Does IB take responsibility? An amazing story

[IBj]

Quote from Option Trader:

Reply to Def (part one)

Two types of liquidations: a) one for margin violations, b) the other for the RATIO of net liquidation value versus gross position value, as occurred here. The former, IB says liquidates according to what will best alleviate the margin problem. The latter, IBj acknowldges does NOT liquidate according to the RATIO, rather the software almost randomly breaks down the position SIZE, ignoring whether it will help or hurt the RATIO.

My securities attorney told me clearly that the latter is a clear violation, because it hurts the customer unnecessarily, and does not necessarily help the broker; for sure, if it happened, has to be corrected.

...and we have been waiting patiently.

Please don't misquote me.
I did not state that it is random, nor did I state anything about liquidating according to the ratio. The 50:1 ratio is just the definition of our maximum position size relative to net liq. Above this ratio, we will act; below it, we don't.

The control algorithm says "your position is too big for the existing capital, make the position smaller." This is precisely the same logic as is used for margin: "your margin is too big for your current capital, make the margin smaller" (i.e. make margin creating positions smaller).

By definition, if you make the position smaller, assuming no other changes, the ratio of position to netLiq will be smaller and more likely to be compliant. This is basic math.
ratio = posValue/netliqValue
You cannot program to reduce the ratio (as you suggest in your other post). The ratio is a derived figure based on the monetary values expressed in the formula. You can do one of precisely two things:
1) increase capital (i.e. net liq)
2) reduce positions

I hope the explanation of how IB manages positions and liquidations -- which was my original point in contributing to this thread -- has been adequately made. I don't believe there is anything else I can add to clarify (although I will be happy to do so, if I missed something). Optiontrader, I don't think this is the proper forum for discussing the details of your particular problem but I do believe you have received communications from IB staff regarding your complaint and our resolution regarding it.

 

[TrueRange]

The fact that phone call wasn't made on such a quick fix of an issue is baffling to my mind. It would have take all of 10 minutes for the call to be made and the proper amount of positions unwound to make the call. yikes.....total BS regardless of IB`s fine print. A small firm would have made the call...

 

[zdreg]

Quote from TrueRange:

The fact that phone call wasn't made on such a quick fix of an issue is baffling to my mind. It would have take all of 10 minutes for the call to be made and the proper amount of positions unwound to make the call. yikes.....total BS regardless of IB`s fine print. A small firm would have made the call...

zdreg


Registered: Oct 2003
Posts: 1234


New Post 02-13-06 12:37 PM

phone calls are a first class nuisance for both customers and the broker..i could give you hakf a dozen reasons why clients don't wish to receive phone calls , as for the broker there is a cost factor no not the telephone call but arguing with the customer who thinks he deserves favored treatment and setting up a sytem whom to call and resultant charges of favortisim etc. the individual should have been much more familiar with the assignment of exercises.
IB's no nonsense approach to protecting the firm against loss is what makes IB attractive in the first place. i don't have to be concerned about IB"s financial condition as a result. if you check the thread carefuly you will find a bd which gives you 3 0r 4days to bring your margin position up to snuff. there are other alternatives but then again there will be surely other negatives. ie like the bd blowing up or failing to meet capital requirements etc.

 

[loufah]

Quote from Option Trader:


As it stands now, IB earned themselves $11K (minimum; plus extras due to a shift in underlying stock price.).

What do you mean by this? Do you mean that because you lost $11K that IB made $11K? Did they take the opposite side of your trade each time?

 

[zdreg]

Quote from loufah:

What do you mean by this? Do you mean that because you lost $11K that IB made $11K? Did they take the opposite side of your trade each time?

whatever he answers he will be boxed in.

 

[Option Trader]

Yes.

 

[Option Trader]

Quote from zdreg:

whatever he answers he will be boxed in.

I don't think you understood his question, and I am not sure what your trying to achieve.

Based on the communication with Def:
IB is a market maker, and they are in on the bid to both buy at bid and sell at ask. IB smart route directs orders to themselves first (i.e. Timber Hill). They were the other party in the box spread to open the trade, and they were the other party to close out the box spread at below net liquidation value; therefore they are the ones who gained the $11k by the auto-liquidation being erratic.

 

[freehouse]

Quote from Option Trader:

I don't think you understood his question, and I am not sure what your trying to achieve.

Based on the communication with Def:
IB is a market maker, and they are in on the bid to both buy at bid and sell at ask. IB smart route directs orders to themselves first (i.e. Timber Hill). They were the other party in the box spread to open the trade, and they were the other party to close out the box spread at below net liquidation value; therefore they are the ones who gained the $11k by the auto-liquidation being erratic.

First, under suppose that Timber Hill is a market maker in XYZ options on the Philly. Now if the order is routed via SMART, it looks for the best bid or ask. If the CBOE is the best bid and the ISE is the best offer, to my knowledge, Timber Hill will not participate on the trade.

 

[Don87109]

Quote from zdreg:

zdreg


Registered: Oct 2003
Posts: 1234


New Post 02-13-06 12:37 PM

phone calls are a first class nuisance for both customers and the broker..i could give you hakf a dozen reasons why clients don't wish to receive phone calls .........

So you would prefer that IB willy nilly sell out your positions. Makes a lot of sense.

Your preposterous rational suggests an ulterior motive and, therefore, I feel compelled to tell you that your words will not earn you any virgins in the hereafter.

Don

 

[riskarb]

Quote from Option Trader:

I don't think you understood his question, and I am not sure what your trying to achieve.

Based on the communication with Def:
IB is a market maker, and they are in on the bid to both buy at bid and sell at ask. IB smart route directs orders to themselves first (i.e. Timber Hill). They were the other party in the box spread to open the trade, and they were the other party to close out the box spread at below net liquidation value; therefore they are the ones who gained the $11k by the auto-liquidation being erratic.

You're certain IB was counterparty on your box liquidation? What ticker was traded? This is easily vetted.

If you can't keep enough cash to cover your haircut then you've no business trading boxes. I've seen 10-point boxes on liquid names swing as much as $.50 to $1.00 based upon the 4-way market. The fact remains your "partner" is responsible.