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Can What Happened to MF Happen to IB?
- Thread starter catmango
- Start date
No matter what IB or any broker says there is no real protection against fraudulent or illegal actions. You can always sue after the fact but that is little comfort and may not do any good in the end. The only thing which can give you comfort is SIPC insurance, and you just have to make sure your account stays under their limits. Of course that doesnât help those who have open positions that they are not being allowed to close right now. You also have to remember that SIPC only covers securities accounts not futures or forex.
It will probably turn out that very little if any retail customer money at MF will be lost in the end, but we will have to wait and see. Their immediate problem is not having any access to their accounts and positions for an unknown amount of time.
It will probably turn out that very little if any retail customer money at MF will be lost in the end, but we will have to wait and see. Their immediate problem is not having any access to their accounts and positions for an unknown amount of time.
It surely can. Its now upto the regulators to do something about it. Make new legislation and probably new monitoring and control agency.
Here in my country, Pakistan, which is supposed to be a third world underdeveloped country with the shittie$t financial system, all our deposits are guaranteed by our central bank, yes from $1 to $1billion. Control is so strong that banks are not even allowed to invest in risky assets like stocks.
In our stock market, all securities purchased are 'parked' at an institution by the name of CDC. Each broker has an account in CDC and each client of each broker has a sub-account in CDC. When a client buys or sells any security, only then the CDC account is debited/credited. Broker has no control whatsoever over sub-account of client and can never use securities in any sub-account under any situation. Thus all clients are truly protected from any fraud/misuse.
Makes me wonder, if we can make such institutions, USA can def. come up with much better stuff.
Here in my country, Pakistan, which is supposed to be a third world underdeveloped country with the shittie$t financial system, all our deposits are guaranteed by our central bank, yes from $1 to $1billion. Control is so strong that banks are not even allowed to invest in risky assets like stocks.
In our stock market, all securities purchased are 'parked' at an institution by the name of CDC. Each broker has an account in CDC and each client of each broker has a sub-account in CDC. When a client buys or sells any security, only then the CDC account is debited/credited. Broker has no control whatsoever over sub-account of client and can never use securities in any sub-account under any situation. Thus all clients are truly protected from any fraud/misuse.
Makes me wonder, if we can make such institutions, USA can def. come up with much better stuff.
How would you work out IB leverage ratio from their earnings release?
http://investors.interactivebrokers.com/download/Q3_11_earnings_release.pdf
They have total equity of $4.633 billion in equity on page 8. What figure would you use for debt?
I see senior notes $125.9m and short term borrowings of $151.8m. What other figure do you use to calculate leverage?
http://investors.interactivebrokers.com/download/Q3_11_earnings_release.pdf
They have total equity of $4.633 billion in equity on page 8. What figure would you use for debt?
I see senior notes $125.9m and short term borrowings of $151.8m. What other figure do you use to calculate leverage?
The level of leverage is the big concern. They say they invest conservatively... And you hope that's the case.
With MF, I've heard it said that them going public was the beginning of the end. They became earnings driven, and Corzine amplified that. And you start squeezing for more yield.
IMO, a privately owned (ideally closely held) FCM of reasonable size is the safest way to go, right now.
With MF, I've heard it said that them going public was the beginning of the end. They became earnings driven, and Corzine amplified that. And you start squeezing for more yield.
IMO, a privately owned (ideally closely held) FCM of reasonable size is the safest way to go, right now.
Please correct me if I am wrong but IB is a broker/market maker and are making a small fee or gain on gazillions of transactions.
The breakdown of the internet, halting trading at major world markets would affect them drastically but not like MF who went into the distressed bond market.
Cheers,
222bc
The breakdown of the internet, halting trading at major world markets would affect them drastically but not like MF who went into the distressed bond market.
Cheers,
222bc
They are also sitting on a ton of customer capital. Like any bank or financial institution, they have great latitude to buy what they want with that capital (as long as it's AAA rated).Quote from 222bc:
Please correct me if I am wrong but IB is a broker/market maker and are making a small fee or gain on gazillions of transactions.
The breakdown of the internet, halting trading at major world markets would affect them drastically but not like MF who went into the distressed bond market.
Cheers,
222bc
MF certainly didn't go into the distressed market; they also only held AAA rated bonds.... levered up 40-1. (Same for AIG, etc, etc.)
Contrary to Corzine, who was willing to bet everything for bigger business, IB's Peterffy has so far shown that he is willing to sacrifice profit to increase safety. Exhibits are the recent margin elimination on small caps and his refusal to go ahead with Refco and M F takeovers even though he clearly would like to grow the firm.
However, not even IB is 100 percent save.
Therefore, i have a while ago started a feature poll to insure up to 100pct safety even for large accounts above the SIPC limit.
I have already posted this on another thread, however i think it bears repeating. Account security is a very important issue and the time to address this has come.
11-01-11 05:24 PM
On a day like this, i am relieved that my money is with IB as opposed to MF Global.
However, it also shows that "segregated customer accounts" do not offer ultimate protection for customers since the broker/dealer can accidentally or purposefully underfund them.
Therefore, larger accounts above the SIPC limit (>500k) are not fully secure in the event of a broker/dealer failure - not even with IB since the Lloyds of London excess insurance is capped firm-wide at 150m (for all accounts).
--------------------
IB CUSTOMERS: Please vote on my feature poll which would provide an inexpensive way to insure up to 100 percent account security even for large accounts by giving the customer the option to hold all or part of his shareholdings in "customer name" instead of "street name".
http://www.interactivebrokers.com/e...ex.php?sid=7549
--------------------
IB EMPLOYEES AND MANAGEMENT: Please understand that unassailable account security is to IB's own advantage.
- Unassailable account protection would surely increase IB's competitive position against firms with worse platforms but with implicit government backing
- Unassailable account protection prevents bank-run kind of events. In this environment of heightened financial tension and customer alertness, even a minor negative event like an unexpected quarterly loss could create a self-reinforcing feedback loop of cascading stock price declines, followed by customer anxiety and account closings, leading to more stock price declines etc.
This is a quote i found on another thread by "southall":
---
" Quote from FrankSlaughtery:_ if this isn't another reason to move everything to ib
Yeah, petterfly has skin in the game as he still own over 80% of IB i think. A trading god he maybe, but he is also still human, even he could fuck things up one day. very unlikely i know but it could happen. I have a good chunk of my net worth at IB.. i need to watch the IBKR stock price, if that sucker ever falls below 5 bucks then im pulling at least half my funds out on that day."
---
I am sure many customers will act like this. In the absence of tangible and real time financial information about firms, the stock price for better or worse becomes the indicator that signals trouble. I believe this is the reason for the recent fragility of the financial system. Big institutional customers might be able to buy CDS on IB from a too-big-to-fail Wall Street firm, but even that will ultimately drive down IB share price since this Wall St firm will hedge by going short IBKR.
- unassailable account protection will help IB win more larger accounts especially from collective investment schemes (mutual, hedge & pension funds). Such an account counts as one account under SIPC rules even though ownership might be split among 100 investors or more. If 100 investors put in 100k each in a hedge fund account held at IB, each investors' SIPC protection is only 5k. Any fund manager who accepts this dilution of protection for his investors acts negligently, in my opinion.
However, not even IB is 100 percent save.
Therefore, i have a while ago started a feature poll to insure up to 100pct safety even for large accounts above the SIPC limit.
I have already posted this on another thread, however i think it bears repeating. Account security is a very important issue and the time to address this has come.
11-01-11 05:24 PM
On a day like this, i am relieved that my money is with IB as opposed to MF Global.
However, it also shows that "segregated customer accounts" do not offer ultimate protection for customers since the broker/dealer can accidentally or purposefully underfund them.
Therefore, larger accounts above the SIPC limit (>500k) are not fully secure in the event of a broker/dealer failure - not even with IB since the Lloyds of London excess insurance is capped firm-wide at 150m (for all accounts).
--------------------
IB CUSTOMERS: Please vote on my feature poll which would provide an inexpensive way to insure up to 100 percent account security even for large accounts by giving the customer the option to hold all or part of his shareholdings in "customer name" instead of "street name".
http://www.interactivebrokers.com/e...ex.php?sid=7549
--------------------
IB EMPLOYEES AND MANAGEMENT: Please understand that unassailable account security is to IB's own advantage.
- Unassailable account protection would surely increase IB's competitive position against firms with worse platforms but with implicit government backing
- Unassailable account protection prevents bank-run kind of events. In this environment of heightened financial tension and customer alertness, even a minor negative event like an unexpected quarterly loss could create a self-reinforcing feedback loop of cascading stock price declines, followed by customer anxiety and account closings, leading to more stock price declines etc.
This is a quote i found on another thread by "southall":
---
" Quote from FrankSlaughtery:_ if this isn't another reason to move everything to ib
Yeah, petterfly has skin in the game as he still own over 80% of IB i think. A trading god he maybe, but he is also still human, even he could fuck things up one day. very unlikely i know but it could happen. I have a good chunk of my net worth at IB.. i need to watch the IBKR stock price, if that sucker ever falls below 5 bucks then im pulling at least half my funds out on that day."
---
I am sure many customers will act like this. In the absence of tangible and real time financial information about firms, the stock price for better or worse becomes the indicator that signals trouble. I believe this is the reason for the recent fragility of the financial system. Big institutional customers might be able to buy CDS on IB from a too-big-to-fail Wall Street firm, but even that will ultimately drive down IB share price since this Wall St firm will hedge by going short IBKR.
- unassailable account protection will help IB win more larger accounts especially from collective investment schemes (mutual, hedge & pension funds). Such an account counts as one account under SIPC rules even though ownership might be split among 100 investors or more. If 100 investors put in 100k each in a hedge fund account held at IB, each investors' SIPC protection is only 5k. Any fund manager who accepts this dilution of protection for his investors acts negligently, in my opinion.
That link does not work or do you have to logged in to account management?