How much are accounts insured for?

[tomorton]

Financial spreadbetting in the UK typically gets a bad reputation from traders. However, there are at least some measures enforced by the FCA that could help protect clients.

Firstly, the firms must belong to and contribute into the Financial Services Compensation Scheme. This protects clients' funds up to £50k in the event of the firm failing.

Secondly, clients' funds must be held in a third party's (bank) account which is segregated from the firm's own operational account(s). The bank cannot release funds form these client accounts for the firm to pay for its operational costs or debts.

Thirdly, the bank itself must belong to the FSCS. If the bank fails, client funds are protect up to £85k.

Of course, both the SB firms and the banks they use must submit copious data to the FCA to allow all this to be checked and ensure they are not at risk of collapse through unhedged exposure etc.

 

[monkeyc]

You're all looking at out-of-date info.

IB has a deposit sweep program where they spread your cash across 10 banks for FDIC insurance of $2.5MM. Plus there's the $250K SIPC cash insurance.

If you exceed these limits you should put some of your cash into money market mutual funds or T-bills. These are considered securities, and they pay more interest than IB's cash sweep.

 

[eastern_warrior]

MonkeyC points to good info. But to me the key would be that they would have to burn through $6 billion plus of equity capital before any insurance came into play. Also, not sure where someone says there are only a few accounts above 30K. This information isn't hard to figure out. Monthly metrics are released..... well monthly. The Feb metrics show ending client equity of $130.5 billion with 508,000 accounts. Simple math puts average account size a bit over $255,000. Simple logic and it wouldn't be too big a stretch to derive they hold many sizable accounts over $1 million.

 

[ajacobson]

Back to SIPC being $250,000 on the first cash portion

 

[JSOP]

MonkeyC points to good info. But to me the key would be that they would have to burn through $6 billion plus of equity capital before any insurance came into play. Also, not sure where someone says there are only a few accounts above 30K. This information isn't hard to figure out. Monthly metrics are released..... well monthly. The Feb metrics show ending client equity of $130.5 billion with 508,000 accounts. Simple math puts average account size a bit over $255,000. Simple logic and it wouldn't be too big a stretch to derive they hold many sizable accounts over $1 million.

Client equity is $130.5 BILLION and Lloyds only covers up to $150 MILLION for the entire firm??!! Ok I am DEFINITELY not keeping anything above $29 million even if I need it to trade IF I make it to that amount. LOL Wonder how it is with other brokerage firms like Charles Schwab, TD Ameritrade and etc.?

 

[Catoosa]

Not all of the 10 banks used for the deposit sweep are banks where I would want my money. I think I saw only about two banks on the list that I would want to use.

 

[Sig]

There is a simple solution to this that doesn't require one to get spun up about any insurance issues mentioned so far. You simply buy Treasuries in your name, which will remain yours no matter what happens to the firm or what insurance protection they have. You then use that for collateral to actually make your trades. The haircut for this is relatively minor and any decent broker will be familiar with it if you have the size sufficient that you have to worry about it. Yes you might lose access to you money for some period of time after a sudden bankruptcy, there's no way to really avoid that. But it's a whole lot faster to get back your securities in your name than to get paid as an unsecured creditor, which you otherwise would be. And you can be sure you'll get your full amount back.

 

[southall]

Client equity is $130.5 BILLION and Lloyds only covers up to $150 MILLION for the entire firm??!!

At this point my guess is the Lloyd's insurance is only taken out so Lloyds has already done the sums for when an IB client goes direct to Lloyds to buy their own account insurance. Which is something you can do, will cost you ofcourse.

 

[JSOP]

There is a simple solution to this that doesn't require one to get spun up about any insurance issues mentioned so far. You simply buy Treasuries in your name, which will remain yours no matter what happens to the firm or what insurance protection they have. You then use that for collateral to actually make your trades. The haircut for this is relatively minor and any decent broker will be familiar with it if you have the size sufficient that you have to worry about it. Yes you might lose access to you money for some period of time after a sudden bankruptcy, there's no way to really avoid that. But it's a whole lot faster to get back your securities in your name than to get paid as an unsecured creditor, which you otherwise would be. And you can be sure you'll get your full amount back.

Access to funds aside, not all brokers accept this though which is call a LOC based on TB. And also TB's got a price. If TB ever depreciates, you will still lose some of the funds.

 

[Sig]

Access to funds aside, not all brokers accept this though which is call a LOC based on TB. And also TB's got a price. If TB ever depreciates, you will still lose some of the funds.

While the spot price of a treasury may vary as interest rates change, a treasury held to maturity will never lose value and always return the full principal and stated interest (if not then we've probably got more to worry about than SIPC insurance!). Not for nothing they refer to that as the "risk free rate" in finance! If you match the tenor of your Treasuries appropriately, losing value isn't a risk.
As far as brokers not offering it, that may certainly be the case. It does make you wonder why not, given that this whole Lloyds insurance stuff and multiple SIPC account spreading actually costs them money and provides little real protection while the LOC actually makes them money. I would maintain that if you're concerned enough about the issue to be a thread participant here, it may be worth shopping around for a broker who did offer it.