IB - SIPC & Lloyd's Insurance

Discussion in 'Interactive Brokers' started by Trader_Herry, Jul 14, 2006.

  1. SIPC & Lloyd's Insurance

    1. Questions about SIPC

    Let's see if I understand how SIPC works:
    a) I'm only insured on securities account. Nothing is covered on futures account.
    b) I can get SIPC-insured even if I'm an international client - $400,000 for securities; $100,000 for cash

    However how does the market value of my stocks, options, warrants, debt be determined?
    On the date you declare bankruptcy (if occurred), or else?

    2. Lloyd's Insurance
    The proection offerred seems to be attractive. However it has no much details about the insurance scheme in IB's website.

    Is there any limitation for this insurance, or to get the claims?
    Does it insure securities account only?
    For the rest $20.5million, what does it cover?
    Who is eligible to get the claims? Any restirctions/requirements?
    Is there any link which has the details about this Lloyd's insurance?

  2. :confused:
  3. yes there's a limitation as it's on there site. i think the aggregate of all claims over the 100k or 500k is $150 mil or something.i think the problem if anyone big goes under is the cash portion of the insurance outside fraud is the only unsafe part. ouside fraud there should never be any danger of any amount of money
  4. Assuming I can get SIPC + Lloyd’s protection (with NO gimmicks or hidden clauses or additional requirements), it's going to be:
    - $29 million worth of securities
    - $ 1 million worth of cash

    The only known clause is the "aggregate limit of $150 million"., of which the limit doesn't count the claims in SIPC (it's Lloyd’s insurance!).

    Only customers who have more than $500,000 will need the Lloyd’s claims. SIPC will take care anything lower than that. So I don't think it will overconsume the upper limit by much, if it happened.

    IB says in the website:
    If it turns out to be what I imagine, big clients can get even, say, about 70% of their claims, prudently speaking.

    After all, do you think IB offer the best insurance over clients' assets? Is there any other firms which offer similar protections like IB?
  5. the hell with losing anything. just keep no more than 500k with any broker
  6. If I open for more than 1 broker (but using my own name), do I get $500,000 or $500,000 per account?

    From Ib website, it is said to be $30m. If the claims were true, it shouldn't be worried to put, say, $20m worth at IB.

    But... hmm...
  7. sprstpd



    It says your cash is protected up to $1 million. If you are invested in securities, the protection on those securities is up to $30 million.

    Also the total insurance is separate for distinct type of accounts (like IRA versus normal). But if you have two normal accounts at IB, those will share the insurance.
  8. IBj

    IBj Interactive Brokers

    Other E-T members have addressed the direct questions. My addition here is that IB is safer than most firms, outside perhaps, of companies like Merrill or Goldman:
    (1) it is privately held and the owners are all senior employees with many being part of the management group. We have a huge incentive to protect client assets because our own assets are on the line. We keep our assets in the firm, so we would go down the sewer even before clients' assets would be at risk.
    (2) we aren't some small FCM. IB is a 2.5 BILLION dollar firm measured at book value. See the financials on the website. For those who know how to read financials, the debt to equity ratio is tiny, the profitability and cash flow are consistently positive, and the excess capital (over regulatory capital) is substantial. Even a forensic audit couldn't find any of the shenanigans that caused the downfall of Refco because there aren't any. We run our business like owners because we are owners and that means we run it cleanly.

    I am sure some people will throw up a barrage of response about firms who seemed OK. Most implosion events are when a few scoundrels are play with and take OPM (other people's money). IB capital is owner/manager capital, not OPM. There are of course firms that lost money steadily and eventually went out of business but clients rarely get burned in these kinds of attrition situations.

    Those familiar with our risk systems, also know that we don't let clients get into trouble themselves. Our margin model automatically liquidates over-leveraged positions so there is far less risk that client activity can itself jeopardize IB's financial integrity (and by extension, put other clients' assets at risk).

    I acknowledge that my statements are self-promoting and I wholly agree clients should carefully consider the integrity and stability of the firm with whom they place their assets. I suggest that those concerned should look at our financials carefully, as well as the history, consider our business model and note not only where we do business (listed exchanges) but also where we don't (OTC transactions, other off-balance sheet transactions). It might give a little additional comfort to those concerned about the safety of their assets with IB.
  9. Your self-promoting post is not too hard-selling. You did raise some good points. :)

    As to margin, I feel it is far too conservative, sorry to say. Why do I say so? Since I'm quite sure IB can be less strict and still offer more or less the same level of security, to the firm itself and its customers.

    How? For example, you offer flexible margin levels. Users are free to choose, say, among 20%, 25%, 33%, 50% intraday margins. However once they nearly reach maintenance margin levels, warnings are given (as what you are doing by showing different colour flags). Positions are still liquidated immediately if the client cannot restore to the maintenance margin levels at a very short time.

    Can you see my points? Even if you offer crazy levels of margins (eg just 5% above the maintenance margin), a dead strict position liquidation policy will still make you safe.

    Remember margin is a double-edged sword. If you know how to use it correctly, it is a powerful edge too. Personally, I won't even let it down to more than 1% for most of the time. Most of the margins are wastes of money.

    Say, I have $1,000,000. I would like to spend 50% on stocks. Others go to futures. I daytrade. The less intraday margins are required, the less money I need to put at Futures account. The more money I can spend to buy stocks. Since your intraday margin requirement is 50%, I can only use $250k ($500k * 50%). The extra $25k will go to stocks, or use the extra to buy some more futures contracts.

    I wish I could just use $100k only at IB (but with $500K buying power). All $900k went to stocks, or the extra to buy some more futures contracts.
  10. IBj,
    Where can I read the terms and conditions of Lloyd's Insurance?

    I would like to make sure I can still get claims of up to 30millions when the aggregrate limit does NOT reaches.

    I don't wish to get surprised by some strange terms or conditions which stop me from getting the claims.

    How does the market value of my stocks, options, warrants, debt be determined?
    On the date you declare bankruptcy (if occurred), or else?

    Why is it imposible for IB to appropriate clients' assets (OPM)?
    You have clients' assets, right? So it is possible for you to appropriate them in theory, should IB wish to.

    Anyway, I would like to believe IB would not do so. I just question about the possibility in theory.
    #10     Jul 18, 2006