I started worrying about this. If IB somehow goes under, or they abscond with my account balance, for how much am I protected? I got a couple big ones in one account, if you know what I mean. Thanks.
only a handful of a their customrs has over 1 million bucks okay. average account size is like $30,000 all bank accounts and brokerage accounts are 'insured' the public or customers are paying for the 'insurance' via commissions and fees. all brokers have to pay a annual fee or seat fee. and regulation fees etc.
Wholly crap: https://www.interactivebrokers.com/en/index.php?f=111 Coverage up to $30 million, but only up to $1,000,000 in cash? Crap, most of my money is currently in cash. And futures are not covered at all apparently. Dang, I'm going to have to split up my account into more small ones. Fuuuuk.
Assuming you actually have a size account and this isn't total bullshit here's how it works. First securities held by the firm are identified - if possible - and then returned. Then SIPC coverage is $500,000 with no more $250,000 in cash. Supplemental insurance is somewhat deceptive. Mostly underwritten by Lloyds with an aggregate cap. The aggregate cap is the issue you should concern yourself with. Then firm capital, but there would be none left in a failure. Market cap of the stock is pretty much irrelevant as that is going to be vastly reduced and some/or most of it is outside of the firm. So Chairman of Lehman's personal net worth out of Lehman isn't part of the equation. His Lehman stock went worthless, but you have no claim against his other assets except with a proof of fraud. Any REAL size account would hold the assets at an outside trust company. Which are not insured if fraud or failure - look at Intrust in Chicago which failed and left lots of account SOL. You would use DTCC, JPM or a few of the others and pay for custody. Remember most of this stuff is electronic book entry and most size accounts are really looking to earn as much as possible through stock loan rebates and would never leave the holdings just sitting in a brokerage account.
ajacobson, thanks a ton. Much appreciated. Let's say one had an account with $2.7 million in assets, $2 million cash and $400k in stocks and $300k in futures, some long some short. How many accounts would you say one should break these amounts into to be totally covered? This coverage seems sketchy as heck. And is IB regulated? So at least theoretically people are looking over their operations to make sure they are not funneling money out the back door and what not? Thanks!
Answer does change and futures, as has been mention are not protected except by segregated funds. All U.S. securities brokers are members of SIPC and FINRA - so what, when disaster strikes it comes quickly and a regulator will just oversea an orderly liquidation. Lehman and MF Global we both regulated. Kind of like asking was there a speed limit. Lehman had a $26 Billion positive net worth and when ill - liquidity struck it was over. The way many brokers get around the protected cash limit is to distribute out your cash to banks up to the deposit limit. Ask your broker.
So what if a customer's aggregate claim amounts to higher than the Lloyd's max. limit of $150 million? Then whatever is over the $150 million is gone?? https://www.interactivebrokers.com/en/index.php?f=111
Aggregate means firm wide - $150 million is peanuts. Also SIPC is $100,000 cash not $250,000 - my bad.
FIRM WIDE??!! Each person is only entitled to $29 million from Lloyd's so $150 /29 = 5.17 So there can only be FIVE people who can claim the $29 million? What happens if there is more? Even if everybody just claims $1 million, there can only be 150 people who can claim it before there is nothing left and IB's got LOT more than 150 clients who have more than $1 million. It has institution accounts. How do those liquidators work out the claim? Alphabetically through the client list or the biggest accounts first? And what if there is nothing left when it gets to you? You just get nothing?
Ask you broker. It's worse than that. What complicates it even more is Lloyd's is the primary writer for the entire industry. It's also why no one would ever keep $30 million in a brokerage account. Logically an event that could possibly take down a major firm would also considerably impair liquidity at Lloyds. When you take a hard look at Lloyds it's not what we would consider a pure insurance companies. The capital is held by individual names. Insurance of $150 million doesn't cost a ton for a firm. $150 million per account would be untenable and still might no be able to pay in a crisis? . Pretty much why Lloyd's owns the business. When I worked on the brokerage side no US firm wrote it at any price that made it a consideration. Lehman is only settling some of it's liabilities now.