Haircut of Canadian treasury bills used as collateral

[tradegoodstocks]

Why should tbills be moved to a futures account. They are not futures. You can use cash and collateral in your other accounts to satisfy margin in your futures account.

You don't get it. It's not about margin, but about cash management and avoiding cash drag from futures collateral.

 

[tradegoodstocks]

I still don't know what one has to do to get the t-bills moved to the futures account. I assume it doesn't happen automatically? Did you buy the bills in the securities account and then request that they be moved? If so, how did you get the request elevated past the customer services reps who have told both of us that it can't be done?

You don't have to do anything, it's automatic. The T-bills don't get "physically" moved to the futures segment; but the interest rate calcs account for the margin value of the T-bills as futures collateral in lieu of cash, such that the cash in the futures account earns interest which it otherwise wouldn't. So the end result for you is the same as if they were in the futures account as futures collateral.

Any other securities but treasuries don't act the same way, even if they have margin value.

 

[BobG]

Ok. Sounds good. It's pretty cheap for me to try it and see what happens.

BTW, did you mean t-bills or all treasuries in your comment below? If it works w/ Tips, I would move some of TIP holdings elsewhere to IB.

Any other securities but treasuries don't act the same way, even if they have margin value.

 

[M.W.]

I think you are confused.

If you invest your cash to buy treasuries you don't have any cash left. The treasuries function as collateral. Whether the treasuries are in account A or B makes zero difference. You still get charged interest as you are borrowing to finance margin requirements for your futures position. Unless of course you keep a portion of your cash to satisfy margin requirements and invest the remainder in treasuries. This is how it works.

IB automatically sweeps any unused cash in the futures account to the interest earning cash account. So, your question does not make much sense.

By the way you are still polluting MY thread, if you still think you have a smarter idea pls open your own thread.

You don't get it. It's not about margin, but about cash management and avoiding cash drag from futures collateral.

 

[mrblueguy]

Could you supply a link to the boglehead forum where someone has actually done this or, even better, PM me the details. I've searched and all I've found is the equivalent of this thread:

1) ib reps pretending not to understand the question

2) people who have never actually done it, claiming t-bills definitely work

3) fools insisting this is a silly question

I can put an end to all this. 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.

I tested this out last week by:

1) Putting some cash (50k) in an empty Portfolio Margin account

2) Buying 50K (face value) of the Aug 24 2023 T-bills (~49k value, but lets just call it 50k)

3) Selling 4 (very OTM) ES puts to create ~44k of maintenance margin

Here's the result:

1) Immediately after trades, In account window in TWS, you will see 44k debit cash on securities side and 44k credit cash on commodities side.

2) After the bills settle t+1, daily statement will show Securities SETTLED cash balance of -44k and commodities balance of +44k.

3) Interest charges accrue on a 1 day lag. So, you need to wait for the T+2 statement to find out the settled cash balance (and interest charges) for the T+1 day. What you want to look at is the "debit interest details" section of the activity statement. You will need to create a custom statement to enable this section (it is not a default section on the standard activity report). This will show the settled Adjusted cash balance and interest charged (again, on a 1 day lag). In our case, the statement will not generate this section because it is blank.

In summary, no credit interest is accrued on the commodities positive balance, and no debit interest is accrued on the securities side. You don't need to ASK IB to do anything to "enable" this. Don't bother talking to them!!

Normally, a securities debit balance should result in accrued interest. It does not in this special case. Whatever the exact math they use to adjust the securities debit balance to reflect the T-bill is not visible to the account holder. I'm not sure if they use the full face value, market value, and/or if any haircut applied. If you try this out, keep in mind that the each daily statement shows accrued interest for the PREVIOUS days cash balance.

BTW, I've had a dozen calls with IB support over the past week and at this point I believe there is an intentional stonewall going on. IB makes tons of money from 1) not paying interest on futures cash collateral 2) investing that collateral in short term fixed income to earn income for themselves. There's also no documentation on the website about this - there used to be and they have since scrubbed it off.

I've also tried this out in a Cash account and an IRA account, but it does NOT work! I think the mechanics is that the securities side of your account is "lending" cash to the futures side at 0% interest. Thus tbills stay on the securities side, while also fulfilling the futures margin requirements. Feeding 2 birds with one stone!

btw, IB does not allow buying bills at auction, but its easy and cheap to buy them in the secondary in TWS. Use the bond explorer tool to find all the tbills and put in an order around the mid price.

I contacted some other brokers last week to see who does this and here's what I was told:

Here's who does:

1. RJO Futures - Called main line. was told "yes", was transferred to a broker who filled me in on details: 95% Haircut, $95 commission on bills, bills must be bought at auction based on the treasury schedule.

Here's who says they do not (or maybe I was stonewalled or got an untrained rep?):

1. Tradestation - called institutional support "brad" said they don't do it.
2. Amp : web chat: "we do not". Also called, "Dave" said they do not accept t-bills
3. Think or swim : trade desk says no
4. Optimus: called: jake said no
5. Ninja trader: called, said no

 

[M.W.]

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.

I can put an end to all this. 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.

I tested this out last week by:

1) Putting some cash (50k) in an empty Portfolio Margin account

2) Buying 50K (face value) of the Aug 24 2023 T-bills (~49k value, but lets just call it 50k)

3) Selling 4 (very OTM) ES puts to create ~44k of maintenance margin

Here's the result:

1) Immediately after trades, In account window in TWS, you will see 44k debit cash on securities side and 44k credit cash on commodities side.

2) After the bills settle t+1, daily statement will show Securities SETTLED cash balance of -44k and commodities balance of +44k.

3) Interest charges accrue on a 1 day lag. So, you need to wait for the T+2 statement to find out the settled cash balance (and interest charges) for the T+1 day. What you want to look at is the "debit interest details" section of the activity statement. You will need to create a custom statement to enable this section (it is not a default section on the standard activity report). This will show the settled Adjusted cash balance and interest charged (again, on a 1 day lag). In our case, the statement will not generate this section because it is blank.

In summary, no credit interest is accrued on the commodities positive balance, and no debit interest is accrued on the securities side. You don't need to ASK IB to do anything to "enable" this. Don't bother talking to them!!

Normally, a securities debit balance should result in accrued interest. It does not in this special case. Whatever the exact math they use to adjust the securities debit balance to reflect the T-bill is not visible to the account holder. I'm not sure if they use the full face value, market value, and/or if any haircut applied. If you try this out, keep in mind that the each daily statement shows accrued interest for the PREVIOUS days cash balance.

BTW, I've had a dozen calls with IB support over the past week and at this point I believe there is an intentional stonewall going on. IB makes tons of money from 1) not paying interest on futures cash collateral 2) investing that collateral in short term fixed income to earn income for themselves. There's also no documentation on the website about this - there used to be and they have since scrubbed it off.

I've also tried this out in a Cash account and an IRA account, but it does NOT work! I think the mechanics is that the securities side of your account is "lending" cash to the futures side at 0% interest. Thus tbills stay on the securities side, while also fulfilling the futures margin requirements. Feeding 2 birds with one stone!

btw, IB does not allow buying bills at auction, but its easy and cheap to buy them in the secondary in TWS. Use the bond explorer tool to find all the tbills and put in an order around the mid price.

I contacted some other brokers last week to see who does this and here's what I was told:

Here's who does:

1. RJO Futures - Called main line. was told "yes", was transferred to a broker who filled me in on details: 95% Haircut, $95 commission on bills, bills must be bought at auction based on the treasury schedule.

Here's who says they do not (or maybe I was stonewalled or got an untrained rep?):

1. Tradestation - called institutional support "brad" said they don't do it.
2. Amp : web chat: "we do not". Also called, "Dave" said they do not accept t-bills
3. Think or swim : trade desk says no
4. Optimus: called: jake said no
5. Ninja trader: called, said no

 

[tradegoodstocks]

Ok. Sounds good. It's pretty cheap for me to try it and see what happens.

BTW, did you mean t-bills or all treasuries in your comment below? If it works w/ Tips, I would move some of TIP holdings elsewhere to IB.

I know for sure it works with T-bills because I tried myself. I'm not sure if it works with other treasuries, like notes, bonds, or TIPS.

 

[tradegoodstocks]

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.

M.W.: They don't sweep cash that is futures maintenance margin.
You are way behind the curve. mrblueguy's observations are accurate and very helpful.

 

[tradegoodstocks]

I can put an end to all this. 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.

I tested this out last week by:

1) Putting some cash (50k) in an empty Portfolio Margin account

2) Buying 50K (face value) of the Aug 24 2023 T-bills (~49k value, but lets just call it 50k)

3) Selling 4 (very OTM) ES puts to create ~44k of maintenance margin

Here's the result:

1) Immediately after trades, In account window in TWS, you will see 44k debit cash on securities side and 44k credit cash on commodities side.

2) After the bills settle t+1, daily statement will show Securities SETTLED cash balance of -44k and commodities balance of +44k.

3) Interest charges accrue on a 1 day lag. So, you need to wait for the T+2 statement to find out the settled cash balance (and interest charges) for the T+1 day. What you want to look at is the "debit interest details" section of the activity statement. You will need to create a custom statement to enable this section (it is not a default section on the standard activity report). This will show the settled Adjusted cash balance and interest charged (again, on a 1 day lag). In our case, the statement will not generate this section because it is blank.

In summary, no credit interest is accrued on the commodities positive balance, and no debit interest is accrued on the securities side. You don't need to ASK IB to do anything to "enable" this. Don't bother talking to them!!

Normally, a securities debit balance should result in accrued interest. It does not in this special case. Whatever the exact math they use to adjust the securities debit balance to reflect the T-bill is not visible to the account holder. I'm not sure if they use the full face value, market value, and/or if any haircut applied. If you try this out, keep in mind that the each daily statement shows accrued interest for the PREVIOUS days cash balance.

BTW, I've had a dozen calls with IB support over the past week and at this point I believe there is an intentional stonewall going on. IB makes tons of money from 1) not paying interest on futures cash collateral 2) investing that collateral in short term fixed income to earn income for themselves. There's also no documentation on the website about this - there used to be and they have since scrubbed it off.

I've also tried this out in a Cash account and an IRA account, but it does NOT work! I think the mechanics is that the securities side of your account is "lending" cash to the futures side at 0% interest. Thus tbills stay on the securities side, while also fulfilling the futures margin requirements. Feeding 2 birds with one stone!

btw, IB does not allow buying bills at auction, but its easy and cheap to buy them in the secondary in TWS. Use the bond explorer tool to find all the tbills and put in an order around the mid price.

I contacted some other brokers last week to see who does this and here's what I was told:

Here's who does:

1. RJO Futures - Called main line. was told "yes", was transferred to a broker who filled me in on details: 95% Haircut, $95 commission on bills, bills must be bought at auction based on the treasury schedule.

Here's who says they do not (or maybe I was stonewalled or got an untrained rep?):

1. Tradestation - called institutional support "brad" said they don't do it.
2. Amp : web chat: "we do not". Also called, "Dave" said they do not accept t-bills
3. Think or swim : trade desk says no
4. Optimus: called: jake said no
5. Ninja trader: called, said no

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.)

 

[tradegoodstocks]

I think you are confused.

If you invest your cash to buy treasuries you don't have any cash left. The treasuries function as collateral. Whether the treasuries are in account A or B makes zero difference. You still get charged interest as you are borrowing to finance margin requirements for your futures position. Unless of course you keep a portion of your cash to satisfy margin requirements and invest the remainder in treasuries. This is how it works.

IB automatically sweeps any unused cash in the futures account to the interest earning cash account. So, your question does not make much sense.

By the way you are still polluting MY thread, if you still think you have a smarter idea pls open your own thread.

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. You are even disputing what mrblueguy and myself tested and saw with our own eyes!!
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.