Thanks for all the helpful answers. Unfortunately, I'm a bit more confused now with all this additional information. When a broker like IB/MF Global goes bankrupt, is the only thing at risk the cash in the account? If I had my stock in securities, or even some sort of security like a CD within IB, would it be safe, even if IB went through a MF Global-like event?
People who are looking for assurances that cash, in actuality deposited solely to trade futures, can be covered as securities under SPIC, by temporarily sweeping it to a securities account every day, are not going to get those assurances. Both SIPC and (later) IB have issued clarifications that cash is covered under SIPC ONLY if deposited for the purpose of trading securities. IB revised its whole web site at the request of SIPC and regulators that there must be no implication in any broker literature that there is SIPC coverage of cash that is swept from a futures account. This was gone into at enormous length in previous threads and thoroughly covered there so there is no point doing it all over again.
The only way to 100% sure that your equity is safe is to have it physically segregated from the broker's cash pool. The only way this is possible is with a bank guarantee. And even this could be shaky, but it would be likely that you could contest any claim on your fund in this case since The key here is to protect against a Corzine-like scenario where customer funds are used to back-up a company trade gone wrong. I do not have to mention that the Frank-Dodd regulations and ZIRP do not help the retail broker at all. If anything they increase risk for retail traders by breaking what was already an declining business model due to ever decreasing commission revenue. To compensate for this brokers relied on base interest for close these gaps in revenue. Now with ZIRP brokers like MF Global started to finance their operations with riskier investments like EU sovereign debt. With Frank-Dodd they have been punished further by being required to keep a larger chunk of customer funds at the exchanges. The retail broker business model needs to be restored. This is the only way to ensure that customer funds are not used to plug balance sheet holes. A broker like IB is in a good place as it has has spread it services across several markets.
I am in the process of signing a large international broker with IB . I spent three months investigating their financial condition and their practices.I must admit - they are solid. I could not find a damn thing to be concerned . I can provide more details of my findings if needed.