I would like to get some advice on ths issue of account safety with brokerage firms. Specifically, 1. Are brokerage accounts at risk due to current financial crisis experienced by banks? 2. Where do brokerages keep our money? It it in another bank? 3. Is there risk from the clearing house? 4. Would you keep over a $100K at one brokerage?
Not over 100k in cash, but up to 500k in equities is supposed to be insured by SIPC if your broker participates (for what that's worth - who knows today). So, SIPC insures 100k in cash, and up to 500k total, if at least 400k of that is in equities. As far as clearing house, others can answer. My understanding is that it's an insurance pool supported by premiums that member brokers pay into. I'm not sure of insurer or reinsurer. http://www.sipc.org/ http://www.sipc.org/who/sipc7questions.cfm http://www.sipc.org/how/sipcprotects.cfm
It also depends on what you are trading. if it's futures then your account is segregated and your money is separate from that of the brokerage/clearing firm.
NanoTick wrote on: 02-13-09 05:40 AM I would like to get some advice on ths issue of account safety with brokerage firms. Specifically, 1. Are brokerage accounts at risk due to current financial crisis experienced by banks? 2. Where do brokerages keep our money? It it in another bank? 3. Is there risk from the clearing house? 4. Would you keep over a $100K at one brokerage? ----------------------------------------------------------------------------- 1. All accounts, business and individuals, are at the same risk if there is a bank failure. The accounts are insured up to the FDIC limit. In reality, the FDIC will take over the bank and seek another bank to assume the deposits and hopeful the liabilities. 2. Without going into details, brokers must keep some customer's funds segregated and can commingle some customer's funds with the firm's funds according to your account status with the broker. Customer's funds segregated cannot be used by the broker but commingled funds can be used by the broker. Segregated funds normally are placed in some type of interest bearing short-term account such as money markets. Commingled funds can be used by the broker to carry inventory or as margin loans to customers, etc. 3. There is normally risk with everything. Commodity exchanges have clearing houses and security broker-dealers have depositories. These are probably the safest and soundest of all financial institutions. 4. I would treat brokerage accounts like bank accounts as far as cash deposits and have multiple accounts. But I am the conservative type. All brokers that carry customers accounts must be a member of SIPC which insurers up to $100,000 of cash in an account. Most brokers, unlike banks, purchases additional coverage from an insurance company. But the extra coverage, like all insurance policies, are only as good as the insurance company. All states require the insurance companies to maintain sufficient reserves to provide adequate protection under normal circumstances. But, as everyone knows, the SIPC, FDIC and the insurance companies only have a fractional amount of reserves to cover their obligations in the case of dire adversity.
Ask your broker though you should have been advised before making deposit. Is this a Futures only or Equities account?
Thanks for the reply. How do I find if my fund is segregated or not? ------------------------------------------------------------------------ If you have a cash account it should be, by law, segregated. If you have a margin account your funds are subject to being commingled.
SEC laws and regulation concerning commingling and segregating of customer's funds applies only to securities. There is no SIPC protection or rules pertaining to commodity futures.