IBKR Safety of Funds

[newwurldmn]

Even with increased margins the stock was moving around so much that it could be worth 100 or 500 in a day.

further for every long call, there is a short call. The numbers got too big and the volatility too high.

think 3mm options represent 300mm shares on a stock moving 100 dollars in a few minutes: 30bn of notional risk. 5x the number of shares outstanding and no reasonable determination of what would be in the money or out of the money.

Add to that the number of trades that are going on and the capital that has to be fronted with the clearing houses to support that.

There is NO systematic risk if all brokers take cash-only trades and no shorting with shares. Then there would be no risk of not being able to meet obligations from the buy-side especially from the retail level. Then if there is still risk, then it would be on the MM's side and that's not our problem. They've made enough from us. They should be able to make good on their side.

 

[Dicer]

Exactly, cash only or raise margin requirements and don’t have shares to borrow short. To only allow closing long positions at the very moment the big boys are throwing a tantrum via CNBC is just way to fishy c,on man. Some of these stocks were up 1000% already, before the media frenzy...where was their risk management then?

This is like having the field goal post of one side moved further away in the middle of the super bowl because the other team is crying like a bitch

Yes. If those big boys lose too much money in short sell positions, IB should margin call them and close all their positions.

 

[newwurldmn]

The fact that robinhood needed to raise billions of dollars highlights the operational problems (vs the risk problems) the gme trading action caused.

 

[maxinger]

https://www.cnbc.com/video/2021/01/...an-worried-about-integrity-of-the-market.html

Where is your evidence to show that IB might go bankrupt ?!

 

[Dicer]

Where is your evidence to show that IB might go bankrupt ?!

Those short sellers may not have enough money to close their positions. As a result, IB needs to pay with IB money.

I am just worried of its probability

 

[MoreLeverage]

Then why did Robinhood, WeBull and others have to find liquidity overnight to handle clearing requirements?

Think of it as a margin call on the brokerage firm, not the individuals. The clearing requirements for Robinhood brokerage for settling up the last two days of customer trades depend on the net stock trades and the stock volatility, so you can see how if your customers buy a ton of GME, your normal brokerage capital won’t be enough.

also, IB has tons of extra capital. They’re just being cautious and annoying.

 

[guru]

Those short sellers may not have enough money to close their positions. As a result, IB needs to pay with IB money.

I am just worried of its probability

They would’ve already closed such positions as soon as there was margin risk. IB doesn’t have any problems instantly buying back shares for someone who shorted them. They even increased margin requirements to make sure that IB itself is protected.
They also restricted trading in those stocks to protect themselves and therefore the customers, so there is zero risk for IB.
That’s also the reason they’re bringing attention to the issue, explaining that volatile instruments are risky, while IB is always proactive and obsessed with managing risk.

And btw, they do have a right to halt trading in securities since IB customers agree to this when opening an account.
This also affects me negatively, but there are too many benefits of staying with IB, including their risk management.
Though I may open an additional account with a different broker in the future, just to have more choices at times like this.

 

[lpope]

I think IB should have continued to allow trades that don't pose risk to the firm like long stock, long options, short cash covered puts, and short covered calls. I'm a little annoyed I was prevented from turning a short call into a short straddle on one of the blacklisted names, which is usually considered a derisking trade.

Maybe I'm reading too much into TP's comments but I wouldn't be surprised if the SEC and clearing houses were hinting to brokers that they need to curtail the casino action, which I'd expect IB to be especially sensitive to given they're already in the SEC doghouse and have no influence in DC.

JSOP, no options under your cash only markets scenario so no gamma squeeze. Liquidity providers have brokers too.

 

[maxinger]

Those short sellers may not have enough money to close their positions. As a result, IB needs to pay with IB money.

I am just worried of its probability

well. it makes sense.
definitely, IB will attempt to come after those who owe IB $$$$.

 

[DiceAreCast]

I am surprised nobody here identified the real problem, T+2. It's shocking that clearing houses still do not require performance bonds posted in their accounts for each member firm and that those member firms can only execute as much as the performance bond represents. The bond can be interest bearing. Any member firm should be required to not just hold those funds in their own bank's segregated accounts but directly with the clearing house. Or otherwise the clearing house should have direct access to those segregated funds. How it plays out in detail is something else but the concept is very simple. Why has this not happened. Particularly the US exchanges are incredibly antiquated when it comes to settlement and clearing technology.