What is an Omnibus account?
An omnibus account allows transactions managed by more than one person and allows the anonymity of the people in the account. Omnibus accounts are used by merchants of forward commissions. Transactions within the account are carried out in the name of the broker, protecting the individual identities of two or more people invested in the omnibus account. The broker managing the omnibus account generally has the capacity to execute transactions on behalf of investors who have funds inside the omnibus account. Transactions are made on behalf of the broker, although confirmations and transaction reports are provided to clients in the account.
The basics of an omnibus account
Omnibus accounts refer to accounts that contain more than one element (omni which means “a lot” and -bus which means “business”). A minimum of two people is required to create an omnibus account. All transactions in an omnibus account will appear under the name of the associated broker, leaving the details of individual private investors.
An omnibus account is normally overseen by a futures manager. The futures manager uses the funds in the account to trade on behalf of participating individual investors. This method is similar to when an investor leaves shares on behalf of a broker, which allows him to hold the majority of the responsibilities while allowing him to take quick action if necessary.
In addition to trading, the fund manager can also take other actions to maintain the value of the account. In exchange, the futures manager invoices fees or commissions to compensate for the assumption of these tasks.
Key points to remember
- An omnibus account allows transactions managed by more than one person and allows the anonymity of the people in the account.
- Omnibus accounts allow for more efficient transactions because the manager can act quickly when market conditions require.
- In addition, the manager’s remuneration is often linked to the performance of the omnibus account, which encourages them to operate properly.
- For investors who want confidentiality, an omnibus account is advantageous.
Omnibus accounts and foreign markets
If a country accepts an omnibus account from a foreign country, it becomes the host market. Depending on the host country concerned, regulatory issues may arise. Since the individual investors participating in the account are not known, there is no way to determine the intentions of the investors involved. The addition of foreign funds can destabilize a small host market if the omnibus account represents a very large sum of money. For this reason, some markets have banned omnibus accounts to defend against destabilization or potential market manipulation. Other countries welcome the accounts, considering it an ideal method to encourage foreign investment in the host market.
An omnibus account can provide investors with access to foreign markets while maintaining a level of anonymity, although omnibus accounts are not allowed in some parts of the world.