Interactive Brokers Fined $5.5 Million for Naked Short Selling Violations

Lee- said:
Basically Thomas Peterffy. I've read their reports a couple times which explains it in detail, but this image I just found on their site pretty much highlights it:

about_ib_company_tree.png


Effectively IBG LLC is the broker that we all know. IBKR (the stock) is the "Public Stockholders" in the attached image. "Members of IBG Holdings LLC" is effectively Thomas Peterffy and a few associates. As you can see, the IBKR stock effectively only owns 17.8% of the brokerage itself by way of "Interactive Brokers Group, Inc", but the majority ownership and voting power are controlled through IBG Holdings LLC, which is not publicly traded.
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So what does IBG LLC own? Does it own all of the brokerage firms like IB Canda, IB UK, IB Hong Kong and etc.? There is no lines extending from IBG LLC. It looks like it doesn't own anything. LOL
 
Visaria said:
Not sure if I follow that graphic. To me it seems like ibg holdings llc own 17.8% with 82.2% voting rights.
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I believe your understanding is correct with respect to ownership of "Interactive Brokers Group, Inc.", but what we know of as "interactive brokers" -- the part that matters and generates all of the revenue -- is "IBG LLC" and "IBG Holdings LLC" owns 82.2% of the economic interest in "IBG LLC".

JSOP said:
So what does IBG LLC own? Does it own all of the brokerage firms like IB Canda, IB UK, IB Hong Kong and etc.? There is no lines extending from IBG LLC. It looks like it doesn't own anything. LOL
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It is my understanding that IBG LLC owns 100% of all of the entities listed below "IBG LLC" (what we think of as interactive brokers) at the bottom of that image. However, when you buy IBKR stock, you are not buying "IBG LLC", you are buying part of the 100% economic interest and 17.8% voting interest in "Interactive Brokers Group, Inc", but this entity in turn owns 17.8% economic interest in IBG LLC (what we know of as interactive brokers). So in effect, if you owned 100% of IBKR stock, you would only own 17.8% of IBG LLC (the piece that matters).

When I first was reading this, I thought this seems rather convoluted, but then I started thinking of it in terms of how hedge funds are set up where you effectively have 3 pieces: the fund itself, a managing partner, and an entity (or entities) that provides the investment. If we apply this structure, then IBG LLC is like the fund itself, the "managing partner" would be Interactive Brokers Group, LLC, and IBG Holdings LLC is the investor in IBG LLC. When you buy IBKR stock, you're investing in the managing partner.

The short of it though is that Thomas Peterffy personally owns greater than 50% of both economic and voting interest in everything that matters.
 
Lee- said:
It is my understanding that IBG LLC owns 100% of all of the entities listed below "IBG LLC" (what we think of as interactive brokers) at the bottom of that image. However, when you buy IBKR stock, you are not buying "IBG LLC", you are buying part of the 100% economic interest and 17.8% voting interest in "Interactive Brokers Group, Inc", but this entity in turn owns 17.8% economic interest in IBG LLC (what we know of as interactive brokers). So in effect, if you owned 100% of IBKR stock, you would only own 17.8% of IBG LLC (the piece that matters).
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Thanks for the explanation. Yes 17.8% voting and economic interest in the whole company. Basically for each $ that IB makes, you only make 17.8 cents and if anything happens, you as the shareholder only has 17.8% say of the matter. IB is pretty much a private company to me. Elon Musk would love this arrangement! Get all the money he needs in financing but still retain 100% control of the company. LOL

Lee- said:
When I first was reading this, I thought this seems rather convoluted, but then I started thinking of it in terms of how hedge funds are set up where you effectively have 3 pieces: the fund itself, a managing partner, and an entity (or entities) that provides the investment. If we apply this structure, then IBG LLC is like the fund itself, the "managing partner" would be Interactive Brokers Group, LLC, and IBG Holdings LLC is the investor in IBG LLC. When you buy IBKR stock, you're investing in the managing partner.

The short of it though is that Thomas Peterffy personally owns greater than 50% of both economic and voting interest in everything that matters.
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Seeing how the company is run, not surprised. Thomas Peterffy is a multi-billionaire, by nickel and diming every single of his clients and nobody has any power to stop him.
 
JSOP said:
Thanks for the explanation. Yes 17.8% voting and economic interest in the whole company. Basically for each $ that IB makes, you only make 17.8 cents and if anything happens, you as the shareholder only has 17.8% say of the matter. IB is pretty much a private company to me. Elon Musk would love this arrangement! Get all the money he needs in financing but still retain 100% control of the company. LOL



Seeing how the company is run, not surprised. Thomas Peterffy is a multi-billionaire, by nickel and diming every single of his clients and nobody has any power to stop him.
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Well Elon only owns around 20% of TSLA, I think Peterffy is around 70-80%. ;) I think the Zuck has > 50% voting in FB.

The investors may not have any power to stop him, but they can simply not own the shares. As for his customers, they could leave if they were better served elsewhere. I've seen a thread where you've talked of leaving IB. Unfortunately for the trade size and volume that I do, IB seems the best deal (for me). I realize everyone has different criteria. I'm actually OK with the quality of service and commissions I get at IB. Don't get me wrong, I pay a few hundred in commissions per month and I'd love to pay less, but I seem to be in a sort of middle area with regards to my requirements, account size, and trading volume such that IB seems the best fit. I think there's an under served market that someone is going to capitalize on. TW is close, but I'm doing too low of size per trade to get a better deal with them and they need to publish their API. If I had about 5-10x the capital I'd probably be at lightspeed or TW. I also have an account at TDA, but IB is my primary.

The big question I have is how execution differs between brokers (equity options). Much more difficult to know for sure than things like commissions, interest rates, etc.
 
What is the fine per naked short sell violation? I got hit with a few illegal short sales 10+ years ago, but they were only $25 each(plus lost profits).
 
Robert Morse said:
We have risk setting on Lightspeed Trader that can restrict short selling by request. Why don't you call and wait on the phone for 30 min at your favorite broker to find out if they also have that setting. We can also set max loss limits per day which is very popular with day traders.

Bob
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I have asked. No reply for days from Interactiver brokers. I guess they don't have such a settings, hence the silence. Any IB representatives here?
 
helpme_please said:
I have asked. No reply for days from Interactiver brokers. I guess they don't have such a settings, hence the silence. Any IB representatives here?
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I was being sarcastic when I said 30 min. Last week I got the request from two different clients to set their max loss to $500. Both requests were completed in under 5 min.
 
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