IB EFPs

T

tropicalknight

This question is mainly for any Interactive Brokers representatives at ET. I sold an EFP a month ago to gain some interest on my free cash. I have not received any interest on the margin maintainance required funds. On the EFP description page http://individuals.interactivebrokers.com/images/common/pdfprodhighlights/ExchPhys_02.jp it clearly says that there will be interest on the maintainance funds.

Can you please comment on this. I may be looking at things wrong. My experience with IB has been an A+ so far, keep up the good work.
 
(Not speaking for IB, but just trying to be helpful.)

I believe you do continue to earn interest on the margin requirement, but of course, daily mark-to-market losses are lost (so they get subtracted from interest earning cash balance). Similarly, mark-to-market gains will add to interest earning cash balance.

Are you sure you are not confusing the two?
 
I guess what I'm trying to say is does your interest show up in the daily transfers in and out of the margin requirement or do they show up under account > balance > accrued interest?
 
Quote from tropicalknight:

I guess what I'm trying to say is does your interest show up in the daily transfers in and out of the margin requirement or do they show up under account > balance > accrued interest?
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Well, it's just cash that never got taken away from your cash balance?
 
I do not represent IB, but maybe I can clarify the situation.

If you insist on correct terminology, then EFPs do not pay interest at all. A short EFP position gradually decays in value to zero at expiration. This gradual decay in value is a capital gain to the holder of the short EFP. The amount of this capital gain is competitive with the interest which would have been earned had the value of the EFP's long stock leg instead been invested in the money market. The amount of this capital gain can be measured as a percentage interest rate, but in strict terms, it is not interest, but is instetad a capital gain substituting for interest.

If IB documentation stated that EFPs pay interest, then this was an unfortunate misuse of terminology, which quite understandably might confuse beginners. Quality of documentation is not one of IB's strengths. The advantages of IB, in my view, more than outweigh the problems with its documentation.
 
Thanks for replying, but I think I'm being misunderstood.

I fully understand EFP's. I just don't know if IB pays interest on the margin money on top of the EFP's synthetic interest. If they do pay interest, I want to know if it shows up under accrued interest.
 
Quote from tropicalknight:

Thanks for replying, but I think I'm being misunderstood.

I fully understand EFP's. I just don't know if IB pays interest on the margin money on top of the EFP's synthetic interest. If they do pay interest, I want to know if it shows up under accrued interest.
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My answer is "yes."

However, I still think you may be misunderstanding something. Are you using an EFP to replace a short stock position with a short SSF position? (as indicated in the .jpg you referenced)

Or are you using EFPs as a yield vehicle, i.e. starting from a flat position and ending long stock / short SSF? In this case, the cash you used to purchase the stock will, of course, not earn interest. But the margin required to support the short SSF will continue to be part of your cash balance and earn interest.

And finally, I will repeat, additional funds debited due to MTM losses will not earn interest. Funds credited due to MTM gains will earn interest.
 
My position is long 1 stock short 1 single stock future, to get the synthetic risk-free interest rate plus a tad more.

Thanks for the help. I'll direct further questions towards an actual IB rep, so this thread can be closed.
 
has anyone been suspicious of the yield quotes from ib?

for instance, a few weeks ago, a short GOOG efp was supposedly yielding 5.75%. but look at the math...

- the efp had a locked profit of $162
- the cost of 100 shares of GOOG was $52000
- there were 27 days left until delivery

that comes out to 4.2% yield.

where did they come up with 5.75%?
 
Quote from blackjack007:

has anyone been suspicious of the yield quotes from ib?

for instance, a few weeks ago, a short GOOG efp was supposedly yielding 5.75%. but look at the math...

- the efp had a locked profit of $162
- the cost of 100 shares of GOOG was $52000
- there were 27 days left until delivery

that comes out to 4.2% yield.

where did they come up with 5.75%?
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I just double checked a recent transaction on Sept 10....

Bought 600 RMBS @ 15.712
Sold 6 Dec SSFs @ 15.97

For 102 days, this works out to 5.8% annualized... I think the limit I put in was either 5.8 or at worst 5.85. Allowing for rounding, receiving the payment of "interest" up front, it seems about right.

Now if there is indeed a bug, it will be a two sided bug in that the ask will be showing higher than it should be, so, you can take advantage of any bug by buying instead of selling and then arbitraging the difference away. It wouldn't be the type of bug that always works against you.
 
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