Park spare cash in IB account

[J.P.]

Quote from OneChicago:

You can also sort the page by "Lowest Ask" and you will see negative interest rates. These are Hard To Borrow names that the negative rates reflect the negative rebates charged in the Stock Borrow and Loan worlds. When you see a negative interest that you can buy think of it as you are getting paid the interest to carry the position. In affect you are loaning your stock out and capturing the rebate yourself.

Who would typically use this? (And thanks for all this information on EFPs.)

 

[OneChicago]

Quote from J.P.:

Who would typically use this? (And thanks for all this information on EFPs.)

For the above situation where the SSF are trading in a backwardation mode (given a positive interest rate and a positive time horizon with no dividend due to the use of the NoDivRisk contract the future SHOULD be trading contango) all customers who are looking to get long the particular stock should consider establishing the position via the discounted future. Buying the future and holding it through expiry where it you will take delivery will be a more favorable outcome than buying higher priced stock now.

For traders who have elected Marked to Market accounting, Buying the EFP (SellingStock/BuyingSSF) could be an effective way to capture Securities lending profits for themselves. Remember the discount in the SSF is due to the Sec Lending Rebates in the OTC world. If the trader has not elected Marked to Market then the transfer of the Stock may trigger a tax recognition event which may not be advantageous.

For EFPs that are trading with the future in contango then selling the EFP (BuyStock/SellSSF) is a trade that all participants can use to put idle cash to work. Both the Stock and SSF legs are opened simultaneously which puts the combined position in delta neutral state. As the SSF moves to expiry the premium in the SSF decays as income and on expiration day the long stock is delivered to SSF obligation and the position becomes null leaving the premium decay as yield in your account.

Best.

 

[tenthousandmen]

Whats wrong with a high interest money market?

cheers

 

[Bob111]

Quote from tenthousandmen:

Whats wrong with a high interest money market?

cheers

yeah! opps..what was the rates on typical 'high' interest MM's today?
i was lucky,cause i keep some of my cash on 1.5% MM at some local bank. but such rate is an exemption today..most of 'high yields ' are 0.1-0.3% APR

 

[J.P.]

Quote from OneChicago:

For the above situation where the SSF are trading in a backwardation mode (given a positive interest rate and a positive time horizon with no dividend due to the use of the NoDivRisk contract the future SHOULD be trading contango) all customers who are looking to get long the particular stock should consider establishing the position via the discounted future. Buying the future and holding it through expiry where it you will take delivery will be a more favorable outcome than buying higher priced stock now.

For traders who have elected Marked to Market accounting, Buying the EFP (SellingStock/BuyingSSF) could be an effective way to capture Securities lending profits for themselves. Remember the discount in the SSF is due to the Sec Lending Rebates in the OTC world. If the trader has not elected Marked to Market then the transfer of the Stock may trigger a tax recognition event which may not be advantageous.

For EFPs that are trading with the future in contango then selling the EFP (BuyStock/SellSSF) is a trade that all participants can use to put idle cash to work. Both the Stock and SSF legs are opened simultaneously which puts the combined position in delta neutral state. As the SSF moves to expiry the premium in the SSF decays as income and on expiration day the long stock is delivered to SSF obligation and the position becomes null leaving the premium decay as yield in your account.

Best.

I understand that someone who might want a better price might buy an SSF.

I understand that someone who might want yield on idle cash might sell an EFP.

What I am asking is who might best buy one of the Lowest Ask (negative interest rate) EFPs? I.e., putting aside the mark-to-market issue, in general, would someone who is seeking yield on idle cash, such as the person who sells one of the Highest Bid Rate EFPs, prefer to use this? Would it, in general, be more advantageous in that it might achieve a higher implied interest rate? (Or should an idle cash yield seeker just typically stick with selling one of the Highest Bid Rate EFPs? If not, what is the typical person trying to achieve when they buy one of the Lowest Ask Rate EFPs?)

 

[OneChicago]

Quote from J.P.:


What I am asking is who might best buy one of the Lowest Ask (negative interest rate) EFPs? I.e., putting aside the mark-to-market issue, in general, would someone who is seeking yield on idle cash, such as the person who sells one of the Highest Bid Rate EFPs, prefer to use this? Would it, in general, be more advantageous in that it might achieve a higher implied interest rate? (Or should an idle cash yield seeker just typically stick with selling one of the Highest Bid Rate EFPs? If not, what is the typical person trying to achieve when they buy one of the Lowest Ask Rate EFPs?) [/B]

Very sorry for the confusion. If you are simply trying to find yield for cash then Selling the EFP is the trade you are after. This works with any stock as long as you are simultaneously long the stock and short the SSF.

Investors who are long Hard to Borrow (or even warm to borrow) stocks would be candidates for buying EFPs. They would replace their current stock position (by selling it) with an equivalent delta in the SSF (which is bought via the EFP) that is trading at a discount to the current stock price. This is essentially a Securities lending transaction and the discount in the SSF price is more or less equal to the 'rebate' rate in the Sec Lending world. In effect the investor can share in these profits. BE AWARE that there may be tax consequences associated with selling stocks that have built in gains.

Since the SSF is offered at a discount , investors looking to get long the stock naturally and hold it for a bit of time could establish the position by buying the SSF now and take it to delivery at expiration. Buying the SSF at a discount allows for a lower entry price of the eventual stock position.

Best

 

[J.P.]

Quote from OneChicago:

Very sorry for the confusion. If you are simply trying to find yield for cash then Selling the EFP is the trade you are after. This works with any stock as long as you are simultaneously long the stock and short the SSF.

Investors who are long Hard to Borrow (or even warm to borrow) stocks would be candidates for buying EFPs. They would replace their current stock position (by selling it) with an equivalent delta in the SSF (which is bought via the EFP) that is trading at a discount to the current stock price. This is essentially a Securities lending transaction and the discount in the SSF price is more or less equal to the 'rebate' rate in the Sec Lending world. In effect the investor can share in these profits. BE AWARE that there may be tax consequences associated with selling stocks that have built in gains.

Since the SSF is offered at a discount , investors looking to get long the stock naturally and hold it for a bit of time could establish the position by buying the SSF now and take it to delivery at expiration. Buying the SSF at a discount allows for a lower entry price of the eventual stock position.

Best

I understand. Thank you for this clarification.

 

[J.P.]

Quote from OneChicago:

As a follow up to my last post:

I failed to mention that OneChicago has a more institutionally oriented match engine for blocks and EFPs call BETS. (Block and EFP Trading System) Certain brokers allow orders to be routed to BETS directly which will display the order to a wide array of Delta One desks that can then Hit/Lift orders. Delta One desks are in the business taking the other side of financing transactions.

You should check with your broker as to whether they can or cannot route to this deep pool of liquidity.

Best.

I have Interactive Brokers and I've sold EFPs routing to "IBEFP." The problem has always been that the volume bid is small compared with what I want. Would routing to BETS be better? I don’t know exactly what you mean by "institutionally oriented." What volume is recommended (or required) to use BETS? Or did you mean BETS is only for institutions? (I'm a private investor and I typically employ ~$500k stock value selling EFPs; is BETS suitable for me?)

 

[OneChicago]

Quote from J.P.:

I have Interactive Brokers and I've sold EFPs routing to "IBEFP." The problem has always been that the volume bid is small compared with what I want. Would routing to BETS be better? I don’t know exactly what you mean by "institutionally oriented." What volume is recommended (or required) to use BETS? Or did you mean BETS is only for institutions? (I'm a private investor and I typically employ ~$500k stock value selling EFPs; is BETS suitable for me?)

You should be able to route to Smart, IBEFP or ONE using the TWS Choose ONE to route the order to our BETS match engine. There is no size requirement for the EFP and your orders for the EFP will be visible by the major Delta One Desks.

 

[J.P.]

Quote from OneChicago:

You should be able to route to Smart, IBEFP or ONE using the TWS Choose ONE to route the order to our BETS match engine. There is no size requirement for the EFP and your orders for the EFP will be visible by the major Delta One Desks.

OK, I get it. Thanks again and best regards.
JP