Guaranteed and Independent Introducing Brokers

Start here, because the split between the two types of Introducing Broker is the most-tested idea in the unit, and it rests entirely on one fact: the IB never touches customer funds.

The IB Never Holds Customer Money

Before the two flavors make sense, pin down what an IB is and is not.

• Introducing Broker (IB): a firm that solicits or accepts customer orders for futures or options on futures but does not accept or hold customer money, securities, or other assets. Those funds go to a carrying Futures Commission Merchant (FCM), which holds them and clears the trades.
• Because the IB does not touch customer funds, it does not collect margin, does not custody customer assets, and carries a much lighter financial-responsibility load than the FCM.
• This is the same money test that runs through the general registration and account rules unit: the FCM holds funds, the IB does not. Every rule that follows flows from it.

Think of it this way: an IB is like a car salesperson who lines up the buyer and the deal, then sends the paperwork and the payment to the dealership that actually holds the money and delivers the car. The salesperson never keeps the customer's cash. The dealership (the FCM) does.

Guaranteed IB: One FCM Has Your Back

The first flavor solves the capital problem by borrowing another firm's financial strength.

• Guaranteed IB: an IB that signs a written guarantee agreement with a single guarantor FCM. Under that agreement, the guarantor FCM takes on full financial responsibility for the IB's futures business and is liable for the acts and omissions of the guaranteed IB in that business.
• Because one FCM stands behind it, a guaranteed IB has no separate minimum net-capital requirement of its own and files no separate financial reports. Filing the guarantee agreement satisfies those obligations.
• A guaranteed IB may hold a guarantee agreement with only one FCM at a time, and all of its customer accounts must be carried by that one guarantor FCM. It cannot spread accounts across multiple firms.

Exam Tip: Gotchas

• A guaranteed IB has NO net-capital minimum of its own. The guarantee agreement shifts financial responsibility to the guarantor FCM. An answer that assigns a guaranteed IB its own capital floor is describing an independent IB.
• A guaranteed IB is tied to exactly ONE FCM. All its accounts sit with that single guarantor. A choice that lets a guaranteed IB introduce accounts to several FCMs is wrong.

Independent IB: Standing on Its Own Capital

The second flavor keeps its independence and pays for it with its own financial responsibility.

• Independent IB: an IB that operates without a guarantee agreement. It must therefore keep its own minimum net capital and file its own financial reports (covered in the next two sections).
• Freed from a single guarantor, an independent IB may introduce customer accounts to one or more carrying FCMs, choosing where to place business.

Exam Tip: Gotchas

• An independent IB may use ONE OR MORE FCMs. It is not locked to a single firm. A distractor that ties an independent IB to exactly one FCM is describing the guaranteed structure.
• Either way, the customer's funds sit with the carrying FCM, never the IB. Guaranteed or independent, an IB does not hold customer money. The question of which firm holds funds always resolves to the FCM.

Side-by-Side Contrast

This table is a classic tested layout. The whole split comes down to whether a guarantee agreement is in place.

Memory Aid:

• Guaranteed = "one FCM has my back, so I need no capital of my own" (and I am tied to that one firm).
• Independent = "I stand alone on my own capital, so I can shop across FCMs."