Quote from IB-AN:
If the objective is to generate free cash which can then be withdrawn or used to support other trading activities the answer is no as, absent other equity, the cash proceeds from the stock sale are going to be needed as equity to satisfy the margin requirement (as those proceeds need to be deposited with the lender of the security to collateralize the borrow).
As an example, assume an EFP purchase with a stock trading at $100 (i.e., long 100 shares short the SSF). The initial margin requirement on the position in a Reg. T account would be 30% of the short stock market value, or $3,000 and the maintenance margin requirement 5% of the short stock market value, or $500 (the portfolio margin requirement would be likely be near or below the Reg T maintenance as this model better recognizes hedges; although this depends upon the particular EFP as well as other positions held in the account).
An account holder would therefore need to have equity of at least $3,000 to hold this position overnight, with the account equity at the point of execution looking as follows:
Short stock ($10,000)
Net Liquidating Equity $3,000
This type of transaction is often used by those seeking to swap a long stock position, maintaining the same economic long exposure, but potentially at a more advantageous financing rate and margin requirement.
Also, regulations preclude a broker from providing margin offset between a security (SPY) and a commodity (ES). The OneChicago SSF is a hybrid future product which can be carried in a securities account and for which margin offset against another security is allowed.
Correct me if I'm wrong but if a trader has a lot of margin left but is negative in cash, by doing this transaction he will effectively generate some cash(Thus stop paying margin interest) at the expense of some margin(Which might not be relevant anyway for the trader). Effectively this would be a USD borrow being done a libor or a bit above libor instead of IB's ~1.5%
Am I making a mistake here?