broker stability

Discussion in 'Index Futures' started by larrybf, Apr 5, 2002.

  1. If we use an introducing broker to open a futures account the money is held by a third party, the FCM. Does the financial stability of the IB have any effect on our money. I do not believe so but I want to check with people who know more than me. THANKS
  2. Good question. With some I.B. you are expected to send your money to a bank account other than that of the FCM (clearing firm).
  3. From what I understand and from my limited experience with IB's(not to be confused with Interactive Brokers), the funding is held at the FCM, not the IB. I believe the IB has a sort of commission arrangement with the FCM and "piggy backs" off the FCM's reputation and financial solvency. For this reason, I am 80% confident that you will never have to place your money in the IB's account, but rather will have your funding held at the FCM for the Benefit of xyz corporation, client abc...

    So I believe your main concern should be with the FCM...Fortunately, there has been alot of consolidation, so some firms such as Refco are behemoths with alot of solvency...
  4. Money is held by the FCM. If your IB goes belly up, the FCM will still hold your funds. So you shouldn't be as concerned with stability of the IB as much as the FCM!
  5. It has happened that clearing firms have gone belly up, leaving customer accounts empty. This is rare, and usually the result of poor oversight on risky trading accounts that have blown up. Remember, some accounts have 10-1 margin.
  6. You mention that it has happened before...Do any firms come to mind off the top of your head? Also, is there a niche in the insurance market that offers that "catastrophe" insurance?