InteractiveBrokers "hyper-hypothecates" $14.5b of Customer Funds?

Quote from zboy2854A:

Then he shouldn't have bothered to say anything at all here. His post raises more questions than it answers. He says there is a misunderstanding here of hypothecation, then goes on to say nothing at all to explain it properly.

Meanwhile, it's not even hypothecation that is the bugaboo, it's re-hypothecation, as per the Reuters article. That is, when the firm uses the customer's funds and assets to backstop the firm's own trades.

The fact that IB is in the mix engaging in re-hypothecation with the other firms that are "too big to fail" is a huge red flag. Because IB is not one of those "too big to fail" firms.

And as others here have said, the lack of transparency and further forthcoming information by brokers in light of the MF Global disaster, is genuine reason for concern by the rest of us. And as brokers such as IB and others continue to stay relatively silent or opaque, the more distrust and concern they will sow.

The bottom line is that we are living in a time right now where neither the government and regulators, nor the firms themselves, can be trusted. Even if you are SIPC covered, do you really want to be with a firm that is putting your money at risk such that you would have to go through the hellish process of dealing with a collapse and getting your money back from the SIPC? I certainly don't. Truth is, we are now living in an environment where the only party you can trust is yourself. Period.

A wise man once said that in a secular bear market, return OF capital is more important than return ON capital. There's a reason during the First Great Depression people stuffed their money in their mattresses and the walls of their homes. If things keep going the way they're going, I suspect we'll see that make a return.
Bottom line--caveat emptor. We're on our own, folks.
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Well stated .
 
Quote from Ghost of Cutten:

One major problem here is that is seems very difficult, even *after* the MF crisis, for a normal customer to be able to find a simple trading account where they know their money is not used for anything other than funding their own trading, where the assets are held in their own name, where the credit risk is essentially zero.

Yes, we know this would be more expensive. Personally my trading volume is pretty low, so I would not mind paying 10 times the commissions in order to reduce credit risk to zero. So, where is the conservative futures broker that offers this?
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The first brokerage firm to credibly and competently do this should see an enormous influx of client funds. The costs will be higher but I bet most customers would prefer to pay a fair cost per RT in exchange for having security of funds. No one wants to risk 100% loss of life savings to save $1 per round trip.
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I totally agree. Brokers might as well use client funds to write teeny puts, keep them off the books, and pay the premium back in lower costs. All the bs out of cme group about how their products allow their customers to better manage risk is a joke at this point. Thanks to the brokers, all they allow for is their customers to trade known, quantifiable risk, for unknown, unquantifiable risk. It's totally insane. I'd be only half surprised to find out that the exchanges are now lobbying for their brokers to be more heavily regulated, like opposite day in Washington.
 
The concept of raising commissions/costs 10-fold would most likely drive all the customer traffic elsewhere. Instead, clients would just pare down their exposure to the bare minimum and operate per usual at the low cost provider.

It's also not written in stone that if an FCM were to raise these costs 10-fold that they would then stop playing fast and loose with the loopholes. Instead, it would more than likely incentivize them to really push the envelope of firm profitability. We are talking about the financial industry where any nook and cranny is explored to make another buck.

I'll repeat it until I'm blue in the face. It's ZIRP, stupid.
 
so who is on your side and who is on the side of the people who want to continue to use these tricks and loopholes against you?


"As they promised they would, the overwhelming majority of Republicans on Wednesday filibustered Richard Cordray, the man President Obama tapped to be the director of the new Consumer Financial Protection Bureau -- an agency tasked with mitigating fraudulent and dangerous financial products."
 
That article knocking SIPC is ridiculous too -- I was shocked that those invested in Madoff expected to be covered by SIPC -- there was no brokerage or financial institution failiure there, they INVESTED in a fraud -- Enron shareholders did the same thing, should they be SIPC insured? No.
 
when he was smart enough, this problem wasn't even on the radar ..just a scenario...,now that it is,and if we have a meltdown,lets say you were long a boatload of puts and made a killing,but your clearing firm took a bath,what do you think your chances of closing out the acct and getting the cash are....are you still as confident as you were 3 years ago...clearing firm is not going to send out a memo to clients warning them of future solvency
 
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