InteractiveBrokers "hyper-hypothecates" $14.5b of Customer Funds?
- Thread starter Chicago_CTA
- Start date
If you're trading equities, then what do you have to worry about when you're SIPC insured.
I understand the fear if you trade futures but not equities. If you trade futs I'd be concerned at any firm after MF -- would strike the fear of g-d in me.
I understand the fear if you trade futures but not equities. If you trade futs I'd be concerned at any firm after MF -- would strike the fear of g-d in me.
That's a bit extreme. The better solution is to move stock positions out of futures or mixed accounts (futures + stocks), into pure stock-only firms. Then, retain say 20-30% of capital at a futures broker, which is enough to cover margin and normal losses. At that level, you are more likely to lose 20-30% through normal trading losses than you are by your broker going bust and having a 0% recovery rate.
For further risk control, you can set a stock price alert to give you warning of any impending problems, then wire out on the first sign of trouble.
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Wow - pretty serious accusations here but how many of you really understand what hypothecation is? This is all about margin and stock loan. Remove the ability to hypothecate and you might as well suck out a massive amount of liquidity from the system.
First, let me get this out of the way. The accusations or assumptions that IB client money is used to fund Timber Hill are completely false. The companies are separate.
Client money is segregated. However, if you utilize margin and are long shares, IB can lend some of those shares out to others. These are not risky loans as there are limits on how much can be lent and they can be recalled at anytime and marked to market real time. Those are the rules, they are fair, not risky and add a ton of liquidity into the system.
The comments and fears presented here are a classic over-reaction to margin lending. Do not put IB or other firms on the same plate as MF. IB has a very strict policy when it comes to margin and deficits (ie. real time liquidations) and a very conservative risk management and investment policy. Many clients scream that they want more margin and that the stock loan list isn't long enough and now many of you are calling the kettle black. Before believing everything you read, do your homework and then decide if the practice is risky. Some banks are silly when it comes to greed and what they lend out. Others are not. IB has a long history of being conservative and risk adverse. Our large capital base and handling of client credit should also provide additional comfort. Many of the comments and assumptions on this thread are baseless.
Let's not over-react and create fear where their should be none - and I say this in regards to the comments on the other firms mentioned in this thread as well.
I need to put in a days work now so do not expect any replies for quite some time from me. I agree this is something that needs further clarification so you can be better educated on the subject as well as placate the unfounded fears expressed here. However, this this discussion should be for the industry and not single out IB.
First, let me get this out of the way. The accusations or assumptions that IB client money is used to fund Timber Hill are completely false. The companies are separate.
Client money is segregated. However, if you utilize margin and are long shares, IB can lend some of those shares out to others. These are not risky loans as there are limits on how much can be lent and they can be recalled at anytime and marked to market real time. Those are the rules, they are fair, not risky and add a ton of liquidity into the system.
The comments and fears presented here are a classic over-reaction to margin lending. Do not put IB or other firms on the same plate as MF. IB has a very strict policy when it comes to margin and deficits (ie. real time liquidations) and a very conservative risk management and investment policy. Many clients scream that they want more margin and that the stock loan list isn't long enough and now many of you are calling the kettle black. Before believing everything you read, do your homework and then decide if the practice is risky. Some banks are silly when it comes to greed and what they lend out. Others are not. IB has a long history of being conservative and risk adverse. Our large capital base and handling of client credit should also provide additional comfort. Many of the comments and assumptions on this thread are baseless.
Let's not over-react and create fear where their should be none - and I say this in regards to the comments on the other firms mentioned in this thread as well.
I need to put in a days work now so do not expect any replies for quite some time from me. I agree this is something that needs further clarification so you can be better educated on the subject as well as placate the unfounded fears expressed here. However, this this discussion should be for the industry and not single out IB.
"Hypothecation is the practice where a borrower pledges collateral to secure a
debt. The borrower retains ownership of the collateral, but it is "hypothetically"
controlled by the creditor in that he has the right to seize possession if the
borrower defaults. A common example occurs when a consumer enters into a
mortgage agreement, in which the consumer's house becomes collateral until
the mortgage loan is paid off.
The detailed practice and rules regulating hypothecation vary depending on
context and on the jurisdiction where it takes place. In the US, the legal right for
the creditor to take ownership of the collateral if the debtor defaults is classified
as a lien.
Rehypothecation is a practice that occurs principally in the financial markets,
where a bank or other broker-dealer reuses the collateral pledged by its clients
as collateral for its own borrowing."
see 'Rehypothecation' and 'Rehypothecation in repo agreements'
http://en.wikipedia.org/wiki/Hypothecation
debt. The borrower retains ownership of the collateral, but it is "hypothetically"
controlled by the creditor in that he has the right to seize possession if the
borrower defaults. A common example occurs when a consumer enters into a
mortgage agreement, in which the consumer's house becomes collateral until
the mortgage loan is paid off.
The detailed practice and rules regulating hypothecation vary depending on
context and on the jurisdiction where it takes place. In the US, the legal right for
the creditor to take ownership of the collateral if the debtor defaults is classified
as a lien.
Rehypothecation is a practice that occurs principally in the financial markets,
where a bank or other broker-dealer reuses the collateral pledged by its clients
as collateral for its own borrowing."
see 'Rehypothecation' and 'Rehypothecation in repo agreements'
http://en.wikipedia.org/wiki/Hypothecation
The problem with IB is that it's a boat in an ocean full of thieves and asshats. The entire industry seems to be based on the principle that if you hire smart enough people, you can defraud the country in clever enough ways that you keep your money and stay out of jail even when you get caught. So everyone does the same trade, and it's totally normal and completely safe. But some of them go 'Poof, it's gone!' So you're left in a position where you have to trust CEOs to do the right thing when over the last 10+ years people have been continually punished for trusting CEOs to do the right thing.
I need to get back to reading more of the onion and less of the times. I get too wound up in how insanely stupid all this stuff is.
I need to get back to reading more of the onion and less of the times. I get too wound up in how insanely stupid all this stuff is.
