How safe are segregated accounts

Discussion in 'Trading' started by FroggerMan, Nov 5, 2011.

  1. Clint funds at FCMs are held in segregated accounts to protect them in the event the FCM goes bankrupt. What happens is the bank that the segregated funds are in goes bankrupt? Is the first 250K even protected by FDIC?
  2. geoMEAN


    If the segregated funds are kept at a bank with FDIC protection, then yes the first $250K is protected under FDIC. That only protects you if the bank goes bust. They try to keep the deposits at some of the more well-capitalized banks.

    The FDIC offers no protection to brokerages going bankrupt.

    SIPC insures securities and some cash in equities accounts but offers no insurance on futures contract margin deposits.

    Until recently, it was widely believed that futures deposits in segregated accounts were almost untouchable by the FCM, though due to the MF Global bankruptcy, you can see that it is pretty easy for an FCM to manipulate, move, use, and deplete the segregated accounts despite it being very illegal.

    Some brokers buy additional insurance for their accounts like Interactive Brokers, though it is unclear to me how the aggregate limit on the policy would affect the main protection parts of the insurance coverage.
  3. Contrary to what the CFTC, the NFA, the futures exchanges and the futures brokers tell you, segregated accounts are not safe.

    I am reposting what I posted on June 16, 2010 on page 3 of the thread

    "Just because there are no recent losses of segregated funds does not mean that such losses cannot happen tomorrow or at some other point in the future.

    Segregated funds is a very weak customer protection scheme. Having to take legal action and waiting many months to over a year to get what is left of your money back is not proper customer protection. What the CFTC and the futures industry does not tell you is that you do not get back what is lost on the liquidation of open positons at arbitrary prices.

    The Volume Investors clearing firm failure in 1985 was a major mess and embarrassment for the COMEX. The failure of the clearing firm Klein and Co. Futures Inc in May, 2000 was a similar ugly mess.

    At some point in the future another futures clearing firm will fail and it will be an ugly mess."

    The futures industry refuses to fix itself and the same nonsense repeats itself.

    MF Global is just another one of the ugly messes.
  4. Completely agree. This notion that "maybe, possibly" and/or "eventually" traders will be made whole is not the least bit re-assuring.

    I still feel that much of this gets back to ZIRP. Not only did the lack of interest income compel MF Global to start to ratchet up their leveraging and risk-taking, but for all we know it was the exact same policy that drove some of the smaller traders into trading futures. Essentially, Bernanke's desire to get everyone to leverage up in risk assets is exactly what occurred. The problem is it almost never ends well for all of the parties concerned.
  5. Why customer can not real-time monitor their funds at segregated account. Today even by smartphone we can check our bank account, right? why not for segregated accounts?

    I don't understand such a country almost all financial world center is US but they can not safe accounts as much as a developing country.
    lovethetrade likes this.