What Is an Omnibus Account?

With integrated accounts, it becomes easy for customers to trade overseas products. For example, a customer in the United States can trade not only products from the United States, but also products from Singapore, Germany, Belgium, London and Japan, all of which can be achieved in the same account.

Integrated account

If customers need to deal with brokers in their respective markets, the challenges will be huge: daily foreign currency exchange, data recording in multiple formats, meeting different regulatory requirements, communicating with brokers in various markets in different languages, and constantly Keep up-to-date with the changes in the financial status and reputation of various brokers.

For most trading users, the effort and cost of handling all of these tasks may far exceed the benefits gained. In addition, the regulatory rules of some countries simply do not allow foreign traders to enter the market directly. The package trading service provided by the comprehensive account not only greatly reduces costs and improves efficiency, but also makes some difficult cross-border and cross-market transactions a reality.

If you consider the use of cross-margins, the benefits of integrated accounts are even greater. Margins in modern futures markets are calculated based on portfolios. Due to the discount effect of similar products in the same investment portfolio, the risk exposure is reduced, and the overall demand for margin is also reduced, thereby increasing the capital utilization of traders.

Today, even the world's largest broker cannot be a member of all the world's exchanges at the same time. How can we meet customer requirements and provide the products they want to trade? The only thing that works is through integrated accounts. In fact, even a large financial institution and its subsidiaries in different jurisdictions will use integrated accounts to provide services to each other for various reasons listed above.

From the perspective of risk management, the integrated account is also a more reasonable arrangement. As we all know, risk management is often the biggest challenge facing brokerage companies. Effective risk management depends on being familiar with your customers, knowing their financial situation, and keeping abreast of changes in their trading positions. If there is a warning signal on a client's book, the broker needs to communicate with the client immediately. And if customers live in distant countries, different time zones, different jurisdictions, speak a foreign language or dialect, etc., communication will become extremely difficult.

As a result, executive brokers are often unwilling to accept foreign investors directly (unless the investor has significant funds). Cross-border, cross-market transactions are made much easier by the original brokers who know and trust their customers nearest to them, grasp their financial status, and can communicate with them at any time.

In theory, in the agreement of the comprehensive account, you can choose one of the three methods of not disclosing, partially disclosing, or all disclosing according to the actual situation to deal with the information of the trading customer. But in reality, the third method is rarely used.

In the vast majority of cases, the original brokerage will choose the first method, because customer data and transaction information are the most important resources for any brokerage company, and no one will easily leak it. After all, the execution brokerage company is also a potential competitor of the original brokerage. Although the two parties are partners at present, no one knows for what reason the execution brokerage company has not directly entered the new market. One day it decides to change its strategy. Use this information indirectly to expand existing or new businesses.

Although the threshold for entering the comprehensive account is relatively low, it is not a pocket item. For example, during execution, the original broker is usually responsible for margin calculations and risk management. You can also use part of the disclosed information to calculate the account code by the executing broker, but this will greatly lose the initiative of real-time risk control and data confidentiality. For margin calculations, European and American brokerage companies are basically familiar; for emerging market brokerage companies, it may be one of the biggest challenges.

Most European and American markets use industry standards of the international futures market for margin calculations, while China and some Japanese markets are still unused. In addition, brokerage companies in emerging markets generally lack high-quality risk management talents, and their risk management capabilities generally lag behind European and American counterparties.

In the application process of the integrated account, the original broker and the executing broker must be able to maintain communication on risk management issues at the same level. Therefore, brokerage companies and regulators who intend to use integrated accounts to intervene in the international futures market must be aware of this and be fully prepared in terms of personnel and systems.

At present, some countries have not yet used integrated accounts, in part because some regulators believe that integrated accounts may cause the concealment of traders' identities, and they are concerned that some unknown traders in remote areas may try to manipulate the market and escape supervision, or Use transactions for money laundering. Another reason may be that there is not enough knowledge and awareness of the integrated account itself.

The following table shows the application of integrated accounts in some Asian markets.

As can be seen from the table, with the exception of Japan, major Asian markets such as China, India, and South Korea are currently not allowed to use integrated accounts.

Singapore, Australia and New Zealand are among several Asian markets that follow the rules of the international market. Since Singapore established its futures market 25 years ago, it has heavily referenced US market rules. Australia and New Zealand have also followed the US and European models, both of which have earlier adopted integrated accounts.

Progress in other Asian markets has been relatively slow. For example, the Taiwan futures market began to allow foreign investors to enter the market with integrated accounts only after eight years of operation. In 2007, the first full year after the new rules came into effect, the effect of increased market liquidity and trading volume began to show up. The trading volume of the integrated account reached 2.5 million hands, accounting for about 2% of the total trading volume of the Taiwan Futures Exchange. The schedule required regulators to approve new measures to further streamline reporting requirements and frequency. This new measure is currently under review.