IB's 4% Intraday Initial Margin Req. for Index Futures

[gnome]

Quote from gov:

Gnome, no, now it is possible that I am completely wrong, but I am not talking about theft. In fact, your FWIW post is exactly what I am talking about.

Now, I am asking you to explain, given the workings of IB, how exactly the individual customer (not IB) benefits from the margin increase??

I don't have an account at IB, so maybe I'm not the one to answer. Their situation is different from most futures brokers, as they are both FCM (or IB?) AND NASD Broker-Dealer.

Their functions would not "mix" but be "both and separate".

The ONLY protection from increased margin is that there is a greater cushion against you running yourself into a possibly unpayable deficit AND somewhat against other customers doing the same.

 

[gov]

Quote from gnome:

"... that the increase in margin is actually a customer benefit since it protects our funds. But if the funds are already swept into a SIPC protected segregated account.."

The increase in margin helps to protect against customer deficits. SIPC is all about insurance against theft and fraud. These concepts are completely non-related.

No, actually, SIPC does not protect you against fraud; it only kicks in when your brokerage goes under. You should familiarize yourself with SIPC since you are under a misconception. You might want to re-think your reply.

 

[vectors101]

these brokers using your money to make money or---------- lose money===insolvency or outright fraud..

why is you 'deposit' isn't insured for prop firms. that is why. it's your money...just like banks when you deposit money they pay an interest and they can borrow money from FED..

retail brokerages by SEC 'regulation' are insured but prop firms hedge funds have no insurance due to 'fraud' or insolvency (losing money in trading account)

 

[gnome]

Quote from gov:

No, actually, SIPC does not protect you against fraud; it only kicks in when your brokerage goes under. You should familiarize yourself with SIPC since you are under a misconception. You might want to re-think your reply.

Yes, I'm familiar. I'm a former NASD Principal.

If a SIPC insured broker "goes under", it SHOULD have no impact on any customer's account (BD goes broke, but customer funds are segregated and safe.). If customers have losses because of a BD failure, then their MUST HAVE BEEN some form of theft or fraud... and SIPC insures up to a certain amount of the cash in a customer's account + a certain amount of securities. Most brokers purchase additional insurance over and above SIPC, too.

Seems you are still confused about SIPC and customer deficits from losses in leveraged futures contracts. They are entirely non-related concepts.

 

[vectors101]

the financial industry is too small and has history of insolvency no insurance company would insure agains insolvency or fraud by a a prop firm..


retail brokerage is insured by the premiums by brokers.

 

[gnome]

Quote from vectors101:

the financial industry is too small and has history of insolvency no insurance company would insure agains insolvency or fraud by a a prop firm..


retail brokerage is insured by the premiums by brokers.

SIPC does not insure the broker, just the customers. Each BD pays a mandatory premium to SIPC for this insurance.

 

[gov]

Quote from gnome:

Yes, I'm familiar. I'm a former NASD Principal.

If a SIPC insured broker "goes under", it SHOULD have no impact on any customer's account (BD goes broke, but customer funds are segregated and safe.). If customers have losses because of a BD failure, then their MUST HAVE BEEN some form of theft or fraud... and SIPC insures up to a certain amount of the cash in a customer's account + a certain amount of securities. Most brokers purchase additional insurance over and above SIPC, too.

Seems you are still confused about SIPC and customer deficits from losses in leveraged futures contracts. They are entirely non-related concepts.

First you say it covers theft and fraud (it doesn't) then now you try to fit your definition (their(sic) MUST HAVE BEEN...fraud) to the facts. If there is fraud, SIPC is worthless; they makethis very clear, and it becomes a matter for the SEC. And I'm confused by virtue of the fact that you were a NASD principal?? Okay, whatever you say.

Anyone else have any actual reasoning as to why my argument is invalid? Gnome, I could be wrong, but nothing you have said even addresses any of my argument, I'm sorry.

 

[vectors101]

of course you can't have insurance for customers who lose money gambling. it's the customers problem for losing and making the wrong bet.

Quote from gnome:

Yes, I'm familiar. I'm a former NASD Principal.

If a SIPC insured broker "goes under", it SHOULD have no impact on any customer's account (BD goes broke, but customer funds are segregated and safe.). If customers have losses because of a BD failure, then their MUST HAVE BEEN some form of theft or fraud... and SIPC insures up to a certain amount of the cash in a customer's account + a certain amount of securities. Most brokers purchase additional insurance over and above SIPC, too.

Seems you are still confused about SIPC and customer deficits from losses in leveraged futures contracts. They are entirely non-related concepts.

 

[gnome]

Quote from gov:

First you say it covers theft and fraud (it doesn't) then now you try to fit your definition (their(sic) MUST HAVE BEEN...fraud) to the facts. And I'm confused by virtue of the fact that you were a NASD principal?? Okay, whatever you say.

Anyone else have any actual reasoning as to why my argument is invalid? Gnome, I could be wrong, but nothing you have said even addresses any of my argument, I'm sorry.

If you're "confused" about my being a former NASD Principal, PM me and I'll give you the info so you can look it up. It's a matter of public record.

1. Where did you get the notion that SIPC does not cover theft and fraud from customers? What do you think it covers?

2. If customer assets are segrated from Broker assets, as they are required to be... and the broker goes out of business, customers SHOULD get 100% of their money and securities back. If they don't, then there had to be some form of criminal act... and SIPC insures customers against such things up to the limit of SIPC coverage.

3. What has margin got to do with any of this? What question are you asking that I haven't answered?

Your argument initially seemed to me to mix the concepts of "losses from customer accounts through something other than loss of equity from losing trades"... SIPC, sweeps, etc., and "deficit losses from leveraged contracts". I thought there was no possible answer because the question confused two totally unrelated issues.

Please organize your question and ask it again.

 

[gov]

Quote from gnome:

If you're "confused" about my being a former NASD Principal, PM me and I'll give you the info so you can look it up. It's a matter of public record.

1. Where did you get the notion that SIPC does not cover theft and fraud from customers? What do you think it covers?

Let me first thank you for not turning this into a pissing match. I appreciate the respect, and I hope you feel the same. Try this link: http://www.sipc.org/
Click on the flash banner and that is a very nice overview of SIPC; I hope you will agree that my take on it is correct, and yours is incorrect.

2. If customer assets are segrated from Broker assets, as they are required to be... and the broker goes out of business, customers SHOULD get 100% of their money and securities back. If they don't, then there had to be some form of criminal act... and SIPC insures customers against such things up to the limit of SIPC coverage.

Well, we still disagree about there having to be fraud; otherwise, yes, and herein lies the interesting part wrt IB. IB sweeps your excess funds into a SIPC insured account for the night. So, if you are flat, all your money heads for safekeeping. This is not possible in a regular FCM, but as you mentioned, IB has a "dual role" if you will. This has the effect of insulating a futures customer funds from any onslaught of insolvency driven by other futures losses at the firm, since the funds swept are on the "stock" side, not the futures side, and hence are able to be SIPC insured.

3. What has margin got to do with any of this? What question are you asking that I haven't answered? Please organize your question and ask it again.

Margin (really performance bond is what we are talking) under a regular FCM being too low is what would drive the FCMs insolvency. At IB, my point is that one futures customer cannot seemingly affect another futures customer, and hence the margin increase is to the sole benefit of IB, and not in an individual account holder's best interest. Is there an error in my reasoning?

I hope this helps.