IBKR suddenly changed margin requirements?

[manic]

A few months ago, IBKR raised margin requirements on high yield bond ETFs, from 15% to 25%. Now, however, it looks like they have a margin requirement of only 5%. Meanwhile, my emerging market bond ETF went from having a margin requirement of 15% to having a margin requirement of 25%. All of this happened without warning.

Did anyone else notice this or have an idea of what is going on?

 

[d08]

Risk modeling?

 

[manic]

Risk modeling?

Either something changed or my memory is off.

My recollection is that I had to put up the same percentage margin whether I bought 100 shares or 10,000 shares of fixed income ETFs. Now, it seems that the margin requirements start at 5% and go up as I increase my position size. This is true even for ETFs that previously had high margin requirements, such as junk bonds or preferred stocks -- they start at 5% now.

Overall, I prefer the new system, but it would have been nice to get a warning.

 

[Sig]

Reg T or PM account?

 

[manic]

Reg T or PM account?

PM

 

[Sig]

Changing margins are inherent in PM with any broker I believe due to the stress test methodology. With IB there's a whole additional layer of randomness that comes from "The Algorithm" which rules the company with an iron fist and dare not be questioned. I found PM to be effectively worthless at IB because there's no point in having additional margin when it's subject to a margin call at any time solely based on the whim of a black box not even they understand let alone are willing to provide information on. That of course precludes you from using any of the PM, which makes it perfectly useless.

 

[Gabriel2]

Maybe your current portfolio is more concentrated than few months ago.
Some brokers increase margin Requirements with concetrated portfolios.

 

[MoreLeverage]

All of this happened without warning.

You must have missed your alert. I received the email below on Dec 19th, one week ahead of the beginning of the margin requirements transition and three weeks before their full implementation.

——

“You are receiving this communication because you currently hold or have recently held a position (stock or derivative product) in one or more High Yield Fixed Income Exchange Trade Products (ETPs). This communication is intended to inform you of upcoming changes to the margin algorithm that is specific to these products.

Beginning December 23, 2019, Interactive Brokers will begin phasing in changes to minimum margin requirement for High Yield Fixed Income Exchange Traded Products (ETPs). Currently, the minimum margin requirement for High Yield Exchange Traded Products is based on a price scan of +/-15%. The new methodology for High Yield Fixed Income Exchange Traded Products will have a price scan range of +/-25%.

These changes, which are expected to result in increased margin requirements, are scheduled to be implemented in a series of daily increments over a 10 business day period, effective beginning on trade-date December 23, 2019 and continuing daily, with completion expected on trade-date January 7, 2020, excluding all US trading holidays. Changes will be implemented, on each trade-date, sometime after the close of regular trading hours in New York.”

 

[MoreLeverage]

My recollection is that I had to put up the same percentage margin whether I bought 100 shares or 10,000 shares of fixed income ETFs. Now, it seems that the margin requirements start at 5% and go up as I increase my position size. This is true even for ETFs that previously had high margin requirements, such as junk bonds or preferred stocks -- they start at 5% now.

Generally IB margin requirements can increase as you increase your position, for example if your portfolio starts getting heavily concentrated, you start owning a non-zero percentage of all shares of the security, or if the overall IB ownership of a less liquid security exceeds their comfort level. One of these or similar reasons may be why you would see incremental margin requirements higher than the default PM rate of 15% (or 25% now for high yield ETFs).

The fact that for you it’s only 5% now is more unusual. Perhaps given what you hold in your portfolio, buying additional shares of the ETF is a partial hedge against something you hold and is, in the view of the portfolio margin algorithm, reducing your risk.

I checked purchases of the HYG junk bond etf and it was 25% margin requirement currently in my PM account to either buy or to short shares. I have no current position.

 

[manic]

You must have missed your alert. I received the email below on Dec 19th, one week ahead of the beginning of the margin requirements transition and three weeks before their full implementation.

I got that warning. It's why I switched some of my portfolio from junk bonds to emerging market bonds (I preferred the junk bonds). The emerging market bonds had a 15% margin requirement up until Friday, when they suddenly had a 25% margin requirement. Meanwhile, the junk bond ETFs now have a 5% margin requirement. My treasury bond ETF also went from a 9% margin requirement to a 5% margin requirement.

So it does seem that IBKR switched their margin requirements suddenly and without warning. I had an option liquidated on Friday because I failed to meet the new margin requirements, even though my portfolio was up for the day.