Can anybody tell me what does a segregated account mean?

Discussion in 'Trading' started by TILT2, Nov 2, 2011.

  1. TILT2

    TILT2

    Hi everyone, I am a new guy. Can anybody tell me what does a segregated account mean? Can it ensure that my money is safe?I have 6 digits money in my account. If the same thing happened on MF Global happened on my broker, say, bankruptcy or out of business ,whatever, will my money still be there?

    Seriously

    Thank you.
     
  2. The principle of segregation is that customer funds are kept separate from those of the firm. Theoretically, the firm could go bankrupt and not have that affect customer funds.

    In the MF Global case, however, they apparently (and illegally) used customer funds to back losing trades of the firm. It has been said that this is a "first" case of such a violation and abuse.

    In security accounts, SIPC provides some insurance. In commodities accounts, there is no such insurance.
     
  3. And don't forget:

    "Segregated funds are subject to stringent daily, monthly, and annual monitoring by industry regulatory agencies."

    Ahahahahahaha :D :D :D
     
  4. Someone care to refresh my memory on Sentinel and that whole drama a few years back. If I remember correctly that was another episode of chasing yield that almost ended in a bunch of smaller disasters.
     
  5. So what is your exposure if you only day trade futures? I keep hearing about the accounts are swept overnight into another account.

    Anybody have any info?
     
  6. And net net that can mean you have absolutely no protections and no insurance of any kind with a futures account at any firm. Even when IB sweeps your excess money in your futures account back to your securities account, all the funds in your futures account are completely at risk.
     
  7. I don't think that's true that cash inside a futures account does not have SIPC coverage. Positions, no, but cash?

    Seems yes

    From their website:

    The cash and securities – such as stocks and bonds – held by a customer at a financially troubled brokerage firm are protected by SIPC.

    Among the investments that are ineligible for SIPC protection are commodity futures contracts (unless defined as customer property under the Securities Investor Protection Act) and currency, as well as investment contracts (such as limited partnerships) and fixed annuity contracts that are not registered with the U.S. Securities and Exchange Commission under the Securities Act of 1933.
     
  8. No, SIPC has nothing to do with a futures account, only a securities account. That is why IB and others sweep the excess cash out of your futures account back to the securities account to get the SIPC insurance. Anything in a futures account has zero protection at this point. I am not a fan of government intervention but it may be time for an futures version of SIPC.
     
  9. southall

    southall

    I think the UK version of SIPC is company based and not account type based.

    Cash, Stocks, FX, Futures accounts are all protected up a limit as long as the financial company is authorized to handle public money by the financial regulator (the FSA).

    You guys in the US need something similar, SIPC should cover all account types.
     
  10. Yes, and I've read the SIPC site over and over again.

    *Nowhere* does it say a cash position held inside a futures account is NOT covered. It does say that commodities and futures contracts held (and lost through bankruptcy) will NOT be replaced like securities would (eg they replace the actual security held, not the cash that security was worth if lost to bankruptcy).

    But it does not say anywhere, that a cash position, held in a futures account, and then is lost through bankruptcy of the firm, is NOT covered.

    <b>I'm reading it's covered. Please provide a link if you disagree.</b>

    And let's not forget, this assumes that there is actual money missing from the MF accounts. The SIPC insurance won't be needed if there isn't any actual money gone. Using customer funds doesn't *automatically* mean they're gone. And I've never seen any actual announcement that that's the case. The NYT story saying 'sources' say money is missing and the lawyer for MF quoting MF management that it's not.

    No SIPC release, which is only thing I'm listening to, has said money is actually missing.
     
    #10     Nov 2, 2011