IBKR (Interactive Brokers) getting POUNDED!!!!!!!
- Thread starter chewbacca
- Start date
How Is Interactive Brokers Doing Itself, and How Does that Affect Me?
The comprehensive U.S. federal regulatory regime that covers securities and futures brokers (and the SIPC insurance regime that covers securities accounts) is designed so that customer assets are protected no matter what happens to the financial fortunes of the broker itself. Since customer assets are segregated and separate from the proprietary assets of the brokerage firm, customer assets are protected even if your brokerage firm itself suffers massive losses or becomes insolvent.
In any event, Interactive Brokers is in an unusually strong position in the current environment. IB is part of the Interactive Brokers Group of companies, which have an aggregate of over $3.5 billion in equity capital and an investment grade credit rating. We have been in business for over 30 years and we have specifically chosen to avoid the highly risky businesses that are causing so many problems in the markets today:
None of the IB Group companies (including Interactive Brokers LLC and its market making affiliate Timber Hill LLC) hold any mortgage-backed securities or collateralized debt obligations (âCDOsâ) or credit default swaps.
IB and its affiliates do not trade âover-the-counterâ (âOTCâ) derivatives or swaps or OTC options or other exotic bilateral products, which are difficult to value and which would expose us to the credit risk of a single bank or counterparty to the contract. Aside from trading in the foreign currency markets for hedging and cash management purposes, all of the securities and futures positions that IB trades for customers (or that IBâs affiliate Timber Hill trades for itself) are exchange-traded contracts for which prices are published frequently or in real-time, whose values are marked-to-market daily or periodically and margined accordingly, and whose performance is guaranteed by a central clearinghouse.
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What Other Steps Does IB Take To Protect Itself and to Protect Me?
In addition to segregating customer assets, providing SIPC coverage (and excess SIPC coverage from Lloydâs of London insurers), maintaining a strong balance sheet and avoiding risky businesses like OTC derivatives, swaps, CDOs and mortgage-backed securities, IB has built state-of-the-art risk management procedures and systems that are based on real-time market data and marking-to-market of customer positions.
Foremost among these systems is the IB âCredit Managerâ software. This system examines IB customer accounts continually throughout the trading day and evaluates the value of the account and also evaluates the margin requirements for the account. If an account is under its margin requirement, we generally do not allow the customer to âpromiseâ to pay us in three days. Absent exceptional circumstances, an account must always have sufficient margin, or IB will liquidate the under-margined customerâs assets intra-day until the account is back into margin compliance. The IB Credit Manager software with this automatic liquidation feature helps to protect our customers and the capital of the firm itself because IB does not extend âgood faithâ credit to customers overnight or for one day or two days or three days. IB customers must satisfy their margin obligations up front.
The Credit Manager is critical to you as an IB customer, because it seeks to protect you from the risk inherent in the margined positions of other IB customers, whose assets and liabilities rest in the same segregated customer accounts as yours. If you are a client at another securities or futures broker that gives their clients up to three days to send in margin funds, you share the risk that your fellow clients at that firm might engage in risky trading and not satisfy a margin call, which could cause that other brokerâs segregated accounts to become under-margined and at risk. IBâs Credit Manager and strict margin policies reduce this risk for IB customers.
The comprehensive U.S. federal regulatory regime that covers securities and futures brokers (and the SIPC insurance regime that covers securities accounts) is designed so that customer assets are protected no matter what happens to the financial fortunes of the broker itself. Since customer assets are segregated and separate from the proprietary assets of the brokerage firm, customer assets are protected even if your brokerage firm itself suffers massive losses or becomes insolvent.
In any event, Interactive Brokers is in an unusually strong position in the current environment. IB is part of the Interactive Brokers Group of companies, which have an aggregate of over $3.5 billion in equity capital and an investment grade credit rating. We have been in business for over 30 years and we have specifically chosen to avoid the highly risky businesses that are causing so many problems in the markets today:
None of the IB Group companies (including Interactive Brokers LLC and its market making affiliate Timber Hill LLC) hold any mortgage-backed securities or collateralized debt obligations (âCDOsâ) or credit default swaps.
IB and its affiliates do not trade âover-the-counterâ (âOTCâ) derivatives or swaps or OTC options or other exotic bilateral products, which are difficult to value and which would expose us to the credit risk of a single bank or counterparty to the contract. Aside from trading in the foreign currency markets for hedging and cash management purposes, all of the securities and futures positions that IB trades for customers (or that IBâs affiliate Timber Hill trades for itself) are exchange-traded contracts for which prices are published frequently or in real-time, whose values are marked-to-market daily or periodically and margined accordingly, and whose performance is guaranteed by a central clearinghouse.
Top
What Other Steps Does IB Take To Protect Itself and to Protect Me?
In addition to segregating customer assets, providing SIPC coverage (and excess SIPC coverage from Lloydâs of London insurers), maintaining a strong balance sheet and avoiding risky businesses like OTC derivatives, swaps, CDOs and mortgage-backed securities, IB has built state-of-the-art risk management procedures and systems that are based on real-time market data and marking-to-market of customer positions.
Foremost among these systems is the IB âCredit Managerâ software. This system examines IB customer accounts continually throughout the trading day and evaluates the value of the account and also evaluates the margin requirements for the account. If an account is under its margin requirement, we generally do not allow the customer to âpromiseâ to pay us in three days. Absent exceptional circumstances, an account must always have sufficient margin, or IB will liquidate the under-margined customerâs assets intra-day until the account is back into margin compliance. The IB Credit Manager software with this automatic liquidation feature helps to protect our customers and the capital of the firm itself because IB does not extend âgood faithâ credit to customers overnight or for one day or two days or three days. IB customers must satisfy their margin obligations up front.
The Credit Manager is critical to you as an IB customer, because it seeks to protect you from the risk inherent in the margined positions of other IB customers, whose assets and liabilities rest in the same segregated customer accounts as yours. If you are a client at another securities or futures broker that gives their clients up to three days to send in margin funds, you share the risk that your fellow clients at that firm might engage in risky trading and not satisfy a margin call, which could cause that other brokerâs segregated accounts to become under-margined and at risk. IBâs Credit Manager and strict margin policies reduce this risk for IB customers.
I tend to think that the investors know what is going on at the brokerage more then their customers.
TD Ameritrade's stock price has been relatively stable throughout the broker-dealer fiascos. At IBKR, there have been these wild sell-offs and the stock almost trades as if its one of those over-the-counter penny stocks.
One day in March I woke up to see the IBKR stock drop to 21 dollars from 30. I tuned into the news and I thought surely that TP character was kidnapped or that some militants attacked the headquarters. Nope. Its just another day at IB where answering the telephones seems like an optional exercise for its staff.
At TDAmeritrade the stock price is always pretty stable and the investors are never running for the fire doors. TDAmeritrade has great customer service and they love to help you.
TD Ameritrade's stock price has been relatively stable throughout the broker-dealer fiascos. At IBKR, there have been these wild sell-offs and the stock almost trades as if its one of those over-the-counter penny stocks.
One day in March I woke up to see the IBKR stock drop to 21 dollars from 30. I tuned into the news and I thought surely that TP character was kidnapped or that some militants attacked the headquarters. Nope. Its just another day at IB where answering the telephones seems like an optional exercise for its staff.
At TDAmeritrade the stock price is always pretty stable and the investors are never running for the fire doors. TDAmeritrade has great customer service and they love to help you.
What a douche bag...the IBKR float consists of 15% of Interactive Brokers. In other words, it's a small component of tier 2 capital unlike BSC's ratio of treasury stock. OTOH, I sure would like 48 hours notice on IBKR moving away from C so I can load up the truck on front month C 10 puts.
I have a stupid question perhaps. If you own stock through the broker of another company, isn't your money technically in the ownership of the company. So does it matter if IB were to go under in that circumstance?
Ok, so if I'm understanding this right, the stock is still technically on IB's books then...ie...it's a liability to me. So if IB were to go under, theoretically I could lose that asset.
But, with it being insured by the SIPC, is it highly unlikely that I would lose my assets unless IB has essentially been "breaking the law" in terms of where my assets are?
Am I correct in that assumption?
I read this from the SIPC web site:
WASHINGTON, D.C. - March 25, 2008 â In the wake of recent turbulence in the financial markets, the North American Securities Administrators Association (NASAA) today joined with the Securities Investor Protection Corporation (SIPC), which maintains a special reserve fund authorized by Congress to help investors at failed brokerage firms, to remind investors of the important and effective safeguards already in place to protect their brokerage account assets.
"In light of the recent financial impairment of a major Wall Street firm and the ongoing volatility in the U.S. securities markets, it is understandable that Main Street investors may have questions about the safety of assets in their brokerage accounts. NASAA and SIPC want to ensure that investors are well informed about their rights and protections under our nation's securities laws", said NASAA President and North Dakota Securities Commissioner Karen Tyler.
SIPC President Stephen Harbeck said: "When a brokerage firm is closed due to bankruptcy or other financial difficulties and customer assets are missing, SIPC steps in as quickly as possible and, within certain limits, works to return customers' cash, stock and other securities. Without SIPC, investors at financially troubled brokerage firms might lose their securities or money forever or wait for years while their assets are tied up in court."
SIPC either acts as trustee or works with an independent court-appointed trustee in a brokerage insolvency case to recover funds. The statute that created SIPC provides that customers of a failed brokerage firm receive all non-negotiable securities - such as stocks or bonds -- that are already registered in their names or in the process of being registered. At the same time, funds from the SIPC reserve are available to satisfy the remaining claims of each customer up to a maximum of $500,000. This figure includes a maximum of $100,000 on claims for cash.
Rules of the U.S. Securities and Exchange Commission require registered broker-dealers to maintain net capital to provide financial resources so that customers will get their cash and securities back if the firm fails. According to the SEC, customer claims for their funds and securities are senior to other claims on the broker-dealer.
In addition to the protections provided by SIPC and the SEC's net capital rule, the SEC requires registered broker-dealers to place client assets into accounts segregated from the brokers' own proprietary funds and securities. As a result, clients are protected from the firm's trading losses
http://www.sipc.org/media/release032508.cfm