Certificates of Deposit (CDs) offered by IBKR are not FDIC insured and are subject to the credit risk of the issuing bank.

The term "excess margin securities" refers to margin securities carried for the account of a customer having a market value in excess of 140 percent of the total debit balance in the customer's account. These securities are in excess of the securities held in a customer's margin account that are pledged by the customer as collateral for the margin loan and can be used to support the purchase of additional securities on margin

Example:

A customer whose account equity consists solely of a cash balance of USD 10,000 on Day 1 purchases 400 shares of stock ABC at USD 50 per share on Day 2.

On Day 2, the customer's excess margin securities total USD 6,000. This is calculated by subtracting 140% of the margin debit or loan balance from the market value of the stock position ($6,000 = $20,000 - {1.4 * $10,000}).

The term is relevant from a regulatory perspective as the SEC requires that U.S. broker dealers segregate and maintain in a good control location (e.g., DTC or bank) all customer securities which are deemed excess margin securities. Such securities cannot be pledged or loaned to finance the activities of the firm or other customers without specific written permission from the customer. The portion of the securities classified as margin securities ($20,000 - $6,000 or $14,000 in this example) are subject to a lien and may be pledged or loaned by the broker to others to assist in financing the loan made to the customer.

Note that securities which were excess margin at the date of acquisition may later be reclassified as margin securities based upon the customer's subsequent trade and/or margin borrowing activity. For example, if the loan value of excess margin securities is subsequently used to acquire additional securities on margin, a portion of securities will then be reclassified as margin securities and subject to a lien. If the customer subsequently deposits cash or sells securities to reduce or eliminate the margin loan, the securities will be reclassified as excess margin or fully paid and are required to be segregated.
See also "fully paid securities".

INTRODUCTION
The regulation of securities and commodities products and brokers¹ in the U.S. is administered by two distinct federal agencies, the Securities and Exchange Commission (SEC) for securities including stocks, ETFs, bonds, options and mutual funds and the Commodities Futures Trading Commission (CFTC) for commodities including futures and options on futures.² While both agencies seek to safeguard customer assets by restricting their use and “segregating” them from assets of the broker, the regulations and manner in which they accomplish this differs. The following article provides a basic overview of two segregation models and additional considerations relating to IB accounts.

OVERVIEW
Differences between the CFTC and SEC segregation models originate largely from the products themselves, whose characteristics are fundamentally unique. Commodity products, by nature, do not involve an extension of credit by the broker to the customer as a futures contract is not an asset but rather a contingent liability which is marked-to-market and a long futures option, while an asset, must be paid for in-full. Consequently, non-option assets in a commodities account are generally comprised of funds deposited as margin to secure performance on the contracts therein. Since the broker may not use the funds of one customer to margin or guarantee the transactions of another, the commodities segregation requirement (CFTC Rules 1.20 – 1.30) is equal to the gross assets of all customers and the broker needs to add its own funds to segregation to cover customers whose net equity is in deficit.

A securities margin account, in contrast, can facilitate the extension of credit for the purpose of long securities (e.g., stocks, bonds) purchases or short securities sales on a secured basis. The segregation or reserve requirement rules recognize this through special provisions for the protection of each of the cash and securities components, further distinguishing fully-paid securities from those whose purchase the broker has financed and maintains a lien upon. Here, the broker must deposit into a separate bank account the net amount of customer cash balances³, in accordance with a formula set forth in SEC Rule 15c3-3. In addition, the broker must identify and segregate in a good control location (e.g., depository, bank) customer securities which meet the definition of “fully paid” or “excess margin”.

The table below provides a comparison of the main principals of each model.

ADDITIONAL CONSIDERATIONS
In addition to the safeguards afforded through segregation, IB employs a number of policies and practices which serve to enhance the safety and security of accounts beyond that outlined above. These include the following:

- IB computes its securities segregation or reserve requirement on a daily rather than weekly basis as allowed by regulation, thereby ensuring timely determination as to the amount required to be reserved and the deposit of funds necessary to satisfy the requirement.

- IB’s does not avail itself of the generally more permissive rules with respect to the investment of commodity customer cash balances. These balances are instead invested in a manner similar to that of securities cash balances (i.e., U.S. government securities) with the exception of an occasional investment in money market funds.

- All customer securities positions are held in the securities segment of the Universal Account as opposed to the commodities (commodities margin met with cash and/or futures options), thereby limiting their hypothecation to the more restrictive rules of the SEC.

- In addition to SIPC coverage, IB maintains an excess SIPC policy with Lloyd's of London which, in aggregate with SIPC, offers insurance totaling $30 million (with a cash sublimit of $900,000), subject to an aggregate firm limit of $150 million.

- IB offers account holders the ability to sweep cash balances in excess of that required for margin purposes in either the securities or commodities segment to the other segment. Details as to this feature may be found in KB1851.

- For additional information regarding IB strength and security, please review the following website page.

Other Relevant Knowledge Base Articles:

Cash Sweeps

Information Regarding SIPC Coverage

Footnotes:

¹The term broker as used in this article is intended to refer to an organization registered with both the SEC as a Broker-Dealer and the CFTC as a Futures Commission Merchant for the purpose of conducting customer transactions

²Single stock futures are a hybrid product jointly regulated by the SEC and CFTC and allowed to be carried in either account type.

³Including cash obtained through the use of customer securities such bank pledges or stock loans less cash required to finance customer transactions (e.g., stock borrows, customer fails to deliver of securities, or margin deposited for short option positions with OCC).

⁴Assets, or customer property, which securities customers share in proportion to their net equity claim, include cash, margin securities and fully-paid securities held in “street name”. IB does not hold securities in the customer’s name which are not considered bulk customer property.

You may then select the radio button alongside the option of your choice and select the Continue button. Your choice will take effect as of the next business day and will remain in effect until a different option has been selected. Note that subject to the trading permission settings noted above, there is no restriction upon when or how often you may change your sweep method.