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InteractiveBrokers "hyper-hypothecates" $14.5b of Customer Funds?
- Thread starter Chicago_CTA
- Start date
Quote from IB-AN:
Recently, much has been written about the safety of customer assets held by brokers and we believe that customers are justified in their concerns. And so, we are writing to help clarify your understanding of how brokers are permitted to operate and, in particular, how Interactive Brokers protects its customers assets while servicing their needs to trade on margin.
Thank you IB-AN for posting this information. Indeed, the Reuters article may need some corrections.
With all the different numbers in those statements and the different "experts" flying around here and interpreting on their own, it's hard to not get confused and worried.
Quote from Daal:
Please list the 'proprietary operations'(Any sort of risk that IB is taking that is not in US treasuries, Agencies or FDIC guaranteed debt) from IB and how they are financed
Did you not read the "DOES NOT IN ANY WAY" part of the sentence? They just said they do not do that.
Quote from MYDemaray:
Looking at the Reuters article it had some key errors. The first is pointed out by the IB statement above. But moreso, it claims that MF had $70Mn in repo agreements....the real number was $70Bn (according to their own financials).
I've now dug through MF, IB and Bank of NY Mellon's financials. Even though the red flag of being "off balance sheet", these exposures are laid out in the footnotes to the financials...so I'm not sure everyone needs to freak out. The biggest red flag is that MF had repo liabilities which far exceeded their repo assets. I'm assuming the difference had to be made up by collateral posting. The spread was over 10x MF's equity value...that's scary. Compare that to IB where the repo assets exceed repo liabilities by nearly 4x, or $12bn. The repo liabilities are approximately 1x IB's shareholder equity. Totally different leverage profiles.
I think we should start a thread that monitors the repo assets to repo liability ratio's of the major brokers on a full time basis.
So if a firm's ratio got up to MF Global like levels in the future the EliteTrader community would be alerted and can take action.
Quote from Daal:
Are you saying you IB only has utilized 6% of its right to pledge?
If you refer to the balance sheet, you'll note that customer receivables (e.g., margin debits) total $9.31 billion which at 140% total approximately $13.0 billion. You are correct in that we do don't fully utilize this capacity.
Quote from IB-AN:
If you refer to the balance sheet, you'll note that customer receivables (e.g., margin debits) total $9.31 billion which at 140% total approximately $13.0 billion. You are correct in that we do don't fully utilize this capacity.
Here is a key question.
Lets say that a broker does re-hypo 140% of the assets and then for some reason the broker immediately declares bankrupcy.
Now you have assets that theoretically part of a customer's account at another firm.
Assuming all rules have been followed, are customer accounts still segregated? What happens to the re-hypo assets when a firm goes under?
I ask this because while I'm glad IB appears to be using only a small part of its re-hypo capacity, there is no guarantee that this won't change in the future, especially if IB itself ever faces a liquidity crunch.