Yet Another IB SIPC Sweep Question ...

BTW ... I want to be clear that I have great confidence in IB's ability to withstand virtually any crisis. None of these questions are meant reflect on them in any fashion.

That said, while obviously any firm can go "MF" at any moment I am back into the US Dollar by 4 PM (or so) every day ... or at least I think I am. What I mean by that is, not being a forex trader, I do not know if these trades actually settle T1 and that technically I am in the Euro or another currency overnight. Can anyone shed light on this?

Quote from Options12:

Also consider that in order for SIPC to consider the foreign currency in your account as "cash" eligible for insurance, the securities trades you plan to make in that account in hopes of triggering SIPC coverage should probably be transacted in the foreign currency and not USD.

It's worth double-checking Interactive Brokers' characterization of forex coverage directly with SIPC.
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Quote from Swan Noir:

BTW ... I want to be clear that I have great confidence in IB's ability to withstand virtually any crisis. None of these questions are meant reflect on them in any fashion.

That said, while obviously any firm can go "MF" at any moment I am back into the US Dollar by 4 PM (or so) every day ... or at least I think I am. What I mean by that is, not being a forex trader, I do not know if these trades actually settle T1 and that technically I am in the Euro or another currency overnight. Can anyone shed light on this?
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It is T+2.

I have tried to withdraw cash at times and you have to wait 2 days for forex trades to settle.
 
Quote from Swan Noir:

BTW ... I want to be clear that I have great confidence in IB's ability to withstand virtually any crisis. None of these questions are meant reflect on them in any fashion.

That said, while obviously any firm can go "MF" at any moment I am back into the US Dollar by 4 PM (or so) every day ... or at least I think I am. What I mean by that is, not being a forex trader, I do not know if these trades actually settle T1 and that technically I am in the Euro or another currency overnight. Can anyone shed light on this?
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No matter what currency you end up with after a day or night of forex trading, SIPC may not cover your "cash" if it is not generated from, or on deposit for, a securities trade. This is the same reason that cash swept from a commodities account into a securities account may not be covered. Some MF Global customers who traded commodities but kept their cash in securities accounts apparently learned this the hard way.

Shoot SIPC an e-mail on this and they might clarify their position for you in writing. Try asksipc@sipc.org
 
Quote from comintel:

Yes this is quite an interesting quote. He says in part:

"Unlike spot forex trading elsewhere, transactions conducted through IB are not executed in lots or contracts (which are not SIPC protected) but rather in any whole currency unit as specified by the customer."
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I think they mean that they DO trade actual cash for you, instead of the typical "contract"/cfds with "virtual" FXs from all sorts of bucket-shops around.
 
Quote from Options12:

No matter what currency you end up with after a day or night of forex trading, SIPC may not cover your "cash" if it is not generated from, or on deposit for, a securities trade. This is the same reason that cash swept from a commodities account into a securities account may not be covered. Some MF Global customers who traded commodities but kept their cash in securities accounts apparently learned this the hard way.

Shoot SIPC an e-mail on this and they might clarify their position for you in writing. Try asksipc@sipc.org
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Look guys, I get all these points, after MF Global everything should be questioned. But I just happen to have these two arguments:

1 - I don't ever think SIPC should actually require claim that a certain amount of cash in an account must somehow - and proven - to be connected to some sort of "securities" (whatever the definition). For instance, what if somebody opened a securities account at MF a week before the failure, bought some EUR to buy some stock, and then MF went kaput before they were able to buy the stock. Do you actually think this guy is denied coverage? I think this kind of worry makes no sense, neither I think SIPC will ever go over this process in thousands of accounts in any real-world situation.

2 - Having went through nr. 1, and considering the awful handling of MF Global case since the beginning, if you are still worried about something like nr. 1 could ever happen - that is, being denied SIPC insurance just because you didn't get to trade a "security" in that account - what I would do in the first place is just to treat SIPC protection as complete garbage, and not EVER invest my money with any U.S.-regulated entity in the first place.
 
Quote from velosoandre:

what I would do in the first place is just to treat SIPC protection as complete garbage, and not EVER invest my money with any U.S.-regulated entity in the first place.
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velosandre, most IB foreign subsidiaries are still under SIPA regulations since the parent company clears most trades in the U.S.
 
Quote from Options12:

velosandre, most IB foreign subsidiaries are still under SIPA regulations since the parent company clears most trades in the U.S.
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Simple, pick another one! My point is just that, IF you concern about SIPC protection goes that far, clearly your confidence in it is pretty much zero, and as such you should just pick a complete different jurisdiction, instead of trying to speculate how from a pure law point of view your money is safe with this or that broker (in this case IB).
Like so many others have said in MF Global's case, if the U.S. don't protect those account holders to be made whole, then nothing is safe in the U.S.
 
Quote from IB-AN:

SIPC covers cash balances regardless of their currency of denomination. There seems to be some questioning in these forums as to what SIPC coverage actually entails and while their rules don't appear to contain the level of specificity which some are seeking I am not aware of any coverage restrictions which are premised upon the manner in which the cash in the securities account is sourced (including cash deposited from an external bank account, transferred from another securities or commodities account whether in-house or third party or originating from a trade).
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IB-AN, please check your statement for accuracy with SIPC.

If you do become aware of coverage restrictions which are premised upon the manner is which the cash in the securities account is sourced, please update your post for the benefit of IB customers and would-be customers who might mistakenly think that their excess cash from forex and commodities trades are insured by SIPC due to the fact that the funds are kept, or swept into, a securities sub-account.
 
the US government overall doesn't know how to treat retail forex. The IRS has never had a decision on whether to treat it as a conversion or a trade. That's why losers write it off as a conversion and winners declare it a 1256 trade.

but like they said, the money in your real account window is your balance. In your mind you may be speculating, but as far as IB is concerned you just have cash sitting in different currencies.

so IB is doing all they can do, if something goes bad, it's up to SIPC to sort it all out
 
Quote from Options12:

IB-AN, please check your statement for accuracy with SIPC.

If you do become aware of coverage restrictions which are premised upon the manner is which the cash in the securities account is sourced, please update your post for the benefit of IB customers and would-be customers who might mistakenly think that their excess cash from forex and commodities trades are insured by SIPC due to the fact that the funds are kept, or swept into, a securities sub-account.
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I've just finished reading all by-laws and rules on the SIPC site, there's no provision that raises a single hint of your fear that SIPC could ever deny insurance of your account - both cash and securities - just because you never traded any securities. Actually, there are provisions for even paying yet unsettled-trades, provided the broker had already confirmed those trades were filled before going kaput.
In fact, SIPC also covers commodity futures if you trade it in a portfolio margin account - that's what they say.

In fact if that ever happened, consider the following:
- You open an account and the broker fails before you do your first trade - you are denied because they claim you never traded any security;
- Similarly, you open an account with a broker that sweeps your excess cash into an FDIC-insured account - TD Ameritrade for instance. FDIC denies your claim because you didn't have that account for "banking" purposes.
I don't think these two could ever happen.

As much as MF Global situation erases people's trust, your SIPC fear in this case is entirely unfounded.
 
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