Interactive Brokers vs Lightyear?

I’m based in Estonia. Do you know how much will be compensated for the Estonian client if the Interactive Brokers would go bankrupt? I was also considering Lightyear, do you know anything about that?

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Your questions are very relevant! To answer your questions:

  • Currently, you would be onboarded under Interactive Brokers’ Hungarian entity, called IBCE. The investor protection is €100k. Please note that within a few months this will change and you will be onboarded under the Irish entity, where investor protection is €20k.
  • In the case of Lightyear, the regulation is in Estonia, which provides €20k protection.

To clarify a few things about investor protection:

  • This is really the last resort in case of an emergency situation, but there are many previous steps.
  • The most important safety aspect is how the broker segregates client funds. The client’s cash should be segregated into a bank account, while the client’s securities should be segregated into a custodian (these are usually big investment banks in the EU). Unfortunately, only the financial regulator can check this segregation in most cases. That’s why it’s very important to choose a broker with reliable regulation (instead of off-shore regulations, like Vanuatu or Seychelles).
  • The reason why segregation is important is that if the broker goes bankrupt, your assets should be intact and you will be able to access them. However, the procedure might take some time.
  • Investor protection applies if your assets are missing from the bank or at the custodian. In 90% of the cases, this happens as a result of fraud committed by the broker (similar to what FTX crypto exchange did, but FTX was not regulated at all). The regulator should notice these bad behaviors and intervene.

As a result of these points, even if Lightyear has €20k investor protection, the Estonian regulator would likely notice if something goes wrong.

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