Commodities customer money is protected as follows:
A portion is pledged to futures clearing houses to support customer margin requirements on futures and options on futures positions or held in custody accounts identified as segregated for the benefit of the customers.
A portion is held at commodities clearing banks/brokers in accounts identified as segregated for the benefit of brokers customers to support customer margin requirements.
Cash in commodities accounts is protected in accordance with US commodities regulations. CFTC rules prohibit an FCM from commingling customer funds with its own money, securities or property. Customer funds must be separately accounted for and segregated as belonging to commodity or option customers. The titles of accounts in which customer funds are deposited must clearly indicate this and show that the funds are segregated as required by the Commodity Exchange Act (“CEA”) and CFTC Rules. Customer funds may not be obligated to anyone except to purchase, margin, guarantee, secure, transfer, adjust or settle trades, contracts or commodity option transactions of commodity or option customers. These requirements also extend to U.S. customers trading on foreign exchanges.
Customer securities accounts at the broker are protected by the Securities Investor Protection Corporation (“SIPC”) for a maximum coverage of $500,000 (with a cash sublimit of $250,000) and under the brokers excess SIPC policy with certain underwriters at Lloyd's of London for up to an additional $30 million (with a cash sublimit of $900,000) subject to an aggregate limit of $150 million. Futures, and options on futures are not covered. As with all securities firms, this coverage provides protection against failure of a broker-dealer, not against loss of market value of securities.
SIPC is a non-profit, membership corporation funded by broker-dealers that are members of SIPC. For more information about SIPC and answers to frequently asked questions (such as how SIPC works, what is protected, how to file a claim, etc.), please refer to the following websites:
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What are segregated accounts?
Segregated accounts are accouts which are not hold in the name of the institution (for example the bank, broker or money manager) but in the name of the customer. Segregated account bring additional work for the wealth manager as each account has to be handled and traded separately.
Segregated accounts are typically used in high end money management relationships.
Fonds are pooled investments and the opposite of segregated accounts.
What all benefits they have?
First there is the very obvious benefit of segregagted accounts, that they are hold in the name of the customer and nobody else can access the money in the account. If for example the bank, broker or money manager goes bankrupcy the money in the segregated account (held on the customers name) is not part of the money of the bank (broker or wealth manager). The customer can expect that he gets his money back in the case of bankrupcy.
In additon there is even protection against fees (or at least transparency of fees) as every booking in visible in the segregated account. It is not possible to charge hidden cost into a segregated account as the account statement shows every booking.
This might be different for fonds, where the fond is a company and some operating or management cost are charged against the customer money without giving the ability to customers to check what exaclty has been charged.
In addition a segregated account provides better protection against fraud or bookkeeping errors. As the account is in the name of the customer nobody can access the money and it cannot be used against the will of the customer.