I am wondering for the futures margins deposited with a clearing firm, does the US clearing firm pay interest to the broker on the margin? I am surprised to see that chinese futures brokers get paid high interest on margins deposited with clearing house.
I doubt they get paid much if any interest in the US at the moment, it makes sense they get paid interests in China, as rates are not comparable there,the best is to check the central banks rates , but to put it in perspective, at the moment you get about 3% on your CNY current/saving account in China and 5 to 6% on 3 to 12months (almost) fixed deposits, which probably explains the high interest they get paid in China (how many percent are we talking about btw ? I'd suspect it's along the Chinese CB overnight rates ). http://www.tradingeconomics.com/china/interest-rate
I am analyzing some futures brokers in china and HK, I see that "interest income" consists of a high % of total revenue. For a comprehensive broker like InteractiveBloke, thats understandable as they provide margin financing. I believe futures brokers don't provide margin financing as futures are leveraged by design. The Chinese futures brokers get paid 2% interest on their clients' margin deposits with the clearing firm, then they pass on 0% to the clients, pocketing it all. I think there are two sources of interest income. 1. the clients' money deposited with clearing firm which earns interest, 2. the excess clients' money deposited in banks or money market securities that pay interest. Does 1 exist in US? Also, I believe by regulation brokers are required to pay interest on clients' cash?
FCM's 100% make interest on deposited funds. It used to be alot of money but now its not much since rates are so low. If you have a big account 100k or more, the FCM will likely agree to pay you your interest by rolling over your funds in 30 day notes.
I believe you can still get "interest".... on T-Bills... but the commission is usually higher than the interest earned.
Some countries have regulations require brokers pay interest to clients on cash balance, it can be very low but something nominal has to be paid. Does it apply to US?
no...there is no regulation in the US that I know of that requires a FCM or prime broker to pay interest on cash balances.
in that case, it seems that the margin deposits by brokers with clearing firm will Not earn interest by both client and broker, and that excess amount kept at broker will earn something but mostly pocketed by the broker. Is that the case?
i just found out that HK clearing house pays interest on margin deposits/collaterals too. surprised that US doesnt
In the USA: You're jumping back and forth from the term clearing firm to broker which is confusing me as to what your question is. Because fed funds are very low, very few FCMS or prime brokers will pay any money on unused cash. If you have a broker, like us, that is between the FCM/Prime Broker and the client, where the FCM/Prime Broker is custodians of your funds, the broker would only share in the interest earned by the custodian if we have that in our arrangement. Since the broker, if not the same as the custodian, does not touch your cash, securities or futures positions, the broker can't earn interest without them. You might find someone that will pay some fraction over zero. However the point is that they don't have to. When interest rates go back up, to be competitive, it is likely they will pay something. The custodian of your funds can and does earn a profit from free cash. Interest earned from free balances and lending at one time was up to 1/3 of profits at most clearing firms. Not so anymore.