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Like SIPC Protection? Set Your IB Sweep To Get It.
- Thread starter Swan Noir
- Start date
Quote from tomahawk:
Thanks for digging up this info Options12.
Does anybody know specifically what this "preferential treatment" is under CFTC regulations, and what protection commodities accounts have, if any, under CFTC rules?
As far as IB, all I know is they do not co-mingle customer funds regardless of what type of account, but is that the extent of "protection" in an IB commodities account?
The CFTC Part 190 Regulations try to protect customer positions and cash in the event of a liquidation by placing the customer claims above those of all other creditors including the claims of the broker's parent company.
For an example in the MF Global case, check out:
http://www.futuresmag.com/News/2012/1/Pages/CFTC-makes-clear-statement-.aspx
For me the question is which IB segregated account (futures account or securities account) is safer when not considering the SIPC protection of the securities account. I have for now chosen to not have my excess funds to sweep between the two accounts. This allows me to get the benefit of the SIPC insurance in the securities account and also get the diversification of having part of my funds in the segregated futures account. If the segregated futures and securities accounts are not equally safe from the segregation viewpoint, then I might choose to not have my excess funds to sweep to the safer of the two accounts.
Quote from Options12:
SIPC may not see your cash as eligible for protection if it is not on deposit in connection with a securities purchase or sale.
Check out page 4 of this comment letter:
http://www.sec.gov/comments/s7-08-07/s70807-16.pdf
"Under SIPA, a customer's claim for "cash" derives from a few sources. One, the "cash" arises from the broker's sale of securities for the account of the customer. Two, the "cash" has been deposited by the customer with the broker for the purpose of purchasing securities. Three, the cash consists of dividends or other return generated on securities held by the broker for the customer. 15 U.S.C. $78lJ(2). Key is the fact that the cash owed by the broker to the customer is on deposit in connection with the purchase or sale of a "security," as defined in SPA. The facile labelling of an asset as "cash"does not transform it into a protected asset if unrelated to the purchase or sale of a "security.
-and-
"By the same token, the close-out of futures contracts and the valuing of options on futures contracts does not yield cash resulting from the purchase or sale of a "security." Margin deposited to secure a futures position is not cash on deposit in connection with a "security" trade."
"
I think the question is does the 'sweep' operation give the cash derived from a futures 'close out' a new status? ie the same status as freshly wired in funds to a securities account.
I dont think there is a definite answer.
Could SIPC even deny protection to freshly wired in cash to a securities account for customers who have in the past only ever traded futures with same firm? SIPC could argue that the money has not been deposited for the 'purpose of purchasing securities'.
Quote from Options12:
The CFTC Part 190 Regulations try to protect customer positions and cash in the event of a liquidation by placing the customer claims above those of all other creditors including the claims of the broker's parent company.
For an example in the MF Global case, check out:
http://www.futuresmag.com/News/2012/1/Pages/CFTC-makes-clear-statement-.aspx
Thanks, that article made it a little more clear.
Swan Noir is a tool.
Simply no two ways about it. Endless ranting about the same thing without actually getting anywhere. I actually called and talked to the SIPC at length and just reported back here what they told me. Swan spots drivel without actually calling anyone or doing any research.
The phone number of the SIPC is on their website. Call them (as I did) and talk to an attorney and ask.
Unfortunately they will not give you any specific answers and tell you that your cash may or may not be covered if you are just using your securities account for storing money to trade futures. The only important point is that they will not tell you, unequivocally, that your cash will by covered by them. Why wonât they simply tell you, yes you are covered and that is all there is to it?
What is my solution? Simple, my extra futures cash is in an FDIC insured account. From the SIPC website: âIt is important to recognize that SIPC does not work the same way as the Federal Deposit Insurance Corporation in terms of blanket protection of losses.â
Simply no two ways about it. Endless ranting about the same thing without actually getting anywhere. I actually called and talked to the SIPC at length and just reported back here what they told me. Swan spots drivel without actually calling anyone or doing any research.
The phone number of the SIPC is on their website. Call them (as I did) and talk to an attorney and ask.
Unfortunately they will not give you any specific answers and tell you that your cash may or may not be covered if you are just using your securities account for storing money to trade futures. The only important point is that they will not tell you, unequivocally, that your cash will by covered by them. Why wonât they simply tell you, yes you are covered and that is all there is to it?
What is my solution? Simple, my extra futures cash is in an FDIC insured account. From the SIPC website: âIt is important to recognize that SIPC does not work the same way as the Federal Deposit Insurance Corporation in terms of blanket protection of losses.â
Quote from opt789:
Why wonât they simply tell you, yes you are covered and that is all there is to it?
SIPC must be stressed.
Stanford customers lost 7 billion. The SEC is trying to get SIPC to cover 1 billion of that. SIPC reserves are a little more than 1 billion. The SEC would have to replenish those reserves with a loan and the SIPC members would face higher assessments if the Stanford payouts go forward. The Stanford case will be a major test of SIPC's independence in choosing who gets coverage.
Consider that in the unlikely event of a liquidation of a major broker who offers universal accounts for stocks, forex and overseas traders, you'd have nearly everyone filing claims for SIPC coverage. These claims would likely come from forex traders, customers of foreign subsidiaries, and anyone else who has cash, currency or positions cleared by the US parent company and held in a securities account.
Quote from sprstpd:
Off topic:
I find it ironic that the Fed is willing to bend over backwards to make sure a bank doesn't fail but it won't lift a finger to help MF Global clients. It certainly clarifies who the Fed is in bed with.
To not ruin the topic of this thread, I should only add this: Fed - Federal Reserve BANK. Period.