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Futures Broker Due Diligence Notes post PFG
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Futures Broker Due Diligence Notes post PFG

  #21 (permalink)
Identify Evaluate Execute
Mercer Island WA
 
Futures Experience: Advanced
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eudamonia View Post
Has anyone looked into what it would take to get private insurance from Lloyd's of London and what the minimums might be? Assuming that the minimums are out of reach for most individuals would it be possible to do a risk pool for a number of traders? This could be a very smart business for a savvy entrepreneur who knows insurance.

@eudamonia

Not to quash your enthusiasm but suspect this would be an extremely expensive and time consuming process. For a start even if Lloyds would cover futures you would need a sizable pool of traders to deem it cost effective.

I think the most likely/best scenario is for the regulator to organize the insurance as umbrella coverage across all FCMs. FCMs would pay their share of the premium based on the % of client funds under management. This would be far cheaper than FCMs having to organize the coverage separately for each broker. FCMs would probably need to cover commissions to recover the premiums. The costs would likely be astronomical particularly for firms that have prop trading desks as well.

I suspect the reason there is no insurance in place for FCMs is because the insurers are not interested in supplying coverage due to the risks and lack of adequate regulation.

Cheers
DJ

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  #22 (permalink)
Elite Member
Houston,Tx
 
Futures Experience: Advanced
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heywally View Post

TD/TOS also provides FDIC insured accounts for the futures cash sweeps, which I like.

@heywally

FDIC insures the bank account the money is in. It would only apply if something happened to the bank, i.e. insolvency etc.

It would not cover anything the brokerage did, i.e. insolvency, theft etc.

If you are trading securities your money is covered by the SIPC.

SIPC does not cover futures or forex.

Don't shoot me... I'm just the messenger.

I'm just a simple man trading a simple plan.

My daddy always said, "Every day above ground is a good day!"
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  #23 (permalink)
Identify Evaluate Execute
Mercer Island WA
 
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ThatManFromTexas View Post
@heywally

FDIC insures the bank account the money is in. It would only apply if something happened to the bank, i.e. insolvency etc.

It would not cover anything the brokerage did, i.e. insolvency, theft etc.

If you are trading securities your money is covered by the SIPC.

SIPC does not cover futures or forex.

Don't shoot me... I'm just the messenger.

@ThatManFromTexas

TD is an anomaly. If you look at Note 4 in the opening post you will see the FDIC. The sweep is in fact to an FDIC insured account as it is not a securities cash account although you can choose the securities cash account sweep. I confirmed this with TD when I spoke to them.

Cheers
DJ

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  #24 (permalink)
Fortitudo et Honor
Austin, TX
 
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djkiwi View Post
@eudamonia

Not to quash your enthusiasm but suspect this would be an extremely expensive and time consuming process. For a start even if Lloyds would cover futures you would need a sizable pool of traders to deem it cost effective.

I think the most likely/best scenario is for the regulator to organize the insurance as umbrella coverage across all FCMs. FCMs would pay their share of the premium based on the % of client funds under management. This would be far cheaper than FCMs having to organize the coverage separately for each broker. FCMs would probably need to cover commissions to recover the premiums. The costs would likely be astronomical particularly for firms that have prop trading desks as well.

I suspect the reason there is no insurance in place for FCMs is because the insurers are not interested in supplying coverage due to the risks and lack of adequate regulation.

Cheers
DJ

Well, you're talking about insuring two different risks. If you're talking about insuring your account against your own trading losses yes....but if you're talking about insuring your account against your FCM fraudulently going toes up, that's a different matter.

I would think that insurance would be available, but not widely. Moreover, it's probably more cost effective (as you pointed out) to simply go with and reward a firm with solid history, numbers/ratios, low to no history of fines and settlements, etc.

For the life of me, I have no idea how anyone is brave enough to trade Forex. After seeing all the fraud in those markets, and people are STILL trading. You not only have to beat the market, beat the angels (slippage) but you also have to beat the crooked brokers and platforms. You could be getting screwed on slippage and not even realize it.

This whole ordeal with PFG is pretty scary. Even if you're a top notch trader and making all the right moves, your FCM could be totally gambling and you could lose your ars because of it.

Having money in your account and being owed money from a bankruptcy judgement are canyons apart. EVEN IF your account is insured, anyone who's ever gone through an insurance claim process knows that you rarely come out square.

The better solution is a primary risk reduction.....try to pick solid firms and avoid the whole catastrophe altogether.

"A dumb man never learns. A smart man learns from his own failure and success. But a wise man learns from the failure and success of others."
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  #25 (permalink)
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djkiwi View Post
@ThatManFromTexas

TD is an anomaly. If you look at Note 4 in the opening post you will see the FDIC. The sweep is in fact to an FDIC insured account as it is not a securities cash account although you can choose the securities cash account sweep. I confirmed this with TD when I spoke to them.

Cheers
DJ

@djkiwi

They aren't lying to you, they just didn't explain all the caveats.

The account is FDIC insured .... which means the FDIC insures the Cash while it is in the sweep account if anything happens to the bank.

If the brokerage pulled a" PFG" and stole your money the FDIC would not cover the loss.

If the broker pulled an "MF Global" and transferred the money to another bank, and the money was not recoverable, the FDIC would not cover the loss.

From the FDIC website.....

Does the FDIC Cover Losses Due to Fraud?

Consumers often ask the FDIC whether federal deposit insurance covers losses caused by fraud or robbery. By law, the FDIC only protects insured deposits if a banking institution fails. However, banks and other financial institutions typically purchase special private insurance policies to cover losses from criminal acts.

I'm just a simple man trading a simple plan.

My daddy always said, "Every day above ground is a good day!"
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  #26 (permalink)
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ThatManFromTexas View Post
@djkiwi

They aren't lying to you, they just didn't explain all the caveats.

The account is FDIC insured .... which means the FDIC insures the Cash while it is in the sweep account if anything happens to the bank.

If the brokerage pulled a" PFG" and stole your money the FDIC would not cover the loss.

If the broker pulled an "MF Global" and transferred the money to another bank, and the money was not recoverable, the FDIC would not cover the loss.

From the FDIC website.....

Does the FDIC Cover Losses Due to Fraud?

Consumers often ask the FDIC whether federal deposit insurance covers losses caused by fraud or robbery. By law, the FDIC only protects insured deposits if a banking institution fails. However, banks and other financial institutions typically purchase special private insurance policies to cover losses from criminal acts.

@ThatManFromTexas

Thanks for clarifying that. It looks they have a blanket bond to cover fraud, which I was unfamiliar with. I will update that part with accurate info. They only cover $100k for non retirement accounts and $250k for retirement accounts as well. You can elect to sweep to a SIPC account.

This thing is like an onion and I'm still peeling....

Cheers
DJ

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  #27 (permalink)
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djkiwi View Post
@ThatManFromTexas

Thanks for clarifying that. It looks they have a blanket bond to cover fraud, which I was unfamiliar with. I will update that part with accurate info. They only cover $100k for non retirement accounts and $250k for retirement accounts as well. You can elect to sweep to a SIPC account.

This thing is like an onion and I'm still peeling....

Cheers
DJ

@djkiwi

Just remember... SIPC does not cover futures or forex.

I'm just a simple man trading a simple plan.

My daddy always said, "Every day above ground is a good day!"
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  #28 (permalink)
Identify Evaluate Execute
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ThatManFromTexas View Post
@djkiwi

Just remember... SIPC does not cover futures or forex.

@ThatManFromTexas

My understanding is the cash sweep is treated the same as the IB cash sweep, i.e. if the TD customer doesn't select the FDIC account it goes into the SIPC insured equities cash account irrespective of whether it is futures or equities customers. I had a long discussion with IB about this and Tradestation. With tradestation you must have an equities cash account and then transfer the cash to the futures account as needed.

I have my sincere doubts on this though as far as payout by the SIPC.

Cheers
DJ

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  #29 (permalink)
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ThatManFromTexas View Post
@heywally

FDIC insures the bank account the money is in. It would only apply if something happened to the bank, i.e. insolvency etc.

It would not cover anything the brokerage did, i.e. insolvency, theft etc.

If you are trading securities your money is covered by the SIPC.

SIPC does not cover futures or forex.

Don't shoot me... I'm just the messenger.

Understand, thanks. One of the things I wanted to avoid was the whole futures cash sweep/SIPC "issue" over at IB. There is a very lengthy thread over at elitetrader on this (IB futures cash sweep and the SIPC insurance).

"The Future Ain't what it used to be"
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  #30 (permalink)
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djkiwi View Post
@ThatManFromTexas

My understanding is the cash sweep is treated the same as the IB cash sweep, i.e. if the TD customer doesn't select the FDIC account it goes into the SIPC insured equities cash account irrespective of whether it is futures or equities customers. I had a long discussion with IB about this and Tradestation. With tradestation you must have an equities cash account and then transfer the cash to the futures account as needed.

I have my sincere doubts on this though as far as payout by the SIPC.

Cheers
DJ

You can put your boots in the oven ... that don't make 'em biscuits....




heywally View Post
Understand, thanks. One of the things I wanted to avoid was the whole futures cash sweep/SIPC "issue" over at IB. There is a very lengthy thread over at elitetrader on this (IB futures cash sweep and the SIPC insurance).

Keep in mind ....The broker knows the only way you will find out he was wrong ... is if the broker goes belly up ..... in which case ... he won't be around to answer for anything anyway...

I'm just a simple man trading a simple plan.

My daddy always said, "Every day above ground is a good day!"
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