On a day like this, i am relieved that my money is with IB as opposed to MF Global. However, it also shows that "segregated customer accounts" do not offer ultimate protection for customers since the broker/dealer can accidentally or purposefully underfund them. Therefore, larger accounts above the SIPC limit (>500k) are not fully secure in the event of a broker/dealer failure - not even with IB since the Lloyds of London excess insurance is capped firm-wide at 150m (for all accounts). -------------------- IB CUSTOMERS: Please vote on my feature poll which would provide an inexpensive way to insure up to 100 percent account security even for large accounts by giving the customer the option to hold all or part of his shareholdings in "customer name" instead of "street name". http://www.interactivebrokers.com/en/general/poll/index.php?sid=7549 -------------------- IB EMPLOYEES AND MANAGEMENT: Please understand that unassailable account security is to IB's own advantage. - Unassailable account protection would surely increase IB's competitive position against firms with worse platforms but with implicit government backing - Unassailable account protection prevents bank-run kind of events. In this environment of heightened financial tension and customer alertness, even a minor negative event like an unexpected quarterly loss could create a self-reinforcing feedback loop of cascading stock price declines, followed by customer anxiety and account closings, leading to more stock price declines etc. This is a quote i found on another thread by "southall": --- " Quote from FrankSlaughtery:_ if this isn't another reason to move everything to ib Yeah, petterfly has skin in the game as he still own over 80% of IB i think. A trading god he maybe, but he is also still human, even he could fuck things up one day. very unlikely i know but it could happen. I have a good chunk of my net worth at IB.. i need to watch the IBKR stock price, if that sucker ever falls below 5 bucks then im pulling at least half my funds out on that day." --- I am sure many customers will act like this. In the absence of tangible and real time financial information about firms, the stock price for better or worse becomes the indicator that signals trouble. I believe this is the reason for the recent fragility of the financial system. Big institutional customers might be able to buy CDS on IB from a too-big-to-fail Wall Street firm, but even that will ultimately drive down IB share price since this Wall St firm will hedge by going short IBKR. - unassailable account protection will help IB win more larger accounts especially from collective investment schemes (mutual, hedge & pension funds). Such an account counts as one account under SIPC rules even though ownership might be split among 100 investors or more. If 100 investors put in 100k each in a hedge fund account held at IB, each investors' SIPC protection is only 5k. Any fund manager who accepts this dilution of protection for his investors acts negligently, in my opinion.
Over one million at IB, and it used to be for any size account at MF Global and many other brokers, you can post security with Treasury Bills instead of cash. These should be unassailable. One very easy thing for IB to do would be to lower the minimum account size for which T-Bills can be used as margin. However I do agree that there should be insurance available also. Does anyone know if there are any insurance policies available directly to customers rather than through the broker?
I think Fidelity Investments' brokerage account has some nice safeguards. In 2008 when Lehman went bankrupt and one money market mutual fund, (not a Fidelity fund) lost 3% I moved my cash from Fidelity Cash Reserves money market fund FDRXX to the Fidelity US Treasury Money Market Fund FDLXX in hopes that the paper in FDLXX was of better quality than FDRXX. Fidelity also has excess SIPC coverage with Lloyd's of London that has no limit per account but does have an aggregate firm limit of $1 Billion. See http://personal.fidelity.com/global/search/inquira/resultsindex.shtml?question=sipc But another drawback is that Fidelity doesn't let customers trade futures. If you are looking for safety without a brokerage or futures account, I'd think the FDRXX by itself would be a safe investment to have a very high probability of returning your principal to you as I'm sure some other US Treasury only money market mutual funds would be.
Unfortunately, on checking into this further, Treasury Bills may also be subject to pro-rata reduction if overall funds are insufficient. So they are not necessarily unassailable after all.
Why is that? Are these T-Bills in my IB account registered in my name then? And returned to me no matter what happens to IB? Can you explain how this works in practice? From what i have read, SIPC makes no difference between treasury securities and stocks.
btw are customers at IB UK protected by SIPC ? I saw a document implying that IB UK customers/accounts were under UK and FSA jurisdiction and thus not covered by SIPC.
Right. T-Bills give you protection like stocks, that is better than cash, at a lower margin "cost". However the protection is not better than "your" stocks held in street name. Sorry i did not see your posting earlier. And my postings seem to be delayed quite a while.
Fine in theory, but isn't it a fact that IB, like all brokers, want customers' stocks to be held in "street name" so that they can be used as funding collateral?