Registered: Aug 2006
02-28-12 07:09 PM
Quote from obsidian:
Does anyone have experience here with trading long single stock EFPs (I'd sell stk short, buy futures) to generate synthetic USD borrow at IB?
Do they allow you to withdraw the excess cash generated? Can they allow this with cross-margined ETFs (such as SPY v. ES) since SPY borrow rates are lower than most single stock and idiosyncratic dividend risk is obv a lot lower.
If the objective is to generate free cash which can then be withdrawn or used to support other trading activities the answer is no as, absent other equity, the cash proceeds from the stock sale are going to be needed as equity to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.