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

  #31 (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

Of course all this depends on the broker actually sweeping the cash into the insured account.

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  #32 (permalink)
 Vendor: www.traderwerks.com 
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About the SIPC, it is NOT insurance and it is not the FDIC. "Insurance" for investment fraud does not exist in the U.S, and that include the FDIC and SIPC. If PFG did a SIPC sweep, and it was still fraudulent, the SIPC would not help. The SIPC is another government sponsored organization like the NFA, with a billion USD reserve, smaller than the FDIC.

Some Useful links on the SIPC

When SIPC gets Involved
Why We Are Not The FDIC

Math. A gateway drug to reality.
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  #33 (permalink)
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traderwerks View Post
About the SIPC, it is NOT insurance and it is not the FDIC. "Insurance" for investment fraud does not exist in the U.S, and that include the FDIC and SIPC. If PFG did a SIPC sweep, and it was still fraudulent, the SIPC would not help. The SIPC is another government sponsored organization like the NFA, with a billion USD reserve, smaller than the FDIC.

Some Useful links on the SIPC

When SIPC gets Involved
Why We Are Not The FDIC

@traderwerks

A couple of points. This not investment fraud. Investment fraud is where someone offers you to invest in something (say those nigerian scams) then they disappear and you never see your money again. You cannot claim for this.

SIPC would not help PFG because they are a futures firm and SIPC does not cover futures or any cash with futures brokers. Technically they cover IB as cash is swept to an equities cash account. Here are the details of what SIPC cover:

"Under SIPA, a customer's claim for "cash" derives from a few sources. One, the "cash" arises from the broker's sale of securities for the account of the customer. Two, the "cash" has been deposited by the customer with the broker for the purpose of purchasing securities. Three, the cash consists of dividends or other return generated on securities held by the broker for the customer. 15 U.S.C. $78lJ(2). Key is the fact that the cash owed by the broker to the customer is on deposit in connection with the purchase or sale of a "security," as defined in SPA. The facile labelling of an asset as "cash"does not transform it into a protected asset if unrelated to the purchase or sale of a "security."

Cheers
DJ

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  #34 (permalink)
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The bottom line is .... if you are trading futures and your money turns up missing and is non-recoverable ...

Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).

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

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  #35 (permalink)
Fortitudo et Honor
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djkiwi View Post
@traderwerks

A couple of points. This not investment fraud. Investment fraud is where someone offers you to invest in something (say those nigerian scams) then they disappear and you never see your money again. You cannot claim for this.

SIPC would not help PFG because they are a futures firm and SIPC does not cover futures or any cash with futures brokers. Technically they cover IB as cash is swept to an equities cash account. Here are the details of what SIPC cover:

"Under SIPA, a customer's claim for "cash" derives from a few sources. One, the "cash" arises from the broker's sale of securities for the account of the customer. Two, the "cash" has been deposited by the customer with the broker for the purpose of purchasing securities. Three, the cash consists of dividends or other return generated on securities held by the broker for the customer. 15 U.S.C. $78lJ(2). Key is the fact that the cash owed by the broker to the customer is on deposit in connection with the purchase or sale of a "security," as defined in SPA. The facile labelling of an asset as "cash"does not transform it into a protected asset if unrelated to the purchase or sale of a "security."

Cheers
DJ

Cash flow is the number one killer of construction businesses. Most construction firms that go under, it isn't because of profitability, most of them operate in the black, it's because they're OWED money that has yet to be collected. What use is $2M to you if it's owed and not in your bank account? Unless you have deep pockets, you can't afford to pay your overhead, payroll, vendors/suppliers, etc.

The same thing applies to any business.....could you lose everything in your account and still be okay for 18 months? Even if you're trading on capital that's not going to sink you directly if you lose it, most of us that trade for a living couldn't survive without it because it's our primary source of income. Take away our accounts and we'd have to go back to a day job.

I guess what I'm getting at is I wouldn't put much faith in ANY insurance, let alone that which comes from the government. You rarely speak to anyone who issues an insurance claim and comes out absolutely square/whole on the deal. And even then, like I said, the entire hassle is another factor.

Risk management is about reducing incidents and their effects. "An ounce of prevention is worth a pound of cure" holds true.

I'd put more weight/consideration on companies that have a solid reputation, solid numbers, little to no red flags (violations, settlements, etc). I simply hold the unqualified opinion that keeping the isht from hitting the fan is better than having a maid on standby to clean it up.

Obviously, all things being equal, terrible insurance is better than none at all, but again, I think that when lawyers get involved and forensic accountants, etc, etc, etc......it's easy to weasel out of agreements and insurance policies on technicalities.

A 3rd order issue is that the funds are drying up. Everytime a firm goes under, it reduces the available funds, so if you start down a path with a particular FCM/Broker/Platform, who's to say in 15 months the funds will still be there?

If my accounts were jumbo, I'd look at spreading the risk to multiple, quality firms...that way if any one of them went under, I'd still have a fighting shot.

"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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  #36 (permalink)
Fortitudo et Honor
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Call me a conspiracy theorist, but if your FCM goes toes up, whether or not the government helps will largely depend on who your fellow account holders/patrons are and how much political dust they can stir up and whether or not they have connections.

It's not unthinkable that if some puke who manages SIPC wants to give one firm the shaft (in favor of another, simply maintaining funds, etc) they could find a zillion ways to capitalize on this "sweep" technicality. And even if they lost, again, your money is tied up till the lawyers get through fighting and even then, you have to pay the greedy lawyers their cut.

I prefer buying a car that's dependable rather than making purchase decisions based on the best warranty. Warranty is important, but not nearly as much as how likely I am to have to use it.

"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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  #37 (permalink)
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RM99 View Post
Call me a conspiracy theorist, but if your FCM goes toes up, whether or not the government helps will largely depend on who your fellow account holders/patrons are and how much political dust they can stir up and whether or not they have connections.

It's not unthinkable that if some puke who manages SIPC wants to give one firm the shaft (in favor of another, simply maintaining funds, etc) they could find a zillion ways to capitalize on this "sweep" technicality. And even if they lost, again, your money is tied up till the lawyers get through fighting and even then, you have to pay the greedy lawyers their cut.

I prefer buying a car that's dependable rather than making purchase decisions based on the best warranty. Warranty is important, but not nearly as much as how likely I am to have to use it.

@RM99

Look on the bright side ... if you're trading futures you won't have to deal with the SIPC, Insurance or warranties ... Futures aren't covered...

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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  #38 (permalink)
Fortitudo et Honor
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ThatManFromTexas View Post
@RM99

Look on the bright side ... if you're trading futures you won't have to deal with the SIPC, Insurance or warranties ... Futures aren't covered...

I know right, and even if they told me they were, I'd be skeptical if it involved some daily "sweep" or accounting gymnastics. Hell a good lawyer could argue that if you haven't traded equities on your account that you're obviously trying to circumvent the intent of the insurance coverage. It would be like someone telling you that you're covered under your employer's workman's comp policy while you go skydiving as long as you wear a company T-shirt when you go and you check some work emails right before and immediately after.

"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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  #39 (permalink)
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Received this today from MB Trading:


Quoting 
MB Trading Holdings, LLC

Report from the Chairman of the
Board of Directors on Internal Controls



Dear Valued Clients,

It is understandable that investors are concerned about the safety of their assets maintained at financial institutions, in the wake of the many published cases of fraud and ponzi schemes (e.g., Peregrine Financial Group, Bernard L. Madoff, Refco, MF Global). Over the past decade, many investors have been victimized around the world.

The Board of Directors ("Board") of MB Trading Holdings, LLC, an international financial services holding company and parent of MB Trading, a SEC/FINRA registered introducing brokerage, and MB Trading Futures, Inc., a CFTC/NFA registered Forex Dealer Member, (collectively "MBT Companies") understand investor concerns regarding the protection of their assets and the importance of maintaining a sound internal controls program.

The safeguarding of client assets is an important objective of the Board that is communicated to every level of management of the MBT Companies. To ensure the reasonable safety of client assets, the Board requires the MBT Companies to maintain internal control programs that provide the Board with assurances concerning the reliability of financial reporting, safeguarding of client assets and personal information, and compliance with appropriate securities, futures and forex rules and regulations. The primary objective of the internal control program is to detect and prevent (1) fraud; (2) violation of regulatory rules and regulations; and (3) risks due to errors in day-to-day business processes.

The management of MBT Companies is also required to implement rule and risk based principles on risk management and internal controls to achieve the Board's objectives. To fulfill their requirement, management seeks to identify and evaluate risks faced by the MBT Companies, and design appropriate systems of internal controls to monitor or prevent the risks.

Finally, to further the Board's commitment to the protection and safeguarding of client assets, the Board has recently adopted a requirement that obligates the Chief Financial Officer, Chief Compliance Officer and Chief Internal Auditor to join the Association of Certified Fraud Examiners (ACFE) and train to become Certified Fraud Examiners, whose examiners are trained to identify the warning signs and red flags that indicate evidence of fraud and fraud risk. The ACFE is the world's largest anti-fraud organization and premier provider of anti-fraud training and education and is also recognized by many regulatory agencies.

The Board has taken the aforementioned important measures to protect client assets, and will continue to adopt measures to safeguard client assets in the years to come as these efforts are in the best interest of the client.

On behalf of the entire Board, we thank you for affording us the opportunity to service your trading needs.

Ross H. Ditlove

Chairman of the Board of Directors

Mike

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  #40 (permalink)
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SIPC For Futures



ThatManFromTexas View Post
@RM99

Look on the bright side ... if you're trading futures you won't have to deal with the SIPC, Insurance or warranties ... Futures aren't covered...

And insurance isn't likely to be offered to the trading public judging from our discussions in Washington. While insurance is a very popular idea there is strong opposition to it with certain members of Congress. The CME has serious concerns about the costs involved and has repeatedly expressed their reservations about a SIPC style insurance plan for futures traders who are speculating in the market as opposed to those hedging physical commodities. We'd love to see insurance passed but to date it appears to be an uphill climb.

We believe giving traders the ability to look inside each FCM to judge the financial health of the firm they are doing business with will at least enhance the public's due diligence capabilities. In the case of PFG, there was no way for the public to judge how unhealthy this company was because one CEO had the ability to completely hide all the key financial data.


Charles Delano
Director of Government Affairs
FXCM, LLC

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