Haircut of Canadian treasury bills used as collateral

[mrblueguy]

Omg, they are sweeping cash surpluses to the interest bearing account after netting. Which part is so complicated to understand?

Also, your observations are plain wrong. When you bought the tbills you don't see an equivalent debit in cash in the securities account. Your cash goes down to zero as you used that to purchase the tbills. You are probably confusing cash and capital available for trading. Stopping here as a lot of subsequent content does not make sense either.

You're not following me. There's 2 trades, not 1:

#1 is the tbills (cash goes to zero)
#2 is Futures options with margin of 44k (cash goes to -44k)

There's so little content out there on this topic and you're not helping. Me and tradegoodstocks do this and are trying to show other's how this works. You don't seem to have any first hand experience with this, but seem sure we are doing something different from what we are saying instead of taking the info at face value.

Attached is the holy grail. I finally someone from IB to admit this is what's going on.

 

[mrblueguy]

M.W.: I don't mean to be rude; but mrblueguy, BobG, and others are very helpful and understand the subject matter and the issue at hand, while you demonstrate with each of your posts that you don't. This is an internet forum. If you have an issue with us discussing this matter which is important to us, then you might want to consider hosting your own web forum.

I just want to thank tradegoodstocks and others for posting about their experience with this. I was actually in the process giving up on IB and moving elsewhere based on IB customer service saying that IB does not allow this. tradegoodstocks gave me the confidence to go ahead and give it a try in spite of IB saying its not allowed. And behold it is working!! I'm getting thousands of $ of extra income now without any downside. I owe you guys a beer.

I joined this forum just to help lay this to rest and hopefully help other's on this frustrating topic.

If anyone is still unsure, all I can say is just give it a try. Put some T bills and futures in an account and what your interest charges are. If you set up the test correctly, you should easily see if your getting a free lunch or not. I am.

 

[BobG]

M.W. : You might want to unsubscribe from this thread if you're no longer interested in the topic.

 

[BobG]

I do it at IB and it works. But, don't take my word for it, lets dive in.

You can do it too, but IB will not admit to it. I agree they pretend this doesn't exist.

Thanks for this info. After tradegoodstocks' post, I bought a t-bill for more than the cash balance in my IB futures account to test it myself. Without your post, I wouldn't have known where to look to verify it was working. I was expecting to see the cash get moved out of my futures account since it was no longer needed for margin. I'll do the more detailed check you describe once the t-bill settles.

BTW, RJ Obrien will take treasury notes (up to 10 years) but no bonds or tips.

 

[mrblueguy]

Happy to help. BTW, I should have been more clear about how things look when you test it out:

With the sole exception of accrued interest on the daily statement, nothing in the account window (in TWS) or in the statements will reflect t-bills being used as collateral. Everything will look the same as if you bought AAPL or SPY instead of tbills. So don't expect anything special. The only way we really see this is working is by looking at ACRUED margin interest charges on t+2 (or later).

When Tbills are not used, the cash balance in your account used to calculate interest charges is given by:

1. Ending Settled Cash Securities
2. Ending Settled Cash Commodities
3. Futures Maintenance Margin Requirement
4. Value of Options on futures

Adjusted cash = 1 + 2 - 3 + 4

If you have tbills in the account, the above formula breaks in your favor as the tbills reduce the cash you need to post as collateral.

If you start with an empty account and buy AAPL with all the cash, you will incur a debit margin interest charge if you add any futures positions on top of that. If you then sell the AAPL and buy tbills instead, the interest will no longer be charged.

 

[mrblueguy]

I bought a t-bill for more than the cash balance

More than? What cash balance exactly? I might not be following you, but the whole point here is to buy tbills in whatever amount your futures maintence margin requirement is. anything more than that does not have any special benefit.

Have you typically been running a positive cash balance in this account (earning credit interest)? if so, you should be able to buy bills up to the value of your maintenance without affecting daily accrued interest payable.

 

[tradegoodstocks]

I just want to thank tradegoodstocks and others for posting about their experience with this. I was actually in the process giving up on IB and moving elsewhere based on IB customer service saying that IB does not allow this. tradegoodstocks gave me the confidence to go ahead and give it a try in spite of IB saying its not allowed. And behold it is working!! I'm getting thousands of $ of extra income now without any downside. I owe you guys a beer.

I joined this forum just to help lay this to rest and hopefully help other's on this frustrating topic.

If anyone is still unsure, all I can say is just give it a try. Put some T bills and futures in an account and what your interest charges are. If you set up the test correctly, you should easily see if your getting a free lunch or not. I am.

The power of the internet and social media! Ironically I myself pretty much gave up on this based on IB customer service's denial, until somebody in another forum encouraged me to try myself.
I hope they are not going to scrap this. But then again, it seems to retain customers for them, including me.

 

[tradegoodstocks]

Happy to help. BTW, I should have been more clear about how things look when you test it out:

With the sole exception of accrued interest on the daily statement, nothing in the account window (in TWS) or in the statements will reflect t-bills being used as collateral. Everything will look the same as if you bought AAPL or SPY instead of tbills. So don't expect anything special. The only way we really see this is working is by looking at ACRUED margin interest charges on t+2 (or later).

When Tbills are not used, the cash balance in your account used to calculate interest charges is given by:

1. Ending Settled Cash Securities
2. Ending Settled Cash Commodities
3. Futures Maintenance Margin Requirement
4. Value of Options on futures

Adjusted cash = 1 + 2 - 3 + 4

If you have tbills in the account, the above formula breaks in your favor as the tbills reduce the cash you need to post as collateral.

If you start with an empty account and buy AAPL with all the cash, you will incur a debit margin interest charge if you add any futures positions on top of that. If you then sell the AAPL and buy tbills instead, the interest will no longer be charged.

That's correct. To be precise, you have to look on the day T+3 on your statement of T+2 which will reflect the interest based on the settled trades on T+1 that you executed on T, for T-bills and other T+1 settled products. For T+2 settled products, everything is 1 day further out.

A little bit off topic, but according to my study of my statements, futures daily mark-to-market gains or losses are settled T+1; automatic sweeps between the account segments are executed and settled T+0 based on T+0 end-of-day balances (settled or not, including futures T+0 mark-to-market gains or losses). The latter matters for interest calculations if you have positive total cash balances, because cash in the commodities segment will never earn interest; if you have negative total balance, then it doesn't matter, because excess cash (beyond maintenance margin requirements) in commodities will be netted with debit cash balances in the securities segment.

B.t.w. I got information that the futures collateral value of T-bills is the same as the margin value shown on their web site, I think 98% to 99% depending on the maturity.

 

[tradegoodstocks]

Happy to help. BTW, I should have been more clear about how things look when you test it out:

With the sole exception of accrued interest on the daily statement, nothing in the account window (in TWS) or in the statements will reflect t-bills being used as collateral. Everything will look the same as if you bought AAPL or SPY instead of tbills. So don't expect anything special. The only way we really see this is working is by looking at ACRUED margin interest charges on t+2 (or later).

When Tbills are not used, the cash balance in your account used to calculate interest charges is given by:

1. Ending Settled Cash Securities
2. Ending Settled Cash Commodities
3. Futures Maintenance Margin Requirement
4. Value of Options on futures

Adjusted cash = 1 + 2 - 3 + 4

If you have tbills in the account, the above formula breaks in your favor as the tbills reduce the cash you need to post as collateral.

If you start with an empty account and buy AAPL with all the cash, you will incur a debit margin interest charge if you add any futures positions on top of that. If you then sell the AAPL and buy tbills instead, the interest will no longer be charged.

The formula is correct, except when you have positive excess cash (beyond maintenance margin requirements) in commodities. This will not earn interest, and will not be netted with negative cash in securities.
Because of this, you can also have slightly more or less favorable outcomes depending on which currency the sweep algo sweeps, if you have multiple currencies.

 

[M.W.]

You are simply incorrect. Infrequently (not at every moment in time) small orders of tbills are looked at and processed (whether via algorithm or human I can't tell) and regardless of whether you place a limit inside the best bid/ask or at the ask gets processed. You can test this for yourself by placing a buy limit above the best ask and you still won't get immediately filled. The reason is the small order size. Also this is the OTC not a listed market. I am very active in investing cash in tbills for many months now and got many times filled better than ask.

It looks like IB is the best in this area for retail customers. But why would they hide this information when the could just as well scrap that feature altogether?

"Use the bond explorer tool to find all the tbills and put in an order around the mid price." - Are you sure that this works? I don't think so, unless there was a market movement and your standing limit order got filled via adverse selection.
In my understanding T-bills are quoted by dealers, and the best bid and ask quotes usually have higher minimum quantities. I guess dealers could theoretically compete for small customer orders, but I never experienced or heard that this is what happens; I never got filled at better prices than the prevailing bid or ask. (IB does not even let you view the order book with the limits and minimum quantities; I go to Fidelity to see their order book, but the order book of each broker is different. So at IB it's trial and error. I checked with customer service and they said that's what it is, and they don't deal with treasuries themselves like other brokers do.)