Interactive brokers - How much is covered in bankruptcy?

Investing / Brokers
1

I opened an account with IB a few days ago. I am still gathering some information before my first investments. In doing so, I came across a discussion on another Swiss financial blog (is it allowed to post links here?) about an IB article.

Among other things, there was speculation about how much is covered in the event of a bankruptcy of IB. Especially in point has caught my attention (which is also confirmed by IB support):

“Securities and cash balances are covered by the 85,000 GBP. Securities are not counted as special assets, as for example under German or Swiss regulations.”

That shares are NOT counted as special assets (as e.g. usual in Switzerland) is also confirmed in this (somewhat older article):

How do you see this?

2

What scenario do you want to protect against? At least on a cash account, your assets are yours, so unless there’s also fraud involved you’ll get them back (you’d be first in line for them).

Also SIPC applies for securities custodied at IB LLC (unlike most swiss brokers for instance).

Interactive Brokers (U.K.) Ltd. (“IBUK”) custodies certain of your securities positions and cash with its US affiliate, Interactive Brokers LLC (“IBLLC”), which is licensed by the US Securities & Exchange Commission and a member of the US Securities Investor Protection Corporation (“SIPC”). To the extent that your securities and cash are custodied at IBLLC, they are protected by SIPC for a maximum coverage of $500,000 (with a cash sublimit of $250,000) and under Interactive Brokers LLC’s 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. This coverage provides protection against failure of a broker-dealer, not against loss of market value of securities.

From https://www.interactivebrokers.co.uk/en/general/security-investor-protection.php

If a Brokerage Firm Closes Its Doors explains a few things on bankrupcy proceedings.

I’d say IB is probably safer than a lot of brokers, one potential downside is that if it comes to it, it won’t be a local jurisdiction adding a bit of trouble.

3

what you write above only applies to securities held by IBUK at IBLLC.

for the remaining securities, the following probably applies:

A9.2 UK Compensation
You may be entitled to the protection of the United Kingdom’s Financial Services Compensation Scheme (“FSCS”), which compensates retail customers
private customers indemnified if a UK company engaged in investment business becomes insolvent. The extent to which you may receive compensation
However, the extent to which you apply or could apply for compensation from the FSCS will depend on the nature of the business and the circumstances of the claim. FSCS
Coverage is limited to certain investments and may not cover certain investments or transactions, depending on how
depending on how they are characterized under the FSCS. The maximum payout under the FSCS for certain investments is
currently 100% of a claim up to a maximum of £85,000. For more information on compensation, see the U.K.'s Financial Services Compensation Scheme at http://www.fscs.org.uk.

on the website of the fscs it can be checked that the securities like etf are NOT covered by this. this means that in case of bankruptcy they are probably not a special asset and therefore you as a customer are not treated preferentially, respectively you can lose these assets (unlike regulatory requirements as e.g. in switzerland, where securities are not included in the bankruptcy estate).

this was also confirmed by IB’s customer service

“I have reviewed this again internally with the UK compliance team and have been advised that whether the instrument is stored at IB-LLC or IB-UK, the deposit protection on Interactive Brokers UK accounts is £85,000 through FSCS protection.”

4

which ETFs would not be held by IB LLC? AFAIK the only things would be weird CFDs that are illegal in the US.

Those funds (like SIPC) are mainly useful in case of fraud/missing assets. As I said, what are you trying to protect against, if it’s a clean bankrupcy (e.g. unprofitable business) the assets are still there and belong to the customer.

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