What is the difference between Brokers and Futures Commission Merchants?

[crgarcia]

If FCMs go bankrupt, will you get your entire account/funds back?
(Without waiting for the legal bankruptcy process, of course).

 

[jwcapital]

Quote from crgarcia:

If FCMs go bankrupt, will you get your entire account/funds back?
(Without waiting for the legal bankruptcy process, of course).

No. The CFTC doesn't have an equivalent like the FDIC for banks and SIPC for stock brokerages. The good news is that the CFTC requires tons of capitalization for FCMs to stay in business, and the custoner accounts are segregated from the FCMs accounts. REFCO is a recent example of problems at a FCM. Those folks were really inconvienced although I believe that the customer accounts were/are reimbursed.

 

[buzzy2]

FCMs have "segregated accounts" for their clients. If the FCM goes down, segregated accounts cannot be touched by creditors, if one client goes down, only his account gets wiped out, the other are safe.

It is a very safe and resilient system. If credit derivatives and MBS had been traded under a similar system, the banks wouldnt have the problems they do now.

 

[jeb9999]

Quote from buzzy2:

FCMs have "segregated accounts" for their clients. If the FCM goes down, segregated accounts cannot be touched by creditors, if one client goes down, only his account gets wiped out, the other are safe.

It is a very safe and resilient system. If credit derivatives and MBS had been traded under a similar system, the banks wouldnt have the problems they do now.

Clients money is segregated from the firms money, but there is no segregation among client funds. If a single client wipes out his own account and more than the FCM has in capital, then the rest of the customers may have serious problems. Do some research into the very ugly defaults of Volume Investors and Klein & Co. Futures.