IB questions to def

J

JamesBarr

def,

I am considering opening an account at IB and would transfer a fairly large amount of funds (7 figures) to IB. Although I have done some preliminary research into IB, there are a few lingering questions I still have. Please do not take them the wrong way as I am not trying to offend or insult you or IB in any way. I think they are legitimate questions that should be asked. If you are able, please respond.

1. Why is IB formed as a LLC and not a "regular" corporation (like most brokerages)?

2. Does the SEC permit brokerages to be formed as LLCs? If so, under what provision?

3. IB's website states that it has a $10M insurance policy ($1M for cash claims) through AIG, which is in addition to the SIPC coverage. Where can one see evidence of this policy? Is there, at least, a policy number you can reference so that it can be independently confirmed? What was the effective date of the policy and when is the renewal date?

Thank you for your time.

JB
 
No worries, you do not offend as they are important questions.

1. Tax efficiency is the reason for the LLC structure. Note that IB is a private company and not publicly listed like many of the other brokerages. In an LLC the partners pay taxes on earnings, not the company.

2. Obviously they do since IB is registered with the SEC and numerous other global regulatory bodies. I'm not aware of any provision stating how a company must be structured. The key issues are compliance and the ability to satisfy the capital requirements of the exchange. For IBG's list of memberships: http://www.interactivebrokers.com/html/companyInfo/exch_regulator_list.html

3. SIPC can be confirmed from their website. Good question on the AIG part. For starters you probably can confirm via AIG. However, I will ask for this information from our treasurer and will send you the information.

the firm has a solid financial background. if you haven't read the S&P rating report on Timber Hill LLC, you may find this of interest: http://www.interactivebrokers.com/download/sp_rating.pdf

If you need any more info, let me know (send me an e-mail if you wish as well).

- def
 
def- I have an additional question along the same line. I trade futures with IB and I love the trading platform and performance.Iwould like to increase my account balance substantially but "common sense" logic says not to do so with a company that Has never sent me ONE piece of correspondence by mail. The Sept. 11 tragedy made me realize I have mno tangible proof of any relationship to the brokerage. Any comments about this def?
 
IB could raise prices and start sending statements by mail :) But let's face it, getting a piece of paper in the mail doesn't mean anything. How many times were you sent mail promising a dream vacation ......

don't know what to say about this other than:
IBGroup (originally Timber Hill) has been around since 1980 and has an excellent reputation - particularly in the world of option trading). For the brokerage, check the NASD web site, look at the NYSE program trading stats (IB is always in the top 10 with over 100 million shares per week), if near an options exchange head over to the floor and look for a timber hill trader. You can also check out the web sites of the exchange and clearing houses that the IB Group are members. The firms auditors are Deloitte and Touche, financials for the brokerage are on the web site and so on. The most important point is one that you are not reading about - there are no posts complaining about funds and banking. finally, if you really see a need to kick the tires, addresses for IBG's offices are posted under the institutional link.

(with that said, i'm now heading home so I can prove to my wife that I exist. have a good days trading. if i get time i'll log on later).
 
here's a more detailed answer from the head office...

1. There are several forms of organization in the U.S.: corporation, limited liability company ("LLC"), partnership (which include general partnership, limited partnership, limited liability partnership), etc. The limited liability company has the same legal standing as a corporation but is treated as a partnership for tax purposes. Public companies are corporations because this form of organization allows the shares to be freely traded in the public markets. I cannot comment on the form of organization of "most" brokerages, but a brief review of the S&P Securities Dealers guide shows broker-dealers of various organization types.

2. The SEC does not restrict the form of organization of a registered broker-dealer but must approve each applicant. Other securities regulators around the world, including in HK and Europe, recognize the LLC as a valid form of organization for a brokerage firm.
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JB, As for the insurance, i'm forwarding the insurance info to you via PM on this forum.
 
Hey Def. I wanted to ask you this because I've gotten many different replies from brokers.
Am I allowed to buy and sell the same option in the same day?

I heard that it is not possible to buy and sell equity options in the same day (unless your account size is over 25K) but it is possible to buy and sell commodity options in the same day. At least that's what a broker at Alaron said. Could you clarify this please?
 
def, thank you for taking the time to answer my questions on this thread and for the private message concerning the bond. I appreciated it very much.

Regards,

JB
 
JB,
thanks

lltrdr,
not sure where you got that info but it is not true. you can buy and sell options on the same day. The new day trading rules do not apply to options, futures, and non-US stock trading.
 
Thanks for the reply. I just wanted to double check before my account got frozen. As to where I got the info...I got it from a customer service rep at optionsxpress. Another broker at investrade said the pattern day trader rule applies to equity options. I will call the CBOE and hopefully this will be all cleared up.
 
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