Like SIPC Protection? Set Your IB Sweep To Get It.

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Swan Noir

Interactive now has a section under account management that controls whether your excess funds get swept to your SIPC insured securities account (a good thing) or remain in IB's futures segregation account (no reflection on IB but a less good thing!)

Historically all my free funds have been automatically swept to the securities account but I noticed that I liquidated some crude spreads on Thursday and the money was still in the wrong place this morning. I prefer my money to be in the right place. I have gone in to make sure the sweep setting is correct and will see what happens tomorrow. Even though the amount in segregation is very small you can bet iIwill be quite unhappy if the funds are in the wrong place tomorrow. I trade only futures options, mostly spreads, at IB (never futures ... as a day trader their margins are unacceptable)) and at the moment the account is 100% cash. I will see to it that every last dime of it rests in a SPIC insured account until it needs to be segregated.

I suggest every IB customer check their setting so that every dime that can be SIPC insured is SIPC insured. BTW ... this does not need to become a long crap thread with all the nuts chiming in with nonsense. I'm not suggesting that what I have posted is the last word on the subject. I am sure that there are others that can add or modify what I have said and bring value to the thread but the way IB has restructured their policy seems pretty straightforward and now it is up to us to protect our idle funds.

COMMENTS WELCOME ... but, if you know you are crazy (and most crazies do) as I find myself saying more and more on ET go find a quiet a corner and freakin' die!!
 
"Regardless of your choice, IB will generally keep a small buffer of excess margin funds in each account in order to prevent excessive transfers back and forth as your margined securities and futures positions fluctuate in value."

I think this means you won't get a 100% xfer of funds.
 

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My guess is that during those times I am in cash -- 100% cash -- I can convince them that they do not need a buffer. I may be wrong and I may end up naked (without SIPC cover) on a small amount of money. I have two other futures accounts where I am already subject to segregation on fairly modest amounts. Both firms have much more modest balance sheets than IB. I can live with small $$$ at risk if I must.

Your comment is certainly accurate, valid and for some important. I hope everyone uses this thread to pay as keen attention as you obviously are. If so it will have served my purpose.

Quote from JamesL:

"Regardless of your choice, IB will generally keep a small buffer of excess margin funds in each account in order to prevent excessive transfers back and forth as your margined securities and futures positions fluctuate in value."

I think this means you won't get a 100% xfer of funds.
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Quote from Swan Noir:

I trade only futures options, mostly spreads, at IB (never futures ... as a day trader their margins are unacceptable)) and at the moment the account is 100% cash. I will see to it that every last dime of it rests in a SPIC insured account until it needs to be segregated.
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Swan Noir, if the cash is for trading only futures options then it might not be eligible for SIPC coverage no matter where you park it.

See thread: http://www.elitetrader.com/vb/showthread.php?s=&threadid=233565&perpage=6&pagenumber=18

Quote from opt789:
The SIPC may, in a liquidation, come in and look at that trader and say – that trader was just a commodities trader, he was just using his securities account to hold his excess cash, therefore the SIPC insurance will not cover the cash in his account.
 
Quote from Options12:

Swan Noir, if the cash is for trading only futures options then it might not be eligible for SIPC coverage no matter where you park it.

See thread: http://www.elitetrader.com/vb/showthread.php?s=&threadid=233565&perpage=6&pagenumber=18

Quote from opt789:
The SIPC may, in a liquidation, come in and look at that trader and say – that trader was just a commodities trader, he was just using his securities account to hold his excess cash, therefore the SIPC insurance will not cover the cash in his account.
More...


I wonder if they would really investigate the activity of 80,000 accounts to weed out non securities trading securities accounts.
 
A) I do not believe the poster you quote has the slightest idea about what he is posting about ... and I mean NOT THE SLIGHTEST!!

B) I should have been clearer and stated that the cash is only used for futures options on the futures side of the account. I do the occasional equity trade. But I do not think that matters. I believe the chances of SIPC trying to weasel once the money is in an insured account is very slim -- under 1%. They know firms sweep and they have never issued a directive telling the public that they may not cover the funds

The concept of estoppel alone is enough to convince their legal department that they have no ability to win a case and would probably lose on a summary judgement. BTW ... I am not an attorney and no one should take my opinion as a legal opinion. I am simply stating how I am managing my risk. Everyone should manage there own risk as they see fit.


FROM WIKIPEDIA:

Estoppel in its broadest sense is a legal term referring to a series of legal and equitable[1] doctrines that preclude "a person from denying or asserting anything to the contrary of that which has, in contemplation of law, been established as the truth, either by the acts of judicial or legislative officers, or by his own deed, acts, or representations, either express or implied."[2]
This term appears to come from the Old French estoupail (or variation), which meant "stopper plug", referring to placing a halt on the imbalance of the situation. The term is related to the verb "estop" which comes from the Old French term estopper, meaning "stop up, impede."

Quote from Options12:

Swan Noir, if the cash is for trading only futures options then it might not be eligible for SIPC coverage no matter where you park it.

See thread: http://www.elitetrader.com/vb/showthread.php?s=&threadid=233565&perpage=6&pagenumber=18

Quote from opt789:
The SIPC may, in a liquidation, come in and look at that trader and say – that trader was just a commodities trader, he was just using his securities account to hold his excess cash, therefore the SIPC insurance will not cover the cash in his account.
More...
 
Quote from Nick29:

I wonder if they would really investigate the activity of 80,000 accounts to weed out non securities trading securities accounts.
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The other (non FCM) SIPC members might demand that they do investigate given that SIPC only has around $1 billion in reserves.

Paying ineligible claims could quickly deplete those reserves.
 
That might be more likely if it fit the facts. There is no requirement that the cash reside in the securities account all the time or that it be used for the purchase of securities. The insurance applies WHEN it does rest in that account and does not apply when it does not. The claims we are describing are eligible claims. Right or wrong it is how it works.

I have seen no credible information to contradict that -- NONE!

Quote from Options12:

The other (non FCM) SIPC members might demand that they do investigate given that SIPC only has around $1 billion in reserves.

Paying ineligible claims could quickly deplete those reserves.
More...
 
It doesn't matter if IB automatically sweeps the cash or you do it manually. What matters is whether or not the SIPC is fully aware of this and has approved the process in a legally binding way before anything hits the fan.

Interactive Brokers, or anyone else doing similar things, have zero authority in this matter. Because the SIPC isn't going to say squat until you try to take money out of THEIR pockets.

That being said, I seriously doubt IB is going to pull a "Jon Corzine" or a "Refco" either. Just don't drink the Koolaide thinking that, at this late date and what we know from the MFG fallout, that this "sweep your cares away" marketing pitch actually has any actual legal teeth to it.
 
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