More from the same FINRA link already cited. Please refer to the last two lines regarding the broker-dealer's lien on all long positions. "Accordingly, within a portfolio margin account, to the extent that you have long option and/or margin equity securities positions that do not operate to offset your aggregate indebtedness and thereby reduce your margin requirement, you receive no benefit from carrying those positions in your portfolio margin account and incur the additional risk of the OCC's lien on your long option position(s) and the carrying broker-dealer's lien on all of your long positions."
IB-AN, please confirm whether your statement above is correct with respect to IB PM accounts. For example, here's the OptionsXpress disclosure of the broker-lien on all long positions held in a PM account: "all long positions, including margin equity securities, in a portfolio margin account are held subject to a lien by optionsXpress, even if fully paid." On Page 4, from http://images.optionsxpress.com/static/pdf/portfolio_margin_disclosure.pdf
Option12, what are you trying to accomplish? It's going to be very difficult to have complete safely of your position and cash. There are never going to be guarantees that are absolute. The reality is that the system of providing trading and leverage for longs and shorts works very well. The case of MF global is very different. IMO someone stole customer assets. I think there should be a SIPC type protection for futures account, but besides that, your not going to change reality. Brokerage firms make most of their money on interest and transaction fees. If they can't lend out your securities, or if they had to hold your securities fully paid for in your name segregated, the extra cost would raise transaction fees.
Thanks for your input. I'm not trying to change any rules. In general I'm simply pointing out that when customers are reassured by brokers -- as they have been on ET lately -- that fully-paid-for positions are not subject to a lien, then such reassurances should point out that the case is different when fully-paid-for securities are held in a PM account. Given IB-AN's response to my post above, it appears that the rules for PM accounts may not be well-known.
My statement is correct. You seem to be confusing a lien with hypothecation and while one needs to have a lien in order to hypothecate, having that lien does not necessarily provide one with the right to actually hypothecate. What this link you are referencing contains is acknowledgement language which FINRA's deems acceptable for portfolio margin accounts. Nowhere does it imply that the hypothecation rights extend to any party other than OCC nor for any instrument other than options (there's really no other party one could hypothecate long customer options to other than OCC, the issuer). Aside from the options, the hypothecation rights are no different from that which exists in a Reg T account (140% of the debit balance, if any). As for the lien which the broker is provided on all long positions in a portfolio margin account, this simply recognizes the fact (as previously noted) that margin is provided on the portfolio as a whole and the impracticality of identifying the specific margin benefit of any one position as it relates to any others. It's similar to the margin lien provided to OCC although it implies no hypothecation rights. While on the subject of customer protection, I'll take this opportunity to address your speculation in another thread as to whether spot forex transactions conducted through IB's are SIPC protected. 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. More importantly, there is no requirement that the currency positions be closed out or, if they are, closed out via the same pair as one may apply the proceeds of the transaction to securities purchases, convert to close out a loan balance denominated in another currency or withdraw to their bank account. Just as SIPC covers securities which are not USD denominated, so do they cover cash held in the securities account regardless of its denomination.
No futures or futures option contract is currently allowed to be carried in a securities account portfolio margining or otherwise (with the exception of a single stock future which is a jointly regulated product, eligible to be carried in either a futures or commodities account). This is why there is no cross-margining, for example, between a CME S&P 500 futures contract and an CBOE S&P 500 securities option or a SPY ETF despite the logical economic relationships. In order for this to happen, rule changes would need to take place at each of the CFTC, SEC and SIPC. You should also note that a marked-to-the market futures contract is a contingent liability, not an asset warranting protection. Thus its inclusion in a portfolio margin securities account is, in part, a margin matter but also a matter of aggregate exposure as a regulator or insurer might not necessarily take the view that the volume of hedging activity between securities and futures warrants wholesale inclusion of futures into the portfolio margin account.
Thank you for your reply and for addressing the forex and futures issues with respect to PM. My posts were not the result of having confused hypothecation with a broker lien. I am aware that a lien is necessary for hypothecation to occur. However, when IB states: At IB, if you maintain a margin account but are paying for your purchases in full and not borrowing funds, it is the same segregation requirement as that which would exist in a cash account. The securities must be maintained in a good control location (e.g., segregated bank or central depository account) and cannot be pledged or hypothecated. then IB should identify which type of margin account they are discussing -- either Reg T or PM. In the excerpt above, your statement only applies if a customer maintains a Reg T account. Up until just a few years ago regulators required PM customers to maintain 5 million dollars in NAV. Since then the minimum was lowered to $100,000, and IB has been aggressive in courting these potential new customers. I hope, at least on interactive electronic forums, that IB will work harder to state risks in a complete and unambiguous manner.
IB-AN, do you think my fund is covered by SIPC based on the below example: Intra-day trading of Spot Forex with margin of 1:40, There wouldn't be any overnite position, if IB go under (I don't have any position), can I get back all my money ? Assuming that's $500k balance in my account. Please advice. Thank you in advance.