Shld 25d R/r
- Thread starter atticus
- Start date
Guys, I just found this thread. I got to tell you that if it is true, it should be criminal to charge 35% ESPECIALLY WITHOUT NOTIFYING THE BORROWER WHAT THE RATE WILL BE IN ADVANCE OR HOW IT WILL BE COMPUTED. There are laws that prohibit banks and credit cards from doing this. I can only imagine IB gets away with it because our SEC is a joke. Still, I'm writing letters to a few state attorney generals (Connecticut is a good one -- very receptive to this stuff) and to the SEC (yeah, right) to look into this. It's 1) a usurious rate 2) needs to be stated clearly and specifically before the transaction, as does the methodology or benchmark. This is a loophole, and theoretically, IB could charge you 1000%, and it would be legal. They could actually just clean out your account, and guess what .... Read the fine print is all they will say. But IB also knows that doing something like that would draw a lot of attention, so they only charge high enough to get a few cranky complainants and that's it. Basically, if you're shorting stock at IB, apparently you are dealing with legal loan sharking, actually worse because if your friendly neighborhood mob guy will tell you up front what he is going to charge. Amazing scam. Madoffian.
You're right. That's basically why we got taken - nobody could imagine that IB would charge that kind of interest without notification of any kind - without it even appearing on our statement. That's not an oversight on IB's part - they know exactly what they're doing. After this episode I understood a little better how they can charge those low commissions.
If I recover any of my money from your efforts I'll be sure to cut you in.
LOL. You may not like the degree of regulation of the SLB dealers or what they can charge but it's hardly a conspiracy at IB to clean out your account. It's a regulated industry. By all means, write your Congressman and change the system. But remember, no one is forcing you to pay the high borrow fee stocks thereby incurring borrow fees.
I understand the libertarian argument, but the lack of regulation over the years has led to, paradoxically, credit cards companies being able to charge 32% interest in some states -- and go broke at the same time, and threaten the economy. We have always had usury laws in this country that limit excessive interest charges -- even if notified in advance. It was also only a generation ago, commissions were set by the government not by a broker. World wasn't exactly in worse shape because of it, either.
But, all that aside, the KEY issue here is not the rate or the after the fact, next day notification. The rate must be disclosed, and clearly, BEFORE the transaction, and if it is variable what benchmarks are being used to determine that VARIABILITY.
Seriously, I like and use IB. This, however, has so many red flags, so many, I'm surprised IB even tries it. If I were the Connecticut AG (they are based in Greeenwich), I would take them to court tomorrow and call a press conference. Man, in this environment, who knows what could happen to them ...
If you log into Account Management and click on the Tools icon you'll find the Short Stock Availability tool provides indicative inventory information, estimates of the number of shares currently available for borrowing, estimated borrow rates, rate trends, and an indicator of how many different lenders are prepared to make their inventory available.
This information is made readily available for review prior to entering any short sale order. The rates are indicative as determining the actual rate involves an operational process which involves collecting and consolidating rate and loan activity across a range of counterparties for all securities, a process which is completed following the afternoon settlement of stocks at DTCC. These indicative rates nonetheless tend to be a good indicator of the final rate.
As to the rate level, this is reflective of the aggregate supply and demand across all brokers, not just one and rates tend to be relatively consistent across brokers. In addition, it's important to note that when you sell stock short you are borrowing the shares and that loan of shares is secured by the cash proceeds from the sale. Here cash is the collateral and not the subject of the loan itself so comparing cash lending rates to stock lending rates probably isn't the most relevant comparison especially where the supply of stock available to borrow is low.
This information is made readily available for review prior to entering any short sale order. The rates are indicative as determining the actual rate involves an operational process which involves collecting and consolidating rate and loan activity across a range of counterparties for all securities, a process which is completed following the afternoon settlement of stocks at DTCC. These indicative rates nonetheless tend to be a good indicator of the final rate.
As to the rate level, this is reflective of the aggregate supply and demand across all brokers, not just one and rates tend to be relatively consistent across brokers. In addition, it's important to note that when you sell stock short you are borrowing the shares and that loan of shares is secured by the cash proceeds from the sale. Here cash is the collateral and not the subject of the loan itself so comparing cash lending rates to stock lending rates probably isn't the most relevant comparison especially where the supply of stock available to borrow is low.
Nice jump from the indicative rate you'll have to pay IF you elect to short hard to borrow shares to the problems with credit cards, usury rates and the destruction of the economy. Is the end of mankind as we know it next?
As explained to you by several posters, the info is readily available to you at the IB web site. All it takes to determine the borrow cost is a little look/see by you.
And FWIW, I pay several hundred dollars a month in borrow fees. I don't whine about it because along with commissions, that's the cost of doing business and the income that I generate from short trading dwarfs them.
Maybe Mel Gibson would be interested in filming/directing the movie "The IB Conspiracy." ?
Only someone as toothless and lame and probably corrupt as the S.E.C. would allow this.
I think A.G.'s and maybe even state banking administrators need to get in on this. It is usurious, and the using an estimate of rates is dubious. They could charge anything they want and say he well it was only an estimate. Whether they do is not relevant. What is relevant is that there is no actual legal range or rate. I can a sure you that someone challenging this, especially in today's environment, would have at least a 50/50 chance of winning. Regulators have been in the pocket of the brokerage industry for a couple decades, but that's changing. This is a prime example of something that needs changing. Even the idiots at CNBC would probably make a story out of this. Broker charging 30 percent interest! Without setting the rate in advance! It's totally fugazi, which is Mafia for fraudulent.
I think A.G.'s and maybe even state banking administrators need to get in on this. It is usurious, and the using an estimate of rates is dubious. They could charge anything they want and say he well it was only an estimate. Whether they do is not relevant. What is relevant is that there is no actual legal range or rate. I can a sure you that someone challenging this, especially in today's environment, would have at least a 50/50 chance of winning. Regulators have been in the pocket of the brokerage industry for a couple decades, but that's changing. This is a prime example of something that needs changing. Even the idiots at CNBC would probably make a story out of this. Broker charging 30 percent interest! Without setting the rate in advance! It's totally fugazi, which is Mafia for fraudulent.
I don't think the problem is that the SEC is toothless, although they may be. I just don't think that they are very sympathetic to short sellers lately. Have you heard they want to bring back the uptick rule.
Anyway, I'm pretty sure the IB rate reflects what they have to pay the people loaning out the stock. So I don't think the brokers are the bad guys in this case.
Don