Define Omnibus Account

An omnibus account comprises a group of individual client accounts.

In futures trading, an omnibus account is an arrangement between two brokerage firms in which multiple individual accounts of the first firm are clustered together to form a single account at the second firm. Typically, the firm carrying the omnibus account, in this case the second firm, regard the account as a single entity and do not require or have information about the individual client accounts forming the omnibus account. The structure is a popular means to enter a foreign futures market.

Benefits

The omnibus account facilitates trading across borders and jurisdictions, and fosters relationships among brokers located in different regions. The most apparent benefit of the omnibus account structure is economies of scale, by grouping together members of a brokerage's client base, and allowing multiple trades conducted at many brokerages to be consolidated into a single account. Additionally, a local brokerage may open an omnibus account with its own affiliate office at a foreign market, as many clients feel more comfortable working with the same brokerage group.

Concerns

The omnibus account structure, even though facilitating cross-border trading, may raise concerns for regulatory bodies and exchanges. When an omnibus account from a different geographical region or jurisdiction is active in a host market, authorities have no way to determine the integrity of the individual customers underlying the omnibus account. As financial authorities have little or no information about these foreign customers, preventing questionable activities, such as money laundering may be difficult. Another implication is that sudden influxes of large volumes of non-domestic funds may destabilize the futures market, especially contracts that are less liquid.

Evolution

The omnibus account structure is banned in some countries, making it difficult for global brokerage firms and their client base to be active in these regions. However, as regulatory authorities in these regions gain more experience and have more control of market participants, they may gradually move toward allowing and accepting omnibus account trading. Countries who have opened up to omnibus accounts, or are on the way, believe that the account structure will stimulate participation in the region and encourage foreign engagement.

CFTC Restriction

In the U.S., the Commodity Futures Trading Commission) requires that customers' funds be initially held with a registered broker. This regulation bars U.S. customers seeking to trade in offshore markets from using foreign brokerages. In order for a customer located in the U.S. to be able to conduct trade through a foreign brokerage, the CFTC must register that brokerage as a futures commission merchant.

Part 30.10 Exemption

An exemption to the aforementioned CFTC restriction, referred to as Part 30.10, allows U.S. customers to participate in foreign markets if the region's regulatory bodies are able to demonstrate that brokerages under its control are subject to similar regulations, as in the U.S.

Foreign futures exchanges that are exempt include Sydney Futures Exchange in Australia, Bolsa de Mercadorias and Futuros in Brazil, and other futures exchanges in Germany and Japan. Foreign brokers who are covered by the Part 30.10 exemption can legally market foreign futures and options to U.S. customers, after filing with the National Futures Association.

References

• Futures Industry: Omnibus accounts
• Investopedia: Omnibus accounts