Sig]

Is there any FCM that offers a "cash sweep" feature similar to that used by brokerage firms registered with SEC? Under this scheme, all cash balances are moved to an FDIC-insured bank account, thus providing an extra level of security and insurance up to $250,000 in case of brokerage firm's insolvency.

Alternatively, any FCM that allows collateral other than cash, such as:
- a letter of credit from a bank,
- cash/securities in the client's brokerage account "blocked" for the benefit of FCM (like in an escrow account),
- gold certificates/physical gold etc.?

It is stunning that after so many notable FCM failures (MF Global etc.) the industry has still not come up with SIPC-like protection for clients' assets.

Most allow you to hold treasuries in your name and then you margin off that for your trading. That way if they go under the treasuries still belong to you.

 

[lukas]

Are you sure Treasuries are held in my name? How does this work? Do I have to arrange for a transfer from my SIPC-covered brokerage account? If so, they are commingled with all other clients' deposits and become FCM's assets which, in case of insolvency, are shared among all the creditors via normal bankruptcy procedure

 

[Robert Morse]

Are you sure Treasuries are held in my name?

That is NOT my expectation. "Segregated accounts must be titled for the benefit of the FCM’s customers". That is not the same as the account being in the customer's name.

https://www.cftc.gov/IndustryOversight/Intermediaries/FCMs/fcmsegregationfunds.html

Segregation of Customer Funds

• All customer funds for trading on designated contract markets (exchanges) must be kept apart (“segregated”) from the futures commission merchant’s (FCM’s) own funds—this includes cash deposits and any securities or other property deposited by such customers to margin or guarantee futures trading.
• Segregated accounts must be titled for the benefit of the FCM’s customers.
• Acknowledgements must be provided that would preclude a bank or clearinghouse from recognizing a right of offset against the account for the FCM’s debts.
• Customer funds in segregation have a bankruptcy preference in the event of FCM insolvency.
• To the extent that customer funds are not sufficient to pay customer claims, the remainder of what customers are owed will participate pro rata in the distributions to unsecured creditors of the bankrupt FCM.

 

[Robert Morse]

This is not meant to be a dig at anyone, just an observation. I find the traders that are the most concerned about the safety of the FCM deposit or SIPC deposit tend to have smaller accounts. Which I find interesting. Maybe because the smaller account will find it harder to replace or do without for a time period in the case of a default. I have never had one account >$1mm ask about SIPC, excess SIPC or seg funds.

It is my understanding, but I could be wrong, that all customer accounts of MBG and PFB were all made whole. Each of the FCMs that lost money in 2/2018, did not affect any seg funds. I would prefer that the NFA/CFTC create a SIPC type fund over time even if it means charging an extra $0.02/trade, but they do not see the need.

Bob

 

[Bum]

It is my understanding, but I could be wrong, that all customer accounts of MBG and PFB were all made whole. Each of the FCMs that lost money in 2/2018, did not affect any seg funds. I would prefer that the NFA/CFTC create a SIPC type fund over time even if it means charging an extra $0.02/trade, but they do not see the need.

Bob

I had accounts with MFG & PFG.
MFG received 100%.
PFG received 60% and may receive another 3-5% but will never receive 100%.

 

[Robert Morse]

I had accounts with MFG & PFG.
MFG received 100%.
PFG received 60% and may receive another 3-5% but will never receive 100%.

Sorry to hear that. I would like to see a Futures program even if it just started with coverage of $50K/account. Then built up over time. It is very important.

 

[Bum]

Sorry to hear that. I would like to see a Futures program even if it just started with coverage of $50K/account. Then built up over time. It is very important.

Agree, it's the small accounts that need protection.
Small accounts might be total income for a small trader.
Big money accounts have more big money elsewhere.

 

[comagnum]

Interactive Brokers has a cash sweep on futures accts which sweeps your excess cash into a pool of FDIC banks that pays interest daily. This is fully automated & completely transparent to your trading. Their FDIC insurance is $2.5M and $250k SPIC.

At current rates, 1 year in the the cash sweep pays about $1,600 per $100k or $16k per $1M.

TD Ameritrade has something similar, but pays virtually nothing in interest.

The people with larger accts are more likely to be more concerned about protecting their wealth & earning interest on their excess cash. The smaller accts have a different agenda and will make nothing to very little in interest anyway.

https://interactivebrokers.com/en/index.php?f=2334&p=fin

 

[lukas]

I would prefer that the NFA/CFTC create a SIPC type fund over time even if it means charging an extra $0.02/trade, but they do not see the need.

Bob

Who can propose a creation of such a fund? NFA members? CFTC proposing new law? I think it could also be organised as a private not-for-profit entity by, say, all firms registered as FCMs. It is sad that this industry does not act together on this.