Is cash no longer fully insured in an IB account ?

IIRC, iceland stuck it to the brits who had accounts there and it was the brit gov that made them whole.

 

Just for people's information, non-U.S. brokers will in general not open accounts for Americans because of U.S. extraterritorial regulation. You can look at the recent suits by the CFTC against a number of foreign forex brokers for dealing with U.S. clients.

It may be possible to incorporate a foreign trading company and trade through it.

And there are a very small number of foreign brokers that will still open accounts for U.S. clients.

 

oldtime, here's what SIPC says about this topic. The statements seem to conflict with what Interactive Brokers has said on this forum and on their website regarding coverage of cash swept into a securities sub-account.

In the unlikely event IB customers ever need SIPC, it won't much matter what IB has said is covered since your claim will be with SIPC, not IB.

So verify these statement directly with SIPC (asksipc@sipc.org) before making any adjustments to your positions.

Regarding coverage of foreign currency:

"Currency transactions are not protected by SIPC, regardless of the way they are held. SIPA expressly limits the protection to customers with securities or to customers who have “deposited cash with the debtor for the purpose of purchasing securities.” See SIPA section 78lll(2)(B). In addition, because the definition of “securities” in SIPA specifically exempts currency trades, cash in a securities account that is actually a currency trade is also not protected by SIPA. See SIPA section 78lll(14) (“[T]he term ‘security’ does not include any currency….”). (As a side note, SIPA does protect cash in any denomination for the purpose of purchasing securities, but it must be in the account for the purpose of purchasing securities.) Therefore, SIPA does not protect cash being held for the purpose of trading currency, even if the currency trades are held in a securities account."

Regarding coverage of cash swept into a securities sub-account:

"SIPA does not protect all cash in a securities account – only cash for the purpose of purchasing securities. SIPA certainly does not protect cash deposited for the purpose of purchasing commodities. Therefore, cash collateralizing commodities transactions swept into a securities account will not be protected by SIPC."

 

Hi Options12,
Do these refer to Spot Forex or Futures Currency or both ?

 

The statement about forex addresses coverage of spot forex transactions at IB as described by IB-An in this thread:

http://www.elitetrader.com/vb/showthread.php?s=&threadid=232473&perpage=6&pagenumber=6

"Unlike spot forex trading elsewhere, transactions conducted through IB are not executed in lots or contracts (which are not SIPC protected) but rather in any whole currency unit as specified by the customer. More importantly, there is no requirement that the currency positions be closed out or, if they are, closed out via the same pair as one may apply the proceeds of the transaction to securities purchases, convert to close out a loan balance denominated in another currency or withdraw to their bank account. Just as SIPC covers securities which are not USD denominated, so do they cover cash held in the securities account regardless of its denomination."

 

Wow those are the most definitive statements yet.

They do completely contradict what IB says.

I assume you got them from the SIPC by email. I hope that now that SIPC has made a clear statement on the issue, it will publish the same statement on its web site or otherwise draw the attention of brokers to the issue so that they can correct their web sites.

Of course, there is always the possibility that a court would determine that the SIPC is wrong in its interpretation of the law.

 

I can perfectly understand the philosophy behind the answer, and let's face it, this stuff comes from a lawyer who doesn't seem to understand the basics (yeah I know, I'm making a strong statement here - but let's see why):

When they say "Currency transactions are not protected by SIPC, regardless of the way they are held. SIPA expressly limits the protection to customers with securities or to customers who have “deposited cash with the debtor for the purpose of purchasing securities.” ,
They are warning that they don't protect those transactions against loss, neither they protect FX currency pairs, that's not to mean they don't protect cash, otherwise they would contradict their next sentence "(As a side note, SIPA does protect cash in any denomination for the purpose of purchasing securities, but it must be in the account for the purpose of purchasing securities.) "
Because, unless it's an FX Pair that you are trading, that works like a product of its own, if you just keep converting foreign currency back and forth in an account there's no way to "claim" that cash is not elligible.
As for the sentente "Therefore, cash collateralizing commodities transactions swept into a securities account will not be protected by SIPC." is definately correct, if it wasn't for the fact that actually you can't even move commodities into a securities account in the first place - that's entirely different than moving cash (excess margin) from the commodities account to the securities account.

I don't want to sound rude but the kind of answers you posted from SIPC seems to come from a lawyer who is not only just trying to defend their field but doesn't really know how they interact with other products and how other products really work.

 

You don't sound rude.

But you may want to wait for additional guidance from IB and / or SIPC before discounting SIPC's statements on this matter.

I guess IB will take a closer look at their statements on this issue and provide some clarification. Either that or they will correct their statements here and update their advertisements regarding SIPC coverage of sweeps and forex.

In the end, at least according to FINRA, it's up to IB to review their statements for accuracy.

See:
http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p120779.pdf

 

Forex traders do not just convert foreign currency back and forth. They do it on leverage of 40 to one. So I think it would be easy enough to identify forex trades that way, despite any attempt to camouflage them.

Their syntax is slightly mangled but they mean "cash swept into a securities account," not "commodities transactions swept into a securities account ."

Unfortunately, I think that their position is entirely reasonable and consistent with the purposes and intent of the SIPA, and that courts would be likely to give it great deference and respect.

 

To IB's credit on this issue, they appear to have removed the language about SIPC coverage of sweeps and forex transactions from their website.