SEC Product Restrictions

Discussion in 'Options' started by Neodude, May 17, 2005.

  1. Neodude


    I was looking at IB's website and found the following restrictions. Anyone know why the SEC restricts American's from trading these products, do they even have the authority to do so?

    From IB:
    Because of SEC restrictions, US legal resident customers are not allowed to trade non-US stock and cash index options.

    Canadian Options
    German Securities Options
    German Warrants
    Hang Seng Index Options
    H-share Futures
    Mini-Hang Seng Index Futures
    Nikkei 225 Options
    SMI Futures and Options
    Topix Options
    UK Securities Options
    UK SSFs

  2. US residents can trade whatever they want. Just that IB is not set up to allow US accounts to trade those products overseas. Just like many foreigners cannot trade the US markets from where they are with a standard discount broker.

    You will have to find an international broker or move money to Europe into a brokerage account over there. It is not an SEC restriction at all. WHy would the SEC prohibit foreigners from investing in domestic markets or foreign markets prevent U.S. people from investing in those markets.

    It is the broker that is not currently set up to do it. Thats all.

  3. Wrong, it is the SEC and not IB which prohibits individual investors from trading these products. Qualified institutional investors can trade these products, though.
  4. It is not a permanent restriction, it just does not allow you to do it from the US using IB. Nothing says you cannot have money in those markets and invest just because you are a U.S. resident. I can open an individual brokerage account with a Canadian brokerage and trade Canadian equity options and I do not think I have to be an institution.

  5. It has to do with reciprocal surveillance agreements. When they don't exist problems arise. They are fairly easy to obtain. If an overseas broker does do a trade with you they are subject to sanction by the SEC. They can ignore the sanction, but then they can never do business here.
  6. Neodude


    I have no problem with opening an account with a non-US broker, but I'm having trouble understanding how the SEC can have the authority to restrict trading of these markets through US brokers (unless of course they are on the trade sanctioned or embargoed country list, which the listed markets are not). Maybe this is not an SEC restriction, but something that Interactive Brokers doesn't want to do? In fact one of the markets listed is the mini-hang seng, yet I think there are people on this forum who are trading this market through US brokers (correct me if I'm wrong).

    Besides, I'm having trouble understanding the underlying cause of the SEC restriction, if in fact there is one. If it is a SEC restriction it smells to me like investor discrimination or market protectionism.

  7. Neodude


    The only thing I could find on these agreements is related to the DMCA (Copyright law). Can you provide a little more background?

  8. Neodude


  9. mgzheng


    Thanks a lot for your links on the list of foreign index futures granted "no-action relief". Is there a list of foreign index OPTIONS granted "no-action relief"? Thanks ahead of time.

    Also, is it really the SEC prohibiting US residents/citizens from trading foreign cash settled index options or is it just the brokerage firm (IB in this case) not allowing such trades? I would think it's really the SEC right? Otherwise, IB would just say "we don't allow it". I don't think I have to spend a day calling SEC on this one.

    So let's say a US citizen/resident is advanturous enough to find, say a brokerage firm in Europe, that allows him to trade European index options. What are the consequences if the SEC finds out? Heavy financial penalties? Jail time? Banned from working in the financial industry for life?
    #10     Jun 1, 2005