IB raises margin on liquid European ETFs from 25 to 100% in a few days

[traders]

Hi,

I want to warn all (potential) non US IB Customers that IB is busy raising margin on European listed ETFs which are relatively liquid to European standards which is related to US "Ready Market" regulations.

I got my first notification in september (see below), and I received an another one between christmas and new year.

Even if you have your account at IB UK (or IB Canada), this US regulations apply to you.

I got called about this by IB last wednesday after complaining via mail, and since ETF/stocks are stil cleared by IB US, US regulations apply. IB UK is currently only a carrying broker for a few derivatvives products (CFD etc) and there are no plans to allow customers to move stocks to IB UK.

In my opinion IB need to find quickly a solution for this.

It seems that IB Canada Users are also not very happy:

http://canadianmoneyforum.com/showthread.php/16216-Margin-Call-At-IB

Thanks,

Jos

===================================
Mail received Sept 5th:

Margin Increase Warning Notification

Please be advised that at the start of the trading day on 9 September 2013, as a result of a US regulatory restriction on small market capitalization and / or low liquidity stocks, IB will be required to increase the margin on such stocks to 100% making them effectively non-marginable.

The affected securities are defined as those non-US securities which do not meet the criteria required to be deemed as having a "Ready Market". The criteria used to determine "Ready Market" is outlined in detail the following Knowledge Base article.
http://ibkb.interactivebrokers.com/node/2045

The security or securities subject to this warning which are being held in this account are:

Symbol
Exchange
Name
IAPD AEB ISHARES ASIA PAC DIVIDEND
IAPD IBIS ISHARES DJ ASIA/PAC SL DV 30
IASP AEB ISHARES ASIA PROPERTY YIELD
IDVY AEB ISHARES EURO DIVIDEND
IDVY IBIS ISHARES EUROSTOXX SEL DVD 30
IPRP IBIS ISHARES FTSE/EPRA EUR PRPRTY
SPYV IBIS SPDR S&P EMERGING MKTS DVD


Please be aware that once implemented, any margin increase which results in a margin deficit will subject the account to an automated liquidation in order to bring the account into margin compliance. Please carefully review the current positions within your account and the likely impact of the margin increase, and manage the risk within the account accordingly.

Thank you for your prompt attention to this US regulatory requirement.

Interactive Brokers Risk Management

 

[freedinner]

"there are no plans to allow customers to move stocks to IB UK. "

I have to say I am relieved to hear this. Let me explain

A year ago, IB "announced" that they planned to eventually force non-US customers holding and transacting non-US assets over to IB UK.

http://ibkb.interactivebrokers.com/article/2016

As you see, they talk about the margin benefit of the move. Yet they also acknowledge the reduced account protection if your assets were moved to London. Specifically, accounts and assets will no longer have SIPC protection up to USD 500k and Lloyds of London insurance beyond that, and instead have a maximum insurance of GBP 50k without Lloyds insurance.

All non-US clients' account protection would be immediately and substantially cut. Yet most non-US IB clients would not benefit from the reduced margin. They either hold small caps which would not receive more favorable margin treatment even under IBUK (especially after IB found out how quickly you can lose 68m in Spore). Or they trade big caps and, if they mind about the margin, are better off using CFDs anyway which are already transacted via IBUK.

This is why most IB clients who would have been affected and were aware of these plans, like me, strongly opposed this forced move and still do.

You also have to know that a big part of the european IB business goes via local introducing brokers in Germany, Netherlands etc. These brokers advertised the 500k account protection in order to grow accounts. They all might go out of business if they had to ask their customers to sign new terms including a lowered protection to 50k only. I guess they also spoke up and swayed IB's opinion on this.

It looks like you are one of the few customers who MIGHT had benefited from the move.
Yet after the Singapore loss, IB probably has reconsidered extending substantial margin on all but the most liquid instruments, irrespective of regulation. This is because IB's low margin rates are only possible with no or very low losses using immediate and automated liquidation. And this automated liquidation does not work that well to prevent losses in less liquid markets.
And besides, if you think that UK regulation will permanently remain easier than in the US, you are mistaken. It's just a question of time until they close the gap. Britons (who I think proportionally paid a higher price to bail out their banks than Americans) are fed up with all the risk being transferred to London.

BTW casually looking at the ticker list you posted, I have the slight feeling I should congratulate you for having found a profitable trading niche. Maybe you can find a prop desk somewhere that extends you more capital to deal with the margin issue.