IB using "rounding" to screw clients with borrow fees

[PatrickStandford]

How much would expect to pay in borrow fee for a $1.01 stock with a listed rate of 5%? Your first guess might be 5% of the position value. If you're a customer of IB, you'd be off by a factor of nearly 100%. When calculating the daily borrow fee, they round each security UP to the next dollar. Not the nearest dollar, mind you. That would be somewhat defensible. E.g., they "round" $0.01 to $1.00; $1.01 to $2.00; $2.01 to $3.00, etc. So for a $0.10 stock with a listed borrow fee of 5%, you will actually pay 50%. For a $1.01 stock with a 5% listed fee, you will pay almost 10%.

Unreal. Nowhere in their documentation does it mention this policy. A broker should be able to charge whatever they please in borrow fees; it should not, however, be able to charge multiples are what they are claiming to be charging. It's fraud, if you ask me.

 

[gkishot]

Wow! What does their legal department have to say?

 

[stevegee58]

Have you contacted IB customer service Mister 1-post?

 

[PatrickStandford]

They were made aware of it months ago, yet did not respond and continue to engage in the practice.

 

[jeb9999]

Quote from PatrickStandford:

How much would expect to pay in borrow fee for a $1.01 stock with a listed rate of 5%? Your first guess might be 5% of the position value. If you're a customer of IB, you'd be off by a factor of nearly 100%. When calculating the daily borrow fee, they round each security UP to the next dollar. Not the nearest dollar, mind you. That would be somewhat defensible. E.g., they "round" $0.01 to $1.00; $1.01 to $2.00; $2.01 to $3.00, etc. So for a $0.10 stock with a listed borrow fee of 5%, you will actually pay 50%. For a $1.01 stock with a 5% listed fee, you will pay almost 10%.

Unreal. Nowhere in their documentation does it mention this policy. A broker should be able to charge whatever they please in borrow fees; it should not, however, be able to charge multiples are what they are claiming to be charging. It's fraud, if you ask me.

Another IB is the evil empire thread.

I had no problem finding this information in the IB "About Stock Borrow/Loan" documentation.

Things are even worse than you stated as you left out the 102% multiplier.

IB clearly states: "The borrower is responsible for the daily borrow fee and for collateral on the transaction. The collateral is equal to the settlement price x quantity. The settlement price is 102% x mark price rounded up to the nearest 1.00 with a 1.00 minimum."

There cannot be fraud with full disclosure.

And don't short penny stocks.

 

[trade2live]

sorry what's the borrow fee ? how is it possible for it to be 50% ?

 

[PatrickStandford]

I had not seen that. So while not fraudulent, it remains one of the slimiest fine-print practices I have seen. Who else "rounds" up from $1.01 to $2.00 to charge you twice the fee they list? No one that I know of. I happen to like IB overall, but this policy is just robbery.

 

[gkishot]

Quote from jeb9999:

Another IB is the evil empire thread.

IB is a market maker disguised as a broker. No arguments there. No surprise that IB evil empire threads pop up now and then.

 

[jeb9999]

Quote from gkishot:

IB is a market maker disguised as a broker. No arguments there. No surprise that IB evil empire threads pop up now and then.

What disguise?

IB has always made clear that they own Timber Hill and that the brokerage business started on the backbone of the market making business.

The IB brokerage business rules the roost.

For the first 9 months the brokerage business revenue and profits were $602 million and $343 million. The market making business revenue and profits were $222 million and $66 million.

The IB brokerage business keeps growing and the market making business is shrinking and stalling.

Over the 9 years I have had an IB account I have made thousands of trades and have not seen the influence of their market making operation on any trade.

 

[gkishot]

Quote from jeb9999:

What disguise?

IB has always made clear that they own Timber Hill and that the brokerage business started on the backbone of the market making business.

The IB brokerage business rules the roost.

For the first 9 months the brokerage business revenue and profits were $602 million and $343 million. The market making business revenue and profits were $222 million and $66 million.

The IB brokerage business keeps growing and the market making business is shrinking and stalling.

Over the 9 years I have had an IB account I have made thousands of trades and have not seen the influence of their market making operation on any trade.

That depends on how the businesses revenues are reported. Even if their market making business is reported as 0 that would not matter. The point is 2 businesses have the conflict of interest. I am sure they can lower commissions compared to other brokers b/c they make money some other ways.