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Customer Account Protection
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Customer Account Protection

  #11 (permalink)
Elite Member
Frankfurt, Germany
 
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Michael.H View Post
I have a question. What about IB's So lets say there's an IB for velocity,can you assume that you have the same protection as velocity if you're with the Introducing Broker instead of the FCM itself, since you account are basically with them?

I think since you have your account with the FCM and not with the IB you will have the same "protection".

What I don´t like is that the FCM can invest you money or lend it at all like Velocity did in 2007. I found this e-mail from Velocity in another forum:

Velocity

Statement from Velocity:

Due to the liquidity issues that have been discussed in the press recently, Velocity feels that it is important to reassure our customers and potential customers of Velocity’s continued health and financial stability. The situation regarding Sentinel Management Group (“Sentinel”) affects up to 20 Futures Commission Merchants (“FCMs”), of which Velocity is one. Sentinel is a registered FCM, approved by the CFTC to manage the customer funds of other FCMs. This approval can be found at the following link on the CFTC's website:
www.cftc.gov/tm/letters/04letters/tm04-06.htm. It specifies the unique nature and safety afforded to FCM clients who placed funds with Sentinel.

Citing a liquidity crisis, Sentinel halted redemptions last Monday, August 13th. Velocity then revoked its investment advisory agreement with Sentinel and instructed Sentinel not to liquidate or trade any securities in Velocity's accounts with Sentinel. Sentinel nonetheless attempted to sell the assets of its clients (including Velocity) to Citadel, a hedge fund, at less than market value. Velocity attempted to block this purported sale by getting a Temporary Restraining Order from Judge Guzman in the Federal District Court in Chicago to protect its interests and the interests of its customers.


Velocity has approximately $15 million of customer segregated funds under management at Sentinel. Approximately $1 million was received from Sentinel on Friday, August 17, and another wire is expected on Monday, August 20. Any loss in customer segregated funds resulting from the Sentinel transaction will be borne by Velocity, not its customers.


We are experiencing record volumes, and most of our funds are with other FCMs for trading or on deposit with banks. In particular, Velocity has approximately $18 million of customer segregated funds with Fortis Clearing US, Fortis Bank London, FIMAT, and Bank of America.


If any Velocity customers wish to withdraw funds, Velocity is offering free wire transfers to all its customers this week to show our confidence and good faith. We hope our customers will continue to do business with Velocity. We thank all of our customers for their continued support.


VELOCITY MANAGEMENT



__________________

Jack E. Earnest, Jr.
Velocity Futures, L.P.
Chicago - New York - Aspen - Houston
USA
+01-312.780.7665
+01-312.276.8362 Fax
jay@Velocityfutures.com

http://www.velocityfutures.com


Derivatives Trading Services

for High Volume Traders

How are our funds protected in such cases?

Dorman ( Safety of Funds | Dorman Trading ) for example declare that they invest the funds in US Trasury Bill.

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  #12 (permalink)
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Michael.H View Post
I have a question. What about IB's So lets say there's an IB for velocity,can you assume that you have the same protection as velocity if you're with the Introducing Broker instead of the FCM itself, since you account are basically with them?

IBs are just sales people, nothing more ... They are reselling the fcm services and are compensated a few different ways ... They basically provide a sales force for the fcm at a lower cost than increasing headcoubt and therefore it allows a variable resource model.

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  #13 (permalink)
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Thats what i thought. I have an account with velocity right now, and am happy with them.

I checked RCG and Dorman, and they both clearly state how the funds are invested and in what instruments.
I asked velocity, they told me that its seg funds, but they can't tell me what instruments they invest in. I sent them a email to see if i can get more info from someone else in that firm.

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  #14 (permalink)
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Michael.H View Post
Thats what i thought. I have an account with velocity right now, and am happy with them.

I checked RCG and Dorman, and they both clearly state how the funds are invested and in what instruments.
I asked velocity, they told me that its seg funds, but they can't tell me what instruments they invest in. I sent them a email to see if i can get more info from someone else in that firm.

Thanks!

I sent them a email too. They answered only the following:

"All funds are held in a segregated account. We are regulated by the CFTC and the NFA, and your funds are safe with us.".

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  #15 (permalink)
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everyone does that ... Take "excess" funds and invest elsewhere to increase the bottom line.. It is not supposed to happen with segregated accounts that I know off, but "segregated" can mean many things I guess ... Given that there is usually just a large account with Pooled customer funds, just separate from the fcm operating accounts ... They normally would keep the interest on those large accounts as you don't see a penny .. And yes, you are protected from fcm failure, as long as it is not due to a nutty customer loss (basically where risk management from an fcm failed and they, the customer, lost more than they had and then some)

Things get funkier with nonclearing fcm's, but that is another story.

Which is why my large account is with Ibkr and transfer profits after a certain pct to them ... Besides sipc protection and lloyds, their net excess capital exceeds their customer obligations, which tome means protection from customer dissaster



Malvolio View Post
I think since you have your account with the FCM and not with the IB you will have t"protection".

What I don´t like is that the FCM can invest you money or lend it at all like Velocity did in 2007. I found this e-mail from Velocity in another forum:

Velocity

Statement from Velocity:

Due to the liquidity issues that have been discussed in the press recently, Velocity feels that it is important to reassure our customers and potential customers of Velocity’s continued health and financial stability. The situation regarding Sentinel Management Group (“Sentinel”) affects up to 20 Futures Commission Merchants (“FCMs”), of which Velocity is one. Sentinel is a registered FCM, approved by the CFTC to manage the customer funds of other FCMs. This approval can be found at the following link on the CFTC's website:
www.cftc.gov/tm/letters/04letters/tm04-06.htm. It specifies the unique nature and safety afforded to FCM clients who placed funds with Sentinel.

Citing a liquidity crisis, Sentinel halted redemptions last Monday, August 13th. Velocity then revoked its investment advisory agreement with Sentinel and instructed Sentinel not to liquidate or trade any securities in Velocity's accounts with Sentinel. Sentinel nonetheless attempted to sell the assets of its clients (including Velocity) to Citadel, a hedge fund, at less than market value. Velocity attempted to block this purported sale by getting a Temporary Restraining Order from Judge Guzman in the Federal District Court in Chicago to protect its interests and the interests of its customers.


Velocity has approximately $15 million of customer segregated funds under management at Sentinel. Approximately $1 million was received from Sentinel on Friday, August 17, and another wire is expected on Monday, August 20. Any loss in customer segregated funds resulting from the Sentinel transaction will be borne by Velocity, not its customers.


We are experiencing record volumes, and most of our funds are with other FCMs for trading or on deposit with banks. In particular, Velocity has approximately $18 million of customer segregated funds with Fortis Clearing US, Fortis Bank London, FIMAT, and Bank of America.


If any Velocity customers wish to withdraw funds, Velocity is offering free wire transfers to all its customers this week to show our confidence and good faith. We hope our customers will continue to do business with Velocity. We thank all of our customers for their continued support.


VELOCITY MANAGEMENT



__________________

Jack E. Earnest, Jr.
Velocity Futures, L.P.
Chicago - New York - Aspen - Houston
USA
+01-312.780.7665
+01-312.276.8362 Fax
jay@Velocityfutures.com

http://www.velocityfutures.com


Derivatives Trading Services

for High Volume Traders

How are our funds protected in such cases?

Dorman ( Safety of Funds | Dorman Trading ) for example declare that they invest the funds in US Trasury Bill.


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  #16 (permalink)
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If you are trading NQ, i assume you are not scalping like I am ...so look at IBKR Is what I would suggest for true peace of mind. One can also use them as prime brokerage for custody and clearing if ones account is over 500k, but not sure how it would play for futures, I only know how it works with equities.



Michael.H View Post
Thats what i thought. I have an account with velocity right now, and am happy with them.

I checked RCG and Dorman, and they both clearly state how the funds are invested and in what instruments.
I asked velocity, they told me that its seg funds, but they can't tell me what instruments they invest in. I sent them a email to see if i can get more info from someone else in that firm.


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  #17 (permalink)
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Maybe @mattz could spend some words on this subject.
Thanks.

Take your Pips, go out and Live.
Luke.
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  #18 (permalink)
Elite Member
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Futures Experience: Master
Platform: Marketdelta and Ninja
Broker/Data: Velocity
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I've had an IB account, they're not very friendly, and couldn't deal with their attitude. They're no longer an option for me. I also don't know of any good trading platforms i could use with IB. Ninja has a lot of problems with an IB connectivity from what i hear. They really need to upgrade their infrastructure.

I have more than one account at different firms, but thats mainly for hedging purposes if a "catastrophe" happens.

In terms of investing excess liquidity, i agree. But i would prefer them to invest in risk averse instruments.
You guys also have to remember, just because your protected, doesn't mean you're gonna get your money right away in case something does happen. It might be tied up for many months before your fully covered.

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  #19 (permalink)
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Michael.H View Post
It might be tied up for many months before your fully covered.

But we are covered.

If your are trading for a living of course you cannot afford to lose your funds.
And that could happen and to me I don´t like this sentiment.

In addition I found this:

By Tiffany Kary

Aug. 21 (Bloomberg) -- Sentinel Management Group Inc., the bankrupt cash-manager accused of fraud by U.S. regulators, can disburse most of $312 million it received from an asset sale, a federal judge ruled.

U.S. Bankruptcy Judge John Squires said yesterday Sentinel can immediately pay its clients money from last week's sale to hedge fund firm Citadel Investment Group LLC. Sentinel was barred Aug. 17 by a different federal judge from disbursing the proceeds after clients sued, accusing it of selling assets at a discount. The company filed for bankruptcy the same day.

The distribution is ``in the best interests of the debtor, its estates and its creditors,'' and will be made subject to a $15.6 million holdback, Squires ordered in court papers filed in federal bankruptcy court in Chicago.

The judge also ruled that a National Futures Association order issued Aug. 17 preventing Sentinel from transferring other assets will remain in effect. The commodities industry regulator had said it discovered Sentinel had failed to keep adequate books and records.

The Securities and Exchange Commission accused Sentinel of lying to investors and misappropriating their assets by moving at least $460 million from clients' accounts into its own, and misusing the holdings as collateral to obtain credit.

Withdrawals

Sentinel, a Northbrook, Illinois-based firm that oversees $1.6 billion, froze client withdrawals on Aug. 14, citing credit market volatility. The Chapter 11 bankruptcy filing, which Sentinel said will allow it to restructure its debt, listed both assets and liabilities of more than $100 million.

According to yesterday's court order, 23 different brokerages, including those that had objected to the Citadel sale, will be repaid at various percentages.

SEC lawyer Robert Burson said the agency hasn't confirmed whether the money in the account to be distributed was segregated. The agency hasn't ``made a statement on any level of assurance we have'' about Sentinel's accounts, he said. Burson added that the court has allowed the SEC to expedite its request for Sentinel's books and records.

According to a declaration by the regulator filed yesterday in Chicago federal court, Sentinel ``commingled and transferred client securities among the segregated accounts and a `house' account.''

Daniel Roth, president of the NFA, said the money to be distributed was from accounts that had been segregated.

``We were strongly in favor of allowing the customer- segregated funds to be distributed,'' Roth said.

Two Brokerages

Ronald Barliant, a lawyer for Sentinel, didn't immediately return a call seeking comment.

Farr Financial Inc. and Velocity Futures LP, two brokerages who had filed the lawsuit to bar the sale of Sentinel's assets, were among the 23 firms receiving distributions.

Robert Trizna, a lawyer for Farr, said he had asked a federal district court judge to modify a temporary restraining order and allow it to receive the disbursement.

``We had opposed the sale to Citadel because in our opinion it was a sweetheart deal,'' Trizna said. ``But at some point we wanted the liquidity, even if it wasn't 100 cents on the dollar.''

Jeff Marwil, a lawyer for Citadel, confirmed that it completed a transaction with Sentinel that closed Aug. 16. He declined further comment.

Disbursements

Trizna claimed that a lawyer for the Commodities Futures Trading Commission told him that, without the disbursements, some futures commission merchants -- businesses that handle buy and sell orders for commodities future contracts -- could fail.

``The judge was faced with the CFTC telling him that it was their understanding that if these distributions weren't made, that as many as 11 futures commissions merchants, which clear trades for their customers, would fail imminently,'' Trizna claimed.

Dennis Holden, a spokesman for the CFTC, said he wasn't able to confirm Trizna's comment.

The Chapter 11 case is In re Sentinel Management Group Inc., 07-14987, U.S. Bankruptcy Court, Northern District of Illinois, (Chicago). The client lawsuit is Farr Financial v. Sentinel Management 08-cv-4614, U.S. District Court, Northern District of Illinois, Eastern Division (Chicago).


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  #20 (permalink)
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you are correct ... Some, not all, of their attitude sucks ... But the last time I talked to one was when my battery died on my token and I needed a temp one to check on my positions ... I do ach for funds in and out ... So I barely ever speak to anyone there ... Also, I mainly do options with IBKR, and I use brackettrader for the quick scalps I do for 4 ticks per day target on that account. .. So it comes down to how much "customer service" you need ... Therefore I can understand the bad taste if you needed them and they failed you ...




Michael.H View Post
I've had an IB account, they're not very friendly, and couldn't deal with their attitude. They're no longer an option for me. I also don't know of any good trading platforms i could use with IB. Ninja has a lot of problems with an IB connectivity from what i hear. They really need to upgrade their infrastructure.

I have more than one account at different firms, but thats mainly for hedging purposes if a "catastrophe" happens.

In terms of investing excess liquidity, i agree. But i would prefer them to invest in risk averse instruments.
You guys also have to remember, just because your protected, doesn't mean you're gonna get your money right away in case something does happen. It might be tied up for many months before your fully covered.


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