Complaint - GME liquidation problem which resulted in huge negative liquidation value

[bpr]

they should have allowed u to close existing positions ...
creating new positions yes ...but not allowing you to close exiting position is errorneous
fight on that point
u can not fight the point that their liquidation took 4 hours delay ...

 

[Baldur01]

they should have allowed u to close existing positions ...
creating new positions yes ...but not allowing you to close exiting position is errorneous
fight on that point
u can not fight the point that their liquidation took 4 hours delay ...

The captrader employee confirmed on the phone yesterday, that I could not have closed that positions as net liquidation value has been negative. I still have 2 very tiny positions, which I tried to close. Even this does not work. And since I am minus in USD, but my base currency is Euro, I have also lost here 800euros already in 5 days, since I cannot even convert the currency.

 

[JamesJ]

Did you call them when you realized auto Liquidation is not done yet and you cannot close yourself?

 

[Baldur01]

Did you call them when you realized auto Liquidation is not done yet and you cannot close yourself?

I have been calling them every day and opening tickets. When I call them, they say they had indeed technical issues and I should make a ticket. So I made the tickets. The only option now is to wait what they say. But obviously something is totally not right, as some other positions have not even been liquidated until today. For example: if USD/EUR FX doubles tomorrow, I will own them 100k. Ridiculous. But these are two separate issues. Even the Head of Sales of Captrader wrote me an E-Mail today, telling me that they forwarded my problem to IBKR again.

 

[noddyboy]

Hello dear friends,

I live in Germany and use the Broker Captrader, which uses the Trading Platform from IBKR. A few days ago a painful situation happened. Please find below what I wrote to IBKR after having some calls with Captrader and IBKR. Would love to hear your thoughts on that matter. I would be eternally thankful for advice. The main question I have is: can the broker liquidate at any time, even 4 hours after announcing it?

What I wrote to the broker:

Situation:
1.I sold, not so smartly, 5 GameStop Call options. on the 26th of January. During after-trading hours, minutes after the market closed, the GME stock went through the roof.
2.8.40am EST time – Call from IBKR with the request to either transfer more funds or face liquidation. According to the person on the phone (Julian A), liquidation will be done on the 10th minute after the market opens 9.30am. Hence expected liquidation at exactly 9.40am.
3.Between 9.30am-9.44am EST – even though market was open, IBKR experienced technical problems and it was not possible to place orders on GameStop. I understand, that during this time, the liquidation was not possible. The technical problems in order execution for certain stocks, such as GME, was also confirmed to me by 2 different people (1 working in Captrader and 1 working in IBKR).
4.9:44am EST – possible earlier liquidation at 65USD (see PDF). Obviously, I understand that 65USD are not guaranteed in the automatic market price execution.
5.1:49pm EST – forced liquidation of 5 GME options by IBKR at 218.25-218.60USD (4hours after the announced liquidation!) causing extremely high losses and an even higher negative net liquidation value. Negative liquidation value was negative all 4 hours and I obviously could not execute the trade to liquidate the position manually, since I had negative net liquidation value. The only option in such a scenario is to wait for the IBKR automated liquidation mechanism to liquidate the position.
Problem:
1.What is important to understand, is that it took ~4 hours to close a small position of 5 options in one of the most traded stocks that day. So, the liquidation happened with such a delay of 4 hours not because it is a highly illiquid stock, and I had a multimillion USD position in it.
2.The person, who was working on my ticket before, send me the link to a text, where this was written: “in the case of a margin violation/deficit, the account in deficit is immediately subject to liquidation.” Immediately does not mean 4 hours later, 1 week later, 1 month later. What would have happened if IBKR would have liquidated my position 3 days later at a price 10x of what it was. The net liquidation value would have been -500k? Obviously, some mechanisms did not work on that day, as they should have. And as I said before, this was confirmed by 2 different people. I am aware, that there could be certain issues, which could delay the problem by some minutes, but not by 4 hours!
3.Even until today, 1 week after the incident, I was still not fully liquidated. I still have 1 position in ISPA and 1 in ISFA. These are very tiny positions, but how comes this still has not been liquidated until now, even though my net liquidation value is negative? Also, the position has not been brought into base currency of Euro, hence if USD/EUR (in the unlikely scenario) strengthens 100% tomorrow, I will lose double the money. I cannot liquidate / change currencies myself, as I am negative net liquidation value. Even so far, I have lost more than 600EUR through FX due to that!
4.One Captrader employee also told me today, that it is possible that the liquidating positions have been ranked by priority and liquidated case by case. I am not sure, if he is right or not, but that would also be totally unacceptable if wealthier clients would receive prior liquidation to better prices than low priority clients.

Solution:
1.I have added a PDF document, which includes a small calculation, bringing the net liquidation value from €-52k to + €11k. This liquidation value is obviously, one possibility, as I have taken an option price of 65USD, which was the lowest traded price in the 1st 1 minute candle at 9.44EST.
2.Obviously, I understand, that now in the hindsight, it is not possible to say which prices would have been filled, were the forced liquidation to happen at the correct time. I recall, in the first few minutes, there were prices, which would have been filled at a much lower price, leading to net liquidation values of -15,000, - 20,000. These are still huge amounts of money for me and remarkably worse than the +11,000 position, but still way better than -52,000. Almost any price, would lead to a better net liquidation value. I am not trying to take away the responsibility for that trade, but obviously the liquidation blame is not on my side.
3.If the issue will not be solved constructively, I will fill in a formal complaint form with BaFin about such totally unacceptable liquidation practices.
_________
Hello,

sorry for the double-email. I just talked with a lawyer today, specialized on damages caused by investments. Could you please answer the following questions as precise and transparent as possible? Of course, on top of answering the questions from my ticket. It is my legal right to inquire information and receive answers to these questions.

Questions:
1. Why / what were the reasons the liquidation of options took 4 hours to complete on the 27th?
2. Why were the options not liquidated 10 minutes after the market opened, as I was told during the call?
3. Were there any technical problems? If so, which problems? A few people from IBKR and Captrader told me on the phone that there were technical problems, but it would be good to be precise in this case.
4. If there were technical problems, which led to manual liquidation by your employees, was there a certain preference to liquidate certain customers first? If so, what was the preference rule?
5. Are there any legal disclaimers that I signed, which protect you from my damage claims?
6. Do I have the right to claim for damages in this situation? If yes / no, please explain why?
7. Are there any allegation of negligence from your side to mine? It means, could I have done something differently on the 27th to reduce your claim? (Reminder: net liquidation value was negative, and I could not close positions. Hence only option was to be auto liquidated through the algorithm.
8. What is the reason, some positions have still not been liquidated and the currency has not been brought back to Euro?

You have to manage your own position. They don't have to liquidate all your positions, and it is within their discretion. They can do just enough so that the other customers are safe, and not necessarily all positions. Since no one can predict the market, it could have gone both ways. It could have been better for a late, rather than early liquidation.

 

[noddyboy]

It is strange that they didn't allow you to liquidate, but I think I seen it before. It is a technicality because you need cash to buy options to cover the short options. If you don't have the cash, you might have to sell some other long positions you have to generate the cash or send a wire, so that the long side can be settled. While it may seem dumb, it does make some legal sense to allow buying (closing) only when there is cash to buy something.

 

[cesfx]

It is strange that they didn't allow you to liquidate, but I think I seen it before. It is a technicality because you need cash to buy options to cover the short options. If you don't have the cash, you might have to sell some other long positions you have to generate the cash or send a wire, so that the long side can be settled. While it may seem dumb, it does make some legal sense to allow buying (closing) only when there is cash to buy something.

I think you might need the minimum required even to sell position long on your portfolio.

 

[Baldur01]

You have to manage your own position. They don't have to liquidate all your positions, and it is within their discretion. They can do just enough so that the other customers are safe, and not necessarily all positions. Since no one can predict the market, it could have gone both ways. It could have been better for a late, rather than early liquidation.

Thank you for the answer. You cant really manage you own positions, once you are negative. That is the problem. And just sitting, waiting for liquidation when they feel like it: 1 hours ,4 hours , 2 months is not an acceptable option. Theoretically, they decide if to liquidate you at -10k now or when they want for maybe 800k (just as an example).

 

[Baldur01]

It is strange that they didn't allow you to liquidate, but I think I seen it before. It is a technicality because you need cash to buy options to cover the short options. If you don't have the cash, you might have to sell some other long positions you have to generate the cash or send a wire, so that the long side can be settled. While it may seem dumb, it does make some legal sense to allow buying (closing) only when there is cash to buy something.

agreed

 

[kmiklas]

According to the person on the phone (Julian A), liquidation will be done on the 10th minute after the market opens 9.30am. Hence expected liquidation at exactly 9.40am.

^^^ This.... lots of issues here.

1. A phone conversation... nothing in writing

2. You got margin called. I didn't read the rules, but in a forced liquidation I'd expect IB to treat it like a Stop order. Stop orders become market orders when a price is breached... and in times of market volatility there's no guarantees of time, price, or anything.

A Market Order is not guaranteed a specific trade price and may trade at an undesirable price.

3. Basically they dumped your stuff immediately, to stop the bleeding, and put it out there at the worst possible time and price: when it was rocketing to the moon.

4. This is why the pros cover their calls. I have lost big myself, and the important thing in these situations is not to lose the lesson. Take from this the covered call, or buy-write strat... also the associated protected put. I know very little about options, but I'm certain that if you're going to sell options it is absolutely necessary to understand these strats to hedge against big moves like this.

https://www.investopedia.com/terms/c/coveredcall.asp
https://www.investopedia.com/terms/p/protective-put.asp