Traditionally, lending deposits out as loans (especially mortgages) was seen as the most important thing that banks did, their core function. Nowadays things are more abstract and regulations are different, but it wouldn't surprise me if margin loans could still be at least partly funded (at least in an abstract capital-ratio sense) from deposits.
[0] https://www.finra.org/rules-guidance/rulebooks/finra-rules/3...
Brokers and exchanges are obligated to park customers' money in an escrow, and may even be required to insure them [1] for a good measure. Under no circumstance are customers' funds lent out. So where do they get money from to lend? Brokers lend either their own money or get into arrangements with liquidity providers. These are big institutions/hedge-funds etc., who offer to lend money in exchange for attractive returns. They get into a different agreements and are fully aware of risks they are taking on.
This all was a big problem I. The us up through Great Depression, and then the securities exchange act of 1934 was implement to regulate these practices quite successfully over the years.
Is it normal for margin loan funds to come from customer deposits? For example, if I deposit on Charles Schwab, is the cash held in my Schwab account used as capital for margin loans to other Schwab customers? I would think not (unless I'm misunderstanding how finance works). Like of course the money is probably lent out like banks do, but FDIC insured banks have rules about what types of things they can lend money to, right?
I would think that using customer deposits to make margin loans to other customers would be fraud even if Alameda wasn't in the picture. That's what I fundamentally don't understand about SBF's mumbo jumbo; how would Alameda (or any other customer) take a margin loan out of customer funds if customer funds are supposed to be segregated from FTX company funds? Isn't the admission that a margin loan to Alameda led to the loss of customer funds an admission that depositors were defrauded?