Can What Happened to MF Happen to IB?

Quote from jayre:

You can feel safe with IB, they autoliquidates real time when there is a margin deficit, that's somehow makes them the safest broker in the U.S. (MF didn't have an autoliquidation policy...)
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Auto liquidation might not be any good on a very nasty Black Swan event that happens over the weekend and causes the markets to lock limit down several times till they eventually open down to say -30%.
 
The problem is, risk is all relative. My Dad was a WWII pilot. On the way over all he worried about was getting shot down, it wasn't until the return trip home he started worrying about mechanical failure.

Same with traders. We deal with so much market risk that the little worry in the back of your mind about your broker becomes relatively small.

It's not until you are flat that you even start thinking about it. And as soon as you put something on the risk of the broker going broke is way less than your risk of going broke.
 
Quote from southall:

Auto liquidation might not be any good on a very nasty Black Swan event that happens over the weekend and causes the markets to lock limit down several times till they eventually open down to say -30%.
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Autoliquidation isn't really relevant. That only applies to their client traders. MF's downfall wasn't due to their clients making massive unhedged bets. It was MF making those bad bets on their own accounts. I wouldn't be surprised if IB doesn't apply the same autoliquidate rules on their own trades.
 
Quote from southall:

Auto liquidation might not be any good on a very nasty Black Swan event that happens over the weekend and causes the markets to lock limit down several times till they eventually open down to say -30%.
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But per IB autoliquidation policy (after having some of the most liberal margin guidlince/rates) somehow make them safer then other big brokerages...
 
Quote from jayre:

But per IB autoliquidation policy (after having some of the most liberal margin guidlince/rates) somehow make them safer then other big brokerages...
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lol.. i see what you mean.

I think IB is safe because of all the cash they have acts as a buffer..

But maybe one day Peterfly takes it all out as a monster dividend and retires on some tax haven island.

Then a new CEO comes in and fucks us over like what happend at MF global.
 
Quote from the1:

Interesting. I didn't think SIPC covered futures accounts and it's nice to see IB carries more insurance than SIPC. I don't trade with them, however. I got a better deal from another broker and IB wouldn't budge.
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SIPC doesn't, but unused/cleared funds from your futures trading is automatically swept into their SIPC account. Same for whatever you trade at IB whether bonds/fx/foreign stocks, etc. The actual positions you may be in if IB blew up would not automatically be covered by SIPC or IB's insurance policy.

Also, many firms now carry more than SIPC minimums. ETrade has something similar as well.
 
Quote from usman88:


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.
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That is interesting, thanks. I've often wondered why the US doesn't have a centralized database where ownership of all securities is made clear and unambiguous (at least to the owner and his/her brokerage). Much less fraud possible with this -- Madoff would have been impossible -- although one downside is that some "big brother" has total control, for what that's worth.
 
Quote from JamesL:

The actual positions you may be in if IB blew up would not automatically be covered by SIPC or IB's insurance policy.
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Wait , I don't get what you're saying. How would IB calculate what part of an account is for futures and what is for securities? They provide a single account, so are you saying all cash is always sitting in a "securities" designated account (ie automatic transfer) or something similar to it that would be covered by the SPIC in case of a bust? What's confusing me is that IB doesn't have futures vs securities accounts, and how does the SPIC make the distinction.
 
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