I usually stash my cash in SHY (a Treasury ETF). Very liquid, very low volatility.
IB - buy bonds - what happens if IB fails?
- Thread starter alex314159
- Start date
Do you know how much surplus capital IB has on hand? It's worth looking up.
Bear Stearns had surplus capital of over $60B at the beginning of 2007. PFGBest supposedly had $500 million in assets the day before it had a $200M shortfall in customer funds. There's an idiosyncratic risk to every company, if you can mitigate it by doing something as simple as buying short term treasuries with your extra cash you might as well regardless of how strong you think it is.
More info on protection of margin accounts from the SIPC website:
"How are margin accounts protected?
Margin accounts are afforded the same degree of protection as non-margin accounts. A customer is eligible for protection based on a margin account. A margin customer is only eligible for protection up to his or her “net equity,” meaning that the amount the customer owes the broker is subtracted from the cash and the value of securities in the account. The customer’s net equity is the difference. That difference in cash and/or securities is protected by SIPC up to the limits of protection."
http://www.sipc.org/for-investors/investor-faqs#margin-accounts
Keep in mind that SIPC is only up to $500K and only $250K for cash, and commodities and currency aren't covered.
Someone at IB was kind enough to spend some time explaining me how things work. It seems quite complicated, this is my recollection / understanding, do not rely on it. It applies to US and UK accounts.
1/Does it help owning bonds vs owning cash:
Hope this helps. Again, don't rely on it and make your own research.
1/Does it help owning bonds vs owning cash:
- only to the extent you are covered by the SIPC protection which is 500k including 250k of cash.
- securities are held in a client account but all clients are mingled together so other people's losses can affect you. Bonds are not held in your own personal name.
- SIPC
- Lloyds bond but there's a gross limit to the cover (not per account)
- Margin goes to a separate sub account that is IB money for all intents and purposes
- By default (but it's an option in account management) the rest of the cash is in a separate account that is SIPC eligible. IB moves cash between sub accounts automatically as you require / release margin
- This means that if you have 400k account, but 100k is used as margin to trade, and IB defaults, the SIPC only covers 300k
- There are complications for certain products such as non US futures / commodities
Hope this helps. Again, don't rely on it and make your own research.
Sure, and MF Global looked good until Corzine started punting on Eurozone debt with customer money. But IB isn't an investment bank or a prop shop, and to the extent they have any exposure from non-customer blowups, it's probably in their options market making group which is being scaled back and likely sold or shuttered in the near future.
You didn't mention owning stocks or ETFs but it sounds like bonds aren't the way to go. Maybe owning a bond ETF like SHY (like I mentioned above) is the way to go. You actually own that with your name on it.
Aren't all stocks held in street name pretty much everywhere unless you pay extra to register them in your name?
Frankly I view them as held in a "cloud". But I do get investor material in the US mail sometimes from stocks/ETFs I've owned.