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futures secured account and bankrupt risk
- Thread starter Strunz
- Start date
Quote from Scataphagos:
2. If a large customer wipes out his equity and then some...
a. The customer loses 100% of his capital account.
b. The FCM has full recourse to recover any account debit.
c. The FCM has a "capital account"... which is used to immediately cover the customer's deficit, as futures accounts settle daily.
d. If/when the FCM's capital account is exhausted, then and only then would "other customers" be required to stand good for additional losses on some pro-rata formula/per customer.
Should be that LOTS of things would have to go wrong... and in a BIG way before "other customer accounts" could be impacted for losses. (It's a good idea to have your money with an FCM which has a LARGE capital account ratio as a buffer against such events.)
Perhaps an FCM "capital account" ranking (relative to customer equity) is a good idea?
At MF Global customer losses appear to not be a factor in the depletion of the Segregation Account. Remember Segregation is the left pocket of the firms trousers and their capital account is the right pocket. The $$ are in their hands every day and you count on them to put your money -- and keep your money -- in the safe pocket.
Of course their balance sheet is very important but the sheer number of ways that money -- your money -- can disappear is truly astonishing. Very few, if any, MF customers knew during October that when they went to bed at night their $$ had been "borrowed" and replaced with Irish & Spanish bonds.
BTW, and I know this will sound foolish, but depending on the maturities of those bonds it is possible that the funds are relatively secure. The EFSF has guaranteed a bunch of the shorter maturities -- I think into 2013 -- for these troubled credits. While the EFSF is likely to blow up someday, along with the ECB, it probably will not be before those bonds are paid.
Since Corzine reportedly financed those positions with a repo-to-maturity strategy and used EFSF guaranteed paper there may still be upside surprises here if the Trustee decides to and can finance margin calls ... assuming those positions are still in place.
Of course their balance sheet is very important but the sheer number of ways that money -- your money -- can disappear is truly astonishing. Very few, if any, MF customers knew during October that when they went to bed at night their $$ had been "borrowed" and replaced with Irish & Spanish bonds.
BTW, and I know this will sound foolish, but depending on the maturities of those bonds it is possible that the funds are relatively secure. The EFSF has guaranteed a bunch of the shorter maturities -- I think into 2013 -- for these troubled credits. While the EFSF is likely to blow up someday, along with the ECB, it probably will not be before those bonds are paid.
Since Corzine reportedly financed those positions with a repo-to-maturity strategy and used EFSF guaranteed paper there may still be upside surprises here if the Trustee decides to and can finance margin calls ... assuming those positions are still in place.
Quote from rsi80:
Perhaps an FCM "capital account" ranking (relative to customer equity) is a good idea?
Quote from Swan Noir:
At MF Global customer losses appear to not be a factor in the depletion of the Segregation Account. Remember Segregation is the left pocket of the firms trousers and their capital account is the right pocket. The $$ are in their hands every day and you count on them to put your money -- and keep your money -- in the safe pocket.
Of course their balance sheet is very important but the sheer number of ways that money -- your money -- can disappear is truly astonishing. Very few, if any, MF customers knew during October that when they went to bed at night their $$ had been "borrowed" and replaced with Irish & Spanish bonds.
BTW, and I know this will sound foolish, but depending on the maturities of those bonds it is possible that the funds are relatively secure. The EFSF has guaranteed a bunch of the shorter maturities -- I think into 2013 -- for these troubled credits. While the EFSF is likely to blow up someday, along with the ECB, it probably will not be before those bonds are paid.
Since Corzine reportedly financed those positions with a repo-to-maturity strategy and used EFSF guaranteed paper there may still be upside surprises here if the Trustee decides to and can finance margin calls ... assuming those positions are still in place.
Well according to IB, funds in US segregated accounts are limited to domestic debt instruments. Not that I think that US bonds are perfect, but just that I think that there would be a much more drawn out collapse of the US debt market.
Any thoughts on Newedge. I've gotten some pressure from clients to use them and my contacts at CME tell me they are becoming the biggest player in my arena. They've risen very quickly, so I must wonder if they are taking on much more risk than IB. I do know that they deal in OTC derivatives that IB doesn't. There is certainly risk there.
Quote from rsi80:
Perhaps an FCM "capital account" ranking (relative to customer equity) is a good idea?
I think we could probably come up with a weighted scale that would indicate the inherent risks with the bigger institutions, but as was mentioned previously, until regulations change, it still comes down to faith that your FCM is holding your capital in the correct places.
Newedge is owned by Societe General and Credit Agricole. They are not becoming the biggest player in the arena -- by some metrics they are and have been the biggest player around.
Typically firms in this league -- two notches up from IB -- are impossible to open up with unless your account is quite significant. They are simply not structured to service the $50,000 account. And if they do agree to open an account for you the rate is simply not competitive.
While NewEdge seems as solid as a rock there are many that believe part of the reason for the coordinated central bank moves last week stemmed from real problems at SoGen. They are chock full of sovereign debt and are frequently singled out by analysts as an example of pigs at the trough because they loaded up on garbage for a few extra basis points of yield.
All of that said ... Newedge is a too-big-to-fail player (as is SoGen) and both are likely to be here long after we are gone!
Typically firms in this league -- two notches up from IB -- are impossible to open up with unless your account is quite significant. They are simply not structured to service the $50,000 account. And if they do agree to open an account for you the rate is simply not competitive.
While NewEdge seems as solid as a rock there are many that believe part of the reason for the coordinated central bank moves last week stemmed from real problems at SoGen. They are chock full of sovereign debt and are frequently singled out by analysts as an example of pigs at the trough because they loaded up on garbage for a few extra basis points of yield.
All of that said ... Newedge is a too-big-to-fail player (as is SoGen) and both are likely to be here long after we are gone!
Quote from Epic:
Any thoughts on Newedge. I've gotten some pressure from clients to use them and my contacts at CME tell me they are becoming the biggest player in my arena.
[/B]
Quote from Swan Noir:
Newedge is owned by Societe General and Credit Agricole. They are not becoming the biggest player in the arena -- by some metrics they are and have been the biggest player around.
Typically firms in this league -- two notches up from IB -- are impossible to open up with unless your account is quite significant. They are simply not structured to service the $50,000 account. And if they do agree to open an account for you the rate is simply not competitive.
While NewEdge seems as solid as a rock there are many that believe part of the reason for the coordinated central bank moves last week stemmed from real problems at SoGen. They are chock full of sovereign debt and are frequently singled out by analysts as an example of pigs at the trough because they loaded up on garbage for a few extra basis points of yield.
All of that said ... Newedge is a too-big-to-fail player (as is SoGen) and both are likely to be here long after we are gone!
Didnt a rouge trader lose 7billion at Soc Gen.. i wouldnt trust my money at a company that is managed that badly.
I read a rouge trader lost 140mill at MF Global a few years ago, these types of events are indicators of how well these companies are managed.
Quote from Swan Noir:
Newedge is owned by Societe General and Credit Agricole. They are not becoming the biggest player in the arena -- by some metrics they are and have been the biggest player around.
Typically firms in this league -- two notches up from IB -- are impossible to open up with unless your account is quite significant. They are simply not structured to service the $50,000 account. And if they do agree to open an account for you the rate is simply not competitive.
While NewEdge seems as solid as a rock there are many that believe part of the reason for the coordinated central bank moves last week stemmed from real problems at SoGen. They are chock full of sovereign debt and are frequently singled out by analysts as an example of pigs at the trough because they loaded up on garbage for a few extra basis points of yield.
All of that said ... Newedge is a too-big-to-fail player (as is SoGen) and both are likely to be here long after we are gone!
I would be talking more in the realm of $25MM AUM domestic and about $20MM off-shore, but we'll see how things play out.
While those numbers are too small to warrant top tier attention they certainly are soliciting accounts of that size. The numbers are large enough that you can speak with any of the top players -- Newedge is clearly one of them -- and be treated cordially.
Quote from Epic:
I would be talking more in the realm of $25MM AUM domestic and about $20MM off-shore, but we'll see how things play out.