What is an 'Omnibus Account'
An omnibus account is an account between two futures merchants (brokers). It involves the transaction of individual accounts that are combined in this type of account, allowing for easier management by the futures merchant. This protects the identities of the individual account holders, because the futures merchant transacts for them.
BREAKING DOWN 'Omnibus Account'The term "omnibus" refers to an entity that holds more than one item. A minimum of two persons are required to create an omnibus account. All transactions occurring within an omnibus account appear under the name of the associated broker, leaving the details of individual investors private even from the holding merchant.
Omnibus Account Management
An omnibus account is normally overseen by a futures manager. The futures manager uses the funds in the account to complete trades on behalf of the participating individual investors. This method is similar to a street account in which the investor leaves stock in the broker's name, allowing the broker to hold the majority of the responsibility while also allowing them to take fast actions when required.
Aside from performing trades, the fund manager may also perform other actions designed to maintain the value of the account, often charging a futures commission as compensation for some of these routine tasks.
Primary Benefit of Omnibus Accounts
Omnibus accounts allow more efficient transactions to take place. Since the futures manager can initiate actions in their name, certain steps that occur during a normal trade can be eliminated. Often, the manager's compensation is tied directly to the performance of the omnibus account, adding incentive to have it perform at its best.
Omnibus Accounts and Foreign Markets
If a country accepts an omnibus account from another, it becomes the host market. Depending on the host country involved, regulatory concerns may arise. Since the individual investors participating in the account cannot be known, there is no way to determine the intents of the investors involved.
Additionally, the addition of foreign funds may threaten the host market should they come in a large volume. Since this risk is present, some markets have banned the participation of omnibus accounts to defend against such destabilization or potential manipulation through less scrupulous activities. Other countries welcome the activity, seeing it as an ideal method for encouraging foreign investments into the local market.
An omnibus account can provide investors with access to foreign markets while maintaining a level of anonymity. Depending on current economic and political climates, this solution may be ideal for those looking to participate in a particular market if privacy is a major concern.