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InteractiveBrokers "hyper-hypothecates" $14.5b of Customer Funds?
- Thread starter Chicago_CTA
- Start date
Quote from kgoodfl:
They can only do it if you have a margin loan.
They have been loaning my shares despite no margin loan.
See rule:
http://taft.law.uc.edu/CCL/34ActRls/rule15c2-1.html
What type of margin account do you have? And did IB offer an explanation for the payment-in-lieu?
Quote from braincell:
IB has two accounts for each customer; securities and commodities. The securities account is insured by SIPC. My concern is that IB never disclosed exactly how and when it shifts equity between those accounts based on the activity on the customer. That means if something happens, they can easily claim that the majority of the customer cash was in the commodities accounts because he traded futures at some point. It's very unclear and a bit of a concern to me.
It would be much better and safer if IB stopped doing this behind the curtain and displayed securities and commodities accounts precisely for each customer somwhere in account management pages.
They do disclose each account separately, on your daily statement. By default, in the commodities account there is only the minimum necessary for the futures margin, but also you can customize this option if you want another way.
Quote from bwolinsky:
That all looks good. 140% margin required for every loan, automatic liquidation same-day, Equity value $4 billion+, cash sweeps in segregated accounts, "conservative management", I don't see them misusing customer funds in foreign accounts to circumvent domestric rules, so this default is highly unlikely by Interactive Brokers. They may hyper-hypothecate but this is conservatively managed and usually done for the customer's own benefit wherein trades placed cause IB to pile on, moving the market in the customer's favor if they choose to do so.
Well written, and I don't see anything wrong with their agreements as hyper-hypothecation is a central tenet of good fcm and broker/dealer operations. Cash sweeping from futures accounts to SIPC protected account reinforces my belief that they are as strong as their assets and their word is.
The world would have to have major problems before this firm ever goes under, and even with hyper-hypothecation it is clear that they will close out customer accounts that have become deficient, and that much is good enough for me as long as they follow their own rules, which it sounds like they do.
All clear on the Western Front!
Ok, all panicky-guys out there, stop ventilating for a second and think: how the hell do you think a brokerage firm gets a credit line to obtain funds so that a client can leverage up his account? They have to post a collateral, a guarantee, and that will have to come from the asset the client just bought. Or does anyone think IB would get funding at Fed funds + 30bps for large million USD via unsecured lending? Stop dreaming...
Quote from Options12:
This is a good question.
If you write options and have in your account $100 in cash and some short positions that require $50 in collateral to hold, then can the $100 (or any amount of it) be re-hypothecated?
In this case, out of this $100 cash, $50 bucks is already pledged as margin for the option position. Call it whatever you want, re-hypo-whatever, but until that position is closed that money officially isn't yours. Just like your house in a mortgage.
Quote from achilles28:
Here's a question...
Where do broker-dealers get the leverage to lend to customers?
If a customer can post 1/20th to buy a full contract, why doesn't the Broker post 1/20th to buy the full contract to leverage it's own account? Why the need to rehypothecate customer funds 3 or 4 times to build their own portfolio?
I recognize there's a reason since the later is how it's done, but curious?
Non-sense talk. A futures is just a contract, it never requires to re-hypothecate anything. And I don't get the "Why the need to rehypothecate customer funds 3 or 4 times to build their own portfolio?" Makes no sense at all in IB or any other broker I met, even MF Global.
Quote from dont:
Look at the MFG clause very different to IB's
As far as I can tell IB is just referring to the ability to pass the collateral on. Not you use it as leverage pretty clear from MFG that they will use it to leverage themselves.
From the clauses it looks like MF Global wants to pledge your assets without posting any collateral in substitute, which is very different from lending out a stock against cash as collateral.
Quote from velosoandre:
They do disclose each account separately, on your daily statement. By default, in the commodities account there is only the minimum necessary for the futures margin, but also you can customize this option if you want another way.
And visibly at all times in the Account Window too....