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Brokerage cash sweeps of futures contracts sales
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Brokerage cash sweeps of futures contracts sales

  #1 (permalink)
Elite Member
Pismo Beach CA
 
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Brokerage cash sweeps of futures contracts sales

Posting this from a perspective of mostly ignorance re the brokerage account insurance stuff so take what I say with a grain or two of salt .... but, one of my criteria in selecting a brokerage has, especially since 2008, been it having a strong financial position. I previously had most of my money at IB.

I read a thread over at elitetrader re a situation at Interactive Brokers that has me concerned. Basically, IB went from sweeping cash from futures contract sales into some sort of SPIC --supposedly -- insured 'area' to just leaving it in a 'commodities area' within your IB account that is not insured at all. The implication is/was that IB was concerned that what they had been doing with the 'SPIC insured' futures cash sweeps may have been contested by the SPIC as not being insurable (because the cash came from futures sales), in the event of a broker failure, so IB decided to change what they were doing. The rumor is that the MF Global thing precipitated the move.

Unfortunately, they just did it and have not had an 'official' comment other than some stuff from a few IB employees who participate at elitetrader. MBTrading supposedly did the same thing. TOS did not, as far as I can tell anyway. IB is supposed to be working on a solution to the issue but it would have been good to have heard from them officially on it by now.

Until I get some clarification, I'm going to assume that in some sort of highly unlikely domino effect financial meltdown, the SPIC people might balk at covering losses in any account that had futures activity and, that my stock and futures accounts should be separate, with the futures account having the cash sweep go to FDIC insured bank(s).

So far, I've identified Velocity as doing futures cash sweeps to FDIC insured Bank of America (there's a name you can be confident in) and TOS may allow futures account sweeps into an FDIC insured account (not sure yet) or an SPIC insured one, which makes me nervous right now. There may be others.

I know I'm overreacting but ....

Comments appreciated.

"The Future Ain't what it used to be"
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  #3 (permalink)
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I don't know what to tell you exactly but I myself keep just enough money in my accounts to trade the way I need to. In other words don't keep more in there than you need to trade......withdraw money regularly so if something happens you won't loose as much.

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  #4 (permalink)
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kbit View Post
I don't know what to tell you exactly but I myself keep just enough money in my accounts to trade the way I need to. In other words don't keep more in there than you need to trade......withdraw money regularly so if something happens you won't loose as much.

I do the same thing also ..... just want to insure that what I do have there is insured. Thanks .....

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Unlike securities accounts, futures accounts does not enjoy SIPC protection. Since IB offers a global account, they used to (?) sweep the funds in order to secure the funds.

Futures accounts are less protected, but there aren't (m)any cases where funds have gone missing. There have been a few where one has had to wait for quite a while to recover the funds, though.

It all comes to due diligence when choosing a broker and clearing firm.

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IB hyper-hypothecation

IB was also mentioned here:

MF Global and the great Wall St re-hypothecation scandal

IB reacted to that with a statement to customers a day later.

So we still see the industry digest MF global and the fear of hyper-hypothecation.

Only have a minimum in your account - is a good approach IMO


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These are some legitimate concerns to have. My best advice when dealing with a futures broker is to only work with a broker who's exclusive business is serving as a futures broker/clearing for it's customers. Do not work with a firm that has other lines of business/profit centers that may interfere with the firm's bottom line. I've had accounts at both MF Global and Penson and never felt comfortable with their business model which ultimately led me to switch out of those firms.

As for having your idle cash sweep into an SIPC insured money market fund, just know those funds only insure up to $250k in cash. This kicks in only when a firm fails of course. SIPC money funds can still break the buck especially if another liquidity crisis occurs. And when a firm fails, the SIPC works through a trustee and that can be a very lengthy process. So, the FDIC route is probably better if that's what you're looking for although using BofA as you mentioned is definitely unnerving.

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An FYI - I've id'ed two brokers now who apparently have cash sweeps of futures contract sales over to FDIC bank accounts - Velocity and TDAmeritrade (ThinkOrSwim). There may be other smaller ones out there but I'm looking at bigger companies only.

IB hasn't responded to queries but that doesn't necessarily mean anything since they've always been cavalier about the idea of calming customer concerns. For all I know, those funds from futures's contract sales sitting in the 'commodities' part of my account snapshot are actually in an FDIC bank account but then again, they haven't said anything yet.

Caveat - TOS still uses Penson to clear - I also have concerns about Penson. As of now, I still have my futures account at IB but have moved the equities part of my IB account out and minimized the futures funds over there.

"The Future Ain't what it used to be"

Last edited by heywally; January 11th, 2012 at 09:12 AM.
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Just FYI, most brokers also allow one to use T-bills as collateral...

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