Does IB take responsibility? An amazing story

Status
Not open for further replies.
Quote from luh3417:

I direct your attention to the "View... Account..." window of IB's TWS software. 1. In the prominently featured "Margin Requirements and Trading Limits" panel, do investors with large box spreads get any indication that they are running close to the edge? 2. In the "Portfolio" panel, would using the "Liquidate Last" feature have protected your spread? Or are all your contracts "Liquidate Last"... (I'm prepared to be wrong about these above questions, I don't trade box spreads so I just don't know).
More...

I'd still like to hear an explanation, for the specific questions I raised a week ago, above.

Did you ever look at the "View Account" window before this problem started?

Did you use the "liquidate last" feature?

Can you tell us the exact positions you held? Did your entire account consist of one massive box spread maxed to the limit? What exactly did it say in the "Margin Requirements and Trading Limits" panel? Does that or does that not warn you (in the specific case of the box spread) that you are living on the edge?
 
Quote from WD40:

IBJ:

thanks for your reply. your answer makes sense.

I am not a client, but I surely appreciate your "no margin call" policy and automated compliant process. It makes the customers' money safer in the long run.
More...
I would not be so sure that your "money is safer in the long run".

If the speed limit was 55 mph and GM designed their cars so that the wheels fell off at 56 mph I don't think they would be in business very long.

Don

P.S. IB is still the best, but I drive at 10 mph.
 
Quote from Option Trader:

Reply to ktm:

1) The loss of 11k is clear, and occurred from the cost of entering and exiting (liquidated at market) the position, plus cost of roundtrip cmsns.

2) IB didn't deny the smart route had most probably routed the trades to Timber Hill. I had also mentioned we were going to verify this to be 100% this is was happened.

3) Are you afraid IB may raise your commission rates if they cover the damages?

4) IB received a two section e-mail, point by point, and hardly related to the points.
More...
IMHO any liquidation trades done by Timber Hill have no bearing on this issue. Of course, I don't have any personal knowledge, but I am confident that IB is highly reputable and any trades were likely proper.

Don
 
Quote from luh3417:

Did you ever look at the "View Account" window before this problem started?

Did you use the "liquidate last" feature?

Can you tell us the exact positions you held? Did your entire account consist of one massive box spread maxed to the limit? What exactly did it say in the "Margin Requirements and Trading Limits" panel? Does that or does that not warn you (in the specific case of the box spread) that you are living on the edge?
More...
As per the discussions on the site:
http://www.elitetrader.com/vb/showthread.php?s=&threadid=61295&perpage=6&pagenumber=1
Re: Did my partner use the liquidate last feature? Answer: No.
a) the feature allows liquidate last, rather liquidate first.
b) the conclusion on that thread was that midday assignments are very rare, and even if they do occur, the auto-liquidation is intellignet. (That was the message received from IB and that is what Def verified as well. You may also recall that KTM was talking covered calls, and I was mentioning we were talking 4 legged strategies, and about everyone concurred the position was not at risk from auto-liquidate.)

There was $80k- $100k of buying power in the account, and no margin problem back then and no problem with margin at the time of the liquidation.
On the account screen by scrolling down one more line, there is a link called "leverage" which refers to the ratio, and that was being monitored to the extent that if another box spread can be placed or not; and it was obvious to IB the account was about maxed out with leverage, but they didn't say anything. You also saw the copy of the e-mail they received, and they provided no info to suggest there was any problem of maintaining the position in real time.
 
Reply to Don:
You're a quality person, and I hope you are right.

The pressing theme is my post to IBj.

IB excused themselves that they are entitled to automate liquidation, and in the process of auto-liquidating, the software is not able to identify which positions will help and which will hurt the leverage issue.

My response: That is just plain DUMB. It is the most basic programming to handle a leverage problem (which liquidates at market and at below net liquidation value) by liquidating the options with the highest GPV, as it means the fewest options are sold at market at below net liquidation value.

Perhaps IB should pay an $11k finder's fee and everyone will be happy?
 
I think a margin alert would be nice. If you were below margin give the customer half an hour to get back within bounds.
 
I am sure there are brokers who provide personal phone call services, in addition to email notifications. But I am sure they do not charge the same IB commission rate.

I am sure there are brokers who offer additional time for you to make up to your margin deficiencies, but then, they also ask for higher margin requirements to start with.

Hey, ask yourself, do you want cheap commission, low margin rates, or do you want personal phone service and higher margin requirements?

If you know of a broker who offer all of the above, please let us know.

:D :D :D :D :D
 
My apologies, I know the industry. I could find you 5 brokers who would make private offers of rates of $.22 to $.65 per contract. Included are those would charge nothing for assignments, and provide the same or better margining, and the same interest rate spread. I am about a month away from providing a broker referral service, and as it stands now, IB is not yet on the list.
 
An interesting fact was uncovered as a byproduct of this thread.

IB's margin for box positions on american exercise options is too low. We are requiring only the strike differential, which is fine for european exercise options but lower than the cost to close the position which is the minimum that should have been charged.

The difference is not trivial. The estimated margins should be 5-10% higher depending on the contracts in question. We will fix.

This had no contribution on the event that is the source of this thread but it is a perfect example of why we have the GPV 50:1 limit. Without this limit, traders would be able to put on infinitely big positions since the cash generated by the box sale would be bigger than the margin required to hold it.

It seems like some people recognized this and leveraged their capital as far as we allowed. I am extremely happy we have a GPV algorithm as a safety net.
 
Status
Not open for further replies.
Back
Top