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

[comintel]

Quote from zboy2854A:

I never said they would, simply pointing this fact out for anyone who thought that IB-AN's response was specifically responding to the questions in this thread. It was not, and most of the questions still asked in this thread remain unanswered.

So in light of this fact, IB-AN's boilerplate cut and paste press release post becomes much less significant, and I for one as an IB client would be much more satisfied if he actually bothered to address the specific questions many of us have asked here.

The point is that they have answered the original allegations in a satisfactory manner. IB-AN posted it after DEF said he would try to obtain a response from his US colleagues so I think it is very likely that DEF did forward to IB-AN and that the thread here was input to the response (along with customer inquiries).

It is not necessarily practical for them to comment on every follow-up question where those questions often are vague and would not really clarify the issue, which is simple enough.

Basically, it has all been *totally* denied, with specific reference to balance sheet amounts, and that is as much as need really be said.

 

[zboy2854A]

Quote from comintel:

The point is that they have answered the original allegations in a satisfactory manner. IB-AN posted it after DEF said he would try to obtain a response from his US colleagues so I think it is very likely that DEF did forward to IB-AN and that the thread here was input to the response (along with customer inquiries).

It is not necessarily practical for them to comment on every follow-up question where those questions often are vague and would not really clarify the issue, which is simple enough.

Basically, it has all been *totally* denied, with specific reference to balance sheet amounts, and that is as much as need really be said.

For some, perhaps. But when we live in a world of rampant off-balance sheet transactions and shadow banking operations, a boilerplate denial by any financial firm these days only provides comfort to those desperately hoping for such.

Bottom line, in this toxic economic and financial environment where in many cases counterparty risk cannot be even identified, hoping for the best is fine, but planning for the worst is the prudent course of action.

If you find the response to be adequate for you to go back to business as usual, that is your prerogative. For myself, I will continue to take it with a grain of salt, and have and will alter my actions to reflect maximum protection. If my course of action proves overly cautious or unnecessary in the final tally, that's fine, I can live with that. YMMV.

 

[piezoe]

There are two key points made in the Reuters article that apparently some have missed. 1st paragraph under heading US Rules: "140% of client's liability" (italics mine)

and then in the second paragraph that begins "But in the UK..." one reads:
"...free to re-hypothecate all and even more than the the assets deposited by clients..."

There may be a very large difference between "assets deposited" and "client's liabilities..."

What is needed is a simple change in regulations cutting off the option of getting around the U.S. rules by holding Client assets outside the U.S.

140% of client liability to the broker is a reasonably small amount of leverage.

This would also make it much easier for brokers to obtain insurance on futures accounts at reasonable rates.

 

[Options12]

Quote from comintel:

The point is that they have answered the original allegations in a satisfactory manner. IB-AN posted it after DEF said he would try to obtain a response from his US colleagues so I think it is very likely that DEF did forward to IB-AN and that the thread here was input to the response (along with customer inquiries).

It is not necessarily practical for them to comment on every follow-up question where those questions often are vague and would not really clarify the issue, which is simple enough.

Basically, it has all been *totally* denied, with specific reference to balance sheet amounts, and that is as much as need really be said.

IB is still participating in these threads, aren't they?

Not all of the questions are too vague to be answered.

 

[comintel]

Quote from Options12:

IB is still participating in these threads, aren't they?

Not all of the questions are too vague to be answered.

I agree with you.

I imagine that it is quite expensive for them in terms of management time to research and answer questions, especially in regulatory-sensitive areas where answers may have to be vetted and approved by multiple people.

Already, they are far better than other brokers in the amount of time they devote to this forum.

However, the payback to them is enormous if they could go just a little further and attempt to deal with every reasonable question.

Probably people should re-post still-unanswered questions.

 

[Trvlwanderer]

Quote from Free Thinker:

no wonder these big wall street firms fought so hard against Obama's Consumer Financial Protection Bureau . this is exactly the kind of thing that should be illegal.

Wow.

If thinking is indeed free, you should get off the couch once in a while and put down the kool-aid jug.

twit.

 

[dont]

Off the IB website

In light of the recent bankruptcy of MF Global, customers should understand how it is possible to lose money in the event of their broker’s bankruptcy. Despite all of the protections described above, there are still two ways a customer can lose money without losing it to the market:

If, in violation of the reserve and segregation rules, the broker does not keep some customer monies segregated, either by not putting newly deposited monies in the segregated account or if money is transferred out of segregated accounts for some other purpose, then there can be a shortfall. This may have happened at MF Global.
Customers can lose more money in the market than they hold with the broker. When this happens the broker is obligated to make up the deficit from its own funds. If the broker fails to do so, (i.e., has not sufficient capital of its own to make up for the losses) and SIPC (and, if offered, excess-SIPC) coverage is insufficient or unavailable, then the other customers bear the cost of that shortfall. This, too, may have happened at MF Global.

MF-Global stole the money, Corzine and his clown directors should be in Jail.

 

[def]

Quote from dont:

Off the IB website

In light of the recent bankruptcy of MF Global, customers should understand how it is possible to lose money in the event of their broker’s bankruptcy. Despite all of the protections described above, there are still two ways a customer can lose money without losing it to the market:

If, in violation of the reserve and segregation rules, the broker does not keep some customer monies segregated, either by not putting newly deposited monies in the segregated account or if money is transferred out of segregated accounts for some other purpose, then there can be a shortfall. This may have happened at MF Global.

Customers can lose more money in the market than they hold with the broker. When this happens the broker is obligated to make up the deficit from its own funds. If the broker fails to do so, (i.e., has not sufficient capital of its own to make up for the losses) and SIPC (and, if offered, excess-SIPC) coverage is insufficient or unavailable, then the other customers bear the cost of that shortfall. This, too, may have happened at MF Global.

il.

Here is the link for the updated strength and security info on our site as a number of other items, such as the banks used for client funds, are addressed.

http://individuals.interactivebrokers.com/en/p.php?f=ibgStrength

 

[Nick29]

Thanks Def, I like this line "IB is presently working with securities regulators for permission to switch to a daily reserve computation."
Currently it's weekly.

 

[taclander]

I won't bash IB on this issue, as in most cases a new law/regulation ends up being implemented due to some useless POS who couldn't follow basic moral and ethical guidlelines. At a point we accept that a company/person is honest, and then we find out down the road whether the assumption was good.
For those who throw out the idea of: "well it was in the fine print, and it is your own fault for not understanding", you are complete morons. I have no problem reading any document I sign, but I also expect to be able to ask someone to clarify questions, and that doesn't happen, ever, in my experience. You don't get the priviledge of talking to the lawyers and CPAs who make this crap up. I cross things out in the contracts at auto dealerships everytime I buy and you should see the salesman, manager, finance guy go ballistic. I admit some of it is to irritate, but to bad.
I remember when we had our 1st son. The wife was really uncomfortable and in pain as she had complications, and the head nurse throws out that she would be bringing in a student nurse to observe. My wife was in no mood, to say the least. She said no, and the head nurse said well when you came in you signed off on students coming in. Now my life was in danger, as I signed the paperwork. The water had broken she was in distress, and she needed to be admitted. My wife composed herself and told the nurse to f--- off and if she brought anyone besides the doctor in they would have a big problem. The wife doesn't like the f--- word at all, so lives were in jeporady. The nurse started talking, and to make a long story short, she reconsidered immediately and the student stayed away.
My point being the paperwork and fine print is bullshit to a large extent. It is written to not be understood by most anyone, and to question it you have to jump through more than hoops to find someone that can explain or understand it. My experience at IB is that other than maybe DEF and IB AN the typical customer service agent has not a f------ clue. You are stuck with your own due diligence, but MF Global is a prime example of how it can go wrong anyway.
As an aside, I feel confident that pregnant women would end wars much faster. Have them as generals and soldiers. There will be no middle ground or political correctness. It would be accept or die, die quickly and violently.