IBKR Notes Program
- Thread starter ET180
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IB is reinstating a program that they used to have back in the day. I don't remember exactly when they discontinued the original notes program but somewhere around ten years ago.
I'm not sure but guessing they're looking to diversify funding for ex-US margin loans. In the US, they can use credit balances to fund margin loans but there's regulatory restrictions on doing that in other countries according to comments on their most recent quarterly conference call.
I'm not sure but guessing they're looking to diversify funding for ex-US margin loans. In the US, they can use credit balances to fund margin loans but there's regulatory restrictions on doing that in other countries according to comments on their most recent quarterly conference call.
USB, C, BK, PNC, and JPM are all currently around .15/.25 for equivalent tenor notes. The shortest term GS note I could find was 180 days out and it was at .27/.36. Given the yield curve that makes it commiserate with the other six companies for a 60 day note.
I'm guessing that IB has to pay more because they are insisting on this convoluted holding company setup with one guy, Peterffy, having supermajority control. Why they would be willing to pay double the going interest rate to ensure this setup should set off some alarm bells, imho.
Don't know much about C's offering but Marcus/GS is pretty clearly a teaser rate trying to get customers in for their new consumer banking product. Not for nothing you're limited to $1M in deposits at that rate, you don't limit the ability for people to use your product if it's market rate/making you money!
Then you're talking about a retail product then which isn't comparable to IB's notes, which I'll note require one to be an accredited investor. That makes it an apples to oranges comparison.
As I pointed out, when you compare the rate IB is paying to the rate other comparable financial firms are paying on exactly the same product they are paying double the market rate. All I'm saying is that there's a reason for that. If one fully understands the reason then by all means partake, after all everything in finance is about risk adjusted returns. There's nothing to indicate to me that they mispriced the risk. So I'm just cautioning against viewing this as anything other than a product with twice the risk of comparable products, which is why the market demands twice the return. Again if you're seeking the higher return you can get it with a far lower idiosyncratic risk by investing in a short term note ETF that invests in a portfolio of notes with a commiserate risk/return profile. Or, as you point out, put the money in a high yield savings account which gets you the same or better return with significantly less risk, if you're retail.
I'm not 100% sure about this, but there might be a big difference between an online savings account or short term note ETF fund and the IB notes program. With the online savings account / fund, you are guaranteed to get the advertised interest rate (until they change it obviously) as long as you have money invested in the fund or savings account. With IB's program, it's not clear to me that you'll always earn interest. They set it up like a subscription and it appears that you simply specify the maximum amount you are willing to invest in the notes as well as the minimum amount of cash that you want to leave uninvested. Then they buy notes for you and you can turn it off any time you want. So that implies that if there are not notes available to invest in, you don't get paid any interest. So the higher rate might account for the fact that you might not be able to use the program all the time. Also, I think I read somewhere that the notes can be called before maturity. This could be similar to the stock yield enhancement program. I signed up for that program and I don't see any activity at all this year. I'm not using leverage and even in my IRA accounts which are long-only, I never see stocks/ETFs loaned out in my account statements. Could have something to do with the fact that I own mostly S&P500 companies and popular index funds. Maybe there's just no demand.
As you said, if they had more predictability, they would likely tap the public markets. Also, I suspect that companies have to pay some fee to have their debt listed publicly. But if they go to the private market, maybe it's cheaper to issue the debt and that allows them to offer a slightly higher interest rate especially for such a short term. Anyhow, I think IB should weigh-in on the safety of the program as well as the mechanics of how it works -- how can one be assured of not getting charged margin rates when using the program.
Sure, using the term "risk" is inexact anyway in a MPT context. It's a not insignificantly higher risk, let's just say that.