Client account holders at Interactive Brokers Singapore would have received this circular that explains the investor protections that are in place if you held an account with IB Singapore.
I think this may be because there is this idea that if your account is under IB Singapore, your securities do not enjoy SIPC protection.
Without the protection, the IB Singapore accounts will look inferior to those who open an IBKR LLC account with the US.
This circular tries to clarify that and also bring to our attention other client value-added protections that we should take note of.
I compiled some notes from the circular as well as the links within the circular for your benefit.
How Do You Tell Whether You Have an Interactive Brokers Singapore or Interactive Brokers US LLC Account?
Some clients may struggle to identify whether they have created an IBSG or IBKR account.
When you log in to Interactive Brokers on your browser, they will designate you to an IB site in a different domain, so you won’t be able to know from the website where your IB account resides.
The easiest way is to go to Reports and create a statement or report. If it shows a Singapore address, then it is an IB Singapore account and if not, it is a US account.
For example, here are two activity statements.
This is the Singapore one:
This is the US one:
Hopefully, this is clear enough for you to distinguish easily.
US Securities Positions in IB Singapore Are Protected by SIPC
There may be a misconception that if you create an account with IBSG, your stocks are not protected by the $500,000 SIPC insurance.
IB wish to clarify this, which you can read more under Client Protection Under IBKR vs Industry Standards.
- Interactive Brokers Singapore Pte Ltd custodize certain securities with IBKR LLC.
- IBKR LLC is licensed by US SEC and is a member of US Securities Investor Protection Corporation (“SIPC”)
- Your securities, cash balance, monies to support a short or option position are customized at IBKR LLC. SIPC protects these. The maximum coverage is $500,000 with a cash sub-limit of $250,000.
- IBKR LLC have also taken up excess SIPC policy with certain underwriters at Lloyd’s of London for additional $30 million with an aggregate limit of $150 million. The cash sub-limit here is $900,000.
- Futures and options on futures are not covered in this insurance.
- SIPC provides protection against failure of a broker-dealer, but not against loss of market value of securities.
- IB Singapore will make a claim on our behalf if in the unlikely event that IBKR LLC fails under SIPC insolvency.
- The above applies to positions held by IBSG at IBKR on behalf of customers but not the accounts open by customers of IBSG who also open with IBKR.
Locations of Securities
Your fully paid-for non-Singaporean SEcurities are customized through IBKR LLC and benefit from US SIPC coverage.
Locations of Cash in our IBSG Accounts
- USD, EUR or other non-local currencies (anything other than SGD or CNH): Leading global banks outside of Singapore such as SCB, Barclays and JPMorgan Chase.
- SGD and CNH: Singapore banks.
Value Added Client Protection that IBKR LLC and IBSG Think You Ought to Know
Here are a few notable ones that I picked out from Client Protection at IBKR versus Industry Standards:
- IBKR determines the money owe to clients and set aside funds to cover their client obligations every business day. The competition determines this only weekly or monthly. Why does this matter? In the unlikely event that IBKR goes down, the trustee can more easily determine what is owed to you. Trustees that work with other brokers will have to re-create last week’s activity (which is what happened at Lehman), and that would delay the remittance of assets.
- IBKR calculates real-time risk margin requirements to client accounts while the industry only apply end-of-day risk margin. If client does not have sufficient assets to cover risky positions, IBKR liquidate them real-time and return the account to margin compliance. Other brokers might be more lax and permit the clients to carry the risk over many days.
- IBKR’s business solely serves its clients and does not do proprietary trading. What you may be most afraid is what brought down well-known broker collapses such as Lehman Brothers and MF Global. The collapse of both firms was caused by the risk generated from proprietary holdings.
- To add on to #3, clients would also not have to fear their broker making proprietary bets against them.
- IB thinks that not being affiliated with any banks will help them. This is because in times of crisis such as during GFC, the bank-affiliate brokers have to compete with other banking affiliates for capital and liquidity. This is why clients were removing funds and equity from bank-affiliated broker-dealers and depositing their assets with IBKR instead.
Last Word
It is good that Interactive Brokers try to alleviate potential client concerns about the platform risk and how they are safer.
Do note that while the circular pointed out where the cash and security resides, this does not help much if you are thinking in terms of estate tax considerations because:
- Whether your securities are subjected to estate tax depends on the domicile or incorporation of your securities.
- Whether your cash are subjected to estate tax depends on if its in a broker that is domcile or incorporated in US and not where the money is held.
Most likely, IB will not provide much help to figure out so you might need to speak to your own tax adviser.
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Jimmy
Wednesday 27th of March 2024
Those securities that are custodized at IBKR US, under whose name will it be held? Under IBSG name, or under the name of each individual SG user?
Given that the individual SG user is not the customer of IBKR US, so most probably it will be held under IBSG name. So from SIPC perspective wouldn't that mean the $500k limit will be applied for the whole IBSG account, not for each individual user?
Jimmy
Wednesday 10th of April 2024
Hi @Kyith,
Thanks for the reply and the link, but there's nothing in that link that explicitly answer the question.
IBKR SG is NOT a member of SIPC. It is IBKR US who is a member of SIPC.
Quoting form the link: A SIPC member’s affiliate, including a parent company or subsidiary, is a separate legal entity and not a member of SIPC unless independently registered. Accordingly, customers of a foreign subsidiary of a SIPC member firm are not protected by SIPC if the foreign subsidiary fails.
That means by default customer of IBKR SG is NOT protected by SIPC.
Another quote from the same link that define who are customers: Who are customers? In general, you are a customer if you have an investment account with a SIPC-member brokerage firm or have deposited cash with a SIPC-member brokerage firm, for the purpose of purchasing securities.
Again, we don't have an account with IBKR US, so based on the definition above, we are NOT a customer.
Yes, SIPC will recognize street name, but that probably only applies for street name that is maintained by the brokerage firm who is a direct member of SIPC. But in our case, the street name is maintained at IBKR SG level, not at IBKR US level, so as far as SIPC concern, the customer who is protected is IBKR SG, just one entity, so only $500k for all the holdings.
I do hope each individual customer of IBKR SG is covered for $500k, but so far I have not found any official website/document that mentioned this explicitly. All the documents so far are vague and open for individual interpretation.
In fact, in IBKR SG website itself, where they list down the reasons why we can trust IBKR and what kind of protection customer will have, there's not even a mention of SIPC. Versus, if you go to the same section in IBKR US website, they do mention SIPC explicitly.
Maybe it's best to write to IBKR SG directly to get the answer in black and white.
Kyith
Wednesday 27th of March 2024
Hi Jimmy, let me apologize and correct myself a little here. The stocks that is under the account is held by Interactive Brokers. In this case it is said to be holding your securities under the clients in "street name" (you can google this up). This means the securities are segregated and registered in the name of the broker but not the investor. The broker is the legal owner of the asset, while the investor is the benficial owner.
Per documents in SEC and other sources, you do not need to be us citizen to qualify as a customer. The SIPC protection of clients with multiple accounts are determined by "seperate customer" capacity.
Examples of separate capacities:
Some of examples of separate capacities include:
An individual account; a joint account; a traditional individual retirement account; a Roth individual retirement account; an account for a trust created under state law; an account for a corporation; and an account held by a guardian for a minor.
This document may provide some enlightenment: https://www.sec.gov/oiea/investor-alerts-and-bulletins/investor-bulletin-sipc-protection-part-1-sipc-basics
Kyith
Wednesday 27th of March 2024
The securities are custodized under your own name both for IBSG and IBKR for the matter. I am not so sure about the sub-custodian but from what I read deep about brokers, if you move money between subcustodians then there will be some sort of comminglement.
But essentially if an MF Global happen, your name is in the ledger of who owns the securities. The SIPC will be applicable.