If broker XXXX has their customer funds money in bank YYYY and bank YYYY fails, are those funds protected under FDIC or any other matter?
Sorry if this is a repeat.
Sorry if this is a repeat.
Medium size accounts FDIC insured? 2 replies
DislikedIB offers $1 million of cash coverage for client accounts via SIPC and Llyods. I don't know of any other retail FX firm that offers similar insurance coverage. If anyone does, I'd like to hear about it.
DislikedAs BurgerKing mentioned, client deposits are considered firm assets. Thus in the event of default, senior creditors have recovery rights against client funds. See Refco for more details.
DislikedThe SIPC specifically does not cover Forex or Futures transactions. If you are trading forex, you will need to verify that your broker offers private insurance, and to what extent you are covered.
The SIPC does not work the same way as the FDIC, it is harder to qualify for repayment and some other limitations will apply.
You can always purchase insurance separately, however. Even if it's not via your broker. If you are relying on a policy held by the broker, you should probably check out that policy and see how the coverage is handled. You might find it's not what you think.
Depositors should be given creditor preference up to the value of their account.Ignored
DislikedWell wait a minute. What about having multiple cash currencies in an account at IB? You are sure they are not covered? What if you have to trade EUR to USD to invest in a stock listed on the NYSE? That is essentially a stock trade that necessitates a currency conversion.
DislikedThe cash and securities – such as stocks and bonds – held by a customer at a financially troubled brokerage firm are protected by SIPC. Among the investments that are ineligible for SIPC protection are commodity futures contracts and currency, as well as investment contracts (such as limited partnerships) and fixed annuity contracts that are not registered with the U.S. Securities and Exchange Commission under the Securities Act of 1933.
Disliked"Insurance" for investment fraud does not exist in the U.S. The Federal Trade Commission, Federal Bureau of Investigation, state securities regulators and other experts have estimated that investment fraud in the U.S. ranges from $10-$40 billion a year. In the case of microcap stock fraud, the toll on investors has been estimated as $1-3 billion annually.
With a reserve of slightly more than $1 billion, SIPC could not keep its doors open for long if its purpose was to compensate all victims in the event of loss due to investment fraud.
It is important to understand that SIPC is not the securities world equivalent of FDIC–the Federal Deposit Insurance Corporation. Congress specifically considered creating a Federal Broker-Dealer Insurance Corporation, but lawmakers wisely concluded that such a designation would be both misleading and out of step in the risk-based investment marketplace that is so different from the world of banking
DislikedBut active commodity futures or currency contracts are not registered with the SEC are not covered.