It seems to me these changes in account regulations are SIPC self-serving to limit SIPC payouts in claims. The way I see things, clients should be able to move their excess funds from futures accounts to securities accounts when the clients wish (clients signing up for a universal account are electing to move their excess futures funds back to their universal account each day). I hope that some form of insurance or protection for segregated futures accounts is part of the changes in regulations.
Is cash no longer fully insured in an IB account ?
- Thread starter Damrak
- Start date
Are you willing to pay for it?
SIPC insurance costs are predicated on implied taxpayer and Fed bailouts. When those bailout costs are included, coverage is damned expensive.
If "we" aren't willing to pay full freight for protection, we aren't really in a position to complain if/when our accounts go tits-up.
If "we" aren't willing to pay full freight for protection, we aren't really in a position to complain if/when our accounts go tits-up.
To me it seems fair that what the government is willing to do for securities accounts they should be willing to do for futures accounts. I see your point. We could regret what we ask for if FCM's were charged a fee much higher than what is currently paid for SIPC coverage for securities accounts. However, I would expect the fee would be small when you consider the past segregated futures account losses due to FCM failures.
There are some people in Government who would like to abolish Futures Trading.
Vote Ron Paul.
ES
Vote Ron Paul.
ES
The cost of a national insurance program for all futures accounts would appear to be modest.
Such insurance is provided in Canada (up to 1 million dollars).
As far as I know, Interactive Brokers fees there are the same as in the U.S., indicating the cost of business there is about the same as in the U.S., even after contributing to the insurance fund.
Such insurance is provided in Canada (up to 1 million dollars).
As far as I know, Interactive Brokers fees there are the same as in the U.S., indicating the cost of business there is about the same as in the U.S., even after contributing to the insurance fund.
What you are seeing is the first phase of a development effort which, at completion, will provide clients with full discretion as to which account segment (securities or commodities) excess cash is to be transferred as opposed to IB making that election.
As is the case with most development efforts, this is being driven by client requests and while it might seem illogical for any given client to waive the protection of SIPC, there are some sound reasons for doing so. Chief among these is the fact that the activity of many clients is predominantly skewed towards commodities and the level of cash they maintain is well in excess of the $250,000 limit imposed by SIPC, to the point where that coverage is deemed immaterial and not warranting any internal bookkeeping/reconciliation efforts introduced by the securities segment.
In addition, these clients, while well informed as to the generally more permissive hypothecation and cash investment provisions of the CFTC customer protection rules vis-Ã -vis those of the SEC, also understand two key facts which limit exposure:
1. That IB does not custody any securities in the commodities segment of their account, thereby substantially controlling any hypothecation rights of the broker; and
2. That IB holds commodity cash balances solely in either short-term U.S. Treasury securities (which may pledged to futures clearing houses to satisfy customer margin requirements), deposits in clearing banks/brokers accounts identified as segregated for the benefit of customers or âAAAâ rated money market funds. Those familiar with Regulation 1.25 of the Commodity Exchange Act which deals with investment of customer funds recognize that in addition to the above, a FCM may invest those balances in municipal securities, government sponsored enterprise securities, bank CDs, commercial paper, corporate notes or bonds, and general obligations of a sovereign nation.
Lastly, thereâs an interest income component to one's decision as well. While the current Fed Funds Effective rate is at a level which for all practical purposes precludes the payment of interest on USD denominated deposits, the benchmark rates of other currencies is such that interest is paid on some. Since interest credits are tier based and balances in the securities and commodities accounts are not aggregated but instead organized as separate tiers, one has the opportunity to earn a greater return on balances maintained in one of the two segments (which, for certain clients, is commodities given the nature of their activities).
The bottom line here is that when the final phase of this effort is completed (estimated to be within the next 2-3 weeks), all clients will be in a better position to elect the transfer method which best suits their particular needs. In the interim, if you are an IB client and are currently experiencing any unintended side effects with respect to margin or order placement, or have other questions regarding the change, please feel free to send a PM and I will attempt to assist.
As is the case with most development efforts, this is being driven by client requests and while it might seem illogical for any given client to waive the protection of SIPC, there are some sound reasons for doing so. Chief among these is the fact that the activity of many clients is predominantly skewed towards commodities and the level of cash they maintain is well in excess of the $250,000 limit imposed by SIPC, to the point where that coverage is deemed immaterial and not warranting any internal bookkeeping/reconciliation efforts introduced by the securities segment.
In addition, these clients, while well informed as to the generally more permissive hypothecation and cash investment provisions of the CFTC customer protection rules vis-Ã -vis those of the SEC, also understand two key facts which limit exposure:
1. That IB does not custody any securities in the commodities segment of their account, thereby substantially controlling any hypothecation rights of the broker; and
2. That IB holds commodity cash balances solely in either short-term U.S. Treasury securities (which may pledged to futures clearing houses to satisfy customer margin requirements), deposits in clearing banks/brokers accounts identified as segregated for the benefit of customers or âAAAâ rated money market funds. Those familiar with Regulation 1.25 of the Commodity Exchange Act which deals with investment of customer funds recognize that in addition to the above, a FCM may invest those balances in municipal securities, government sponsored enterprise securities, bank CDs, commercial paper, corporate notes or bonds, and general obligations of a sovereign nation.
Lastly, thereâs an interest income component to one's decision as well. While the current Fed Funds Effective rate is at a level which for all practical purposes precludes the payment of interest on USD denominated deposits, the benchmark rates of other currencies is such that interest is paid on some. Since interest credits are tier based and balances in the securities and commodities accounts are not aggregated but instead organized as separate tiers, one has the opportunity to earn a greater return on balances maintained in one of the two segments (which, for certain clients, is commodities given the nature of their activities).
The bottom line here is that when the final phase of this effort is completed (estimated to be within the next 2-3 weeks), all clients will be in a better position to elect the transfer method which best suits their particular needs. In the interim, if you are an IB client and are currently experiencing any unintended side effects with respect to margin or order placement, or have other questions regarding the change, please feel free to send a PM and I will attempt to assist.