Interactive Brokers fails to dismiss ex-client’s complaint over negligent position liquidation

[qlai]

What have client order types to do with this issue?

I suspect that liquidation is not 100% automatic - that would be stupid (could cause all kind of market instability like flash crash). So I assume there is some account rep which looks at the account positions and initiates liquidation via some algo of his choosing. That's is why I think the negligence could be claimed. I suspect they claimed that Frank chose poorly and Frank said he just followed procedures and it's up to the algo. Just my guess.

 

[GRULSTMRNN]

I am absolutely sure it is fully automatic. There is no reason to have it managed by someone manually. It would also strongly weaken IB's legal position, anyone could accuse IB of improperly liquidating positions or unfairly prioritizing some clients over others.

I suspect that liquidation is not 100% automatic - that would be stupid (could cause all kind of market instability like flash crash). So I assume there is some account rep which looks at the account positions and initiates liquidation via some algo of his choosing. That's is why I think the negligence could be claimed. I suspect they claimed that Frank chose poorly and Frank said he just followed procedures and it's up to the algo. Just my guess.

 

[GRULSTMRNN]

No way that SPX puts premium would change >78 dollars within 19 seconds. Not on that day, perhaps during the flash crash. And no, quotes in index options during trading sessions are not 0.15/85 wide for sure.

As many of you know, options can get super wide in a fast market. I looked at the data for 8/24/15 and the SP was down 100 points (about 5%) at one point, so obviously his short puts were getting hammered.

When these automated liquidation algorithms start running, they just dump market orders out there. It's not hard to watch a B/A spread go from $4.50/$6.00 to $0.15/$85.00 in a millisecond as the computers add/remove orders. I've always felt like that was the unfair part of the entire process - that you could have a contract worth maybe $5.25 and it gets liquidated at $64.00 or something unbelievable.

I'm not saying that happened here, but it seems possible.

 

[tonyf]

I suspect that liquidation is not 100% automatic - that would be stupid (could cause all kind of market instability like flash crash). So I assume there is some account rep which looks at the account positions and initiates liquidation via some algo of his choosing. That's is why I think the negligence could be claimed. I suspect they claimed that Frank chose poorly and Frank said he just followed procedures and it's up to the algo. Just my guess.

Can't be any clearer: https://gdcdyn.interactivebrokers.com/Universal/servlet/Registration_v2.formSampleView?formdb=3203

 

[Rickshaw Man]

Brokers determine margin, they can and do change it at will......IB is notorious for its margin tricks.

 

[Rickshaw Man]

No way that SPX puts premium would change >78 dollars within 19 seconds. Not on that day, perhaps during the flash crash. And no, quotes in index options during trading sessions are not 0.15/85 wide for sure.

You must not be to familiar with IB.

 

[GRULSTMRNN]

Only 15 years. And how wide markets are and at which levels they trade has nothing whatsoever to do with IB. Show me where an index option changed in premium by 1085% (from 7.xx dollars to 83.xx dollars) within 19 seconds other than during the flash crash. Obviously IB's liquidation algorithm did not function as intended if the numbers in the law suit are correct.

You must not be to familiar with IB.

 

[GRULSTMRNN]

If you are remotely suggesting that IB changes margin in order to push clients into margin deficits then you are nuts. If you refer to other margin adjustments then it's in the eye of the beholder whether that is interpreted as a trick but certainly has nothing to do with the case at hand. If IB changed margins during the time span in question then it would be mentioned in the suit.

Brokers determine margin, they can and do change it at will......IB is notorious for its margin tricks.

 

[Rickshaw Man]

If you are remotely suggesting that IB changes margin in order to push clients into margin deficits then you are nuts. If you refer to other margin adjustments then it's in the eye of the beholder whether that is interpreted as a trick but certainly has nothing to do with the case at hand. If IB changed margins during the time span in question then it would be mentioned in the suit.

The time is question is clearly a volatile period or the option positions would not have been liquidated. IB clearly has to much exposure to the markets world wide and lean to heavily on algo to protect them. I have never seen a broker raise margin requirements as fast as IB. I can say they have the highest overnight futures margin.

 

[tonyf]

The time is question is clearly a volatile period or the option positions would not have been liquidated. IB clearly has to much exposure to the markets world wide and lean to heavily on algo to protect them. I have never seen a broker raise margin requirements as fast as IB. I can say they have the highest overnight futures margin.

too x2