can IB go bankrupt?

Discussion in 'Interactive Brokers' started by Vishnu, Nov 27, 2001.

  1. Vishnu


    I've been thinking of trying IB out. I'm particularly interested in access to the currency markets and foreign exchange markets.

    My primary concern is: do I have to be nervous about IB going out of business? If they do it will of course be a hassle extracting money out of my account there. WIth cybertrader I obviously don't have to worry about this because Schwab isn't going anywhere anytime soon.

    Anyone else deal with this issue or research it?
  2. I'm not sure of my facts but I wouldnt be suprised if Timberhill (IB) is bigger than Schwab.
  3. IB has very little danger of going bankrupt. Timberhill their clearing firm is one of the top 10 market makers on the floor. They are also SIPC insured

    Robert Tharp
  4. Robert Tharp is correct about SIPC for equities but there is no equivalent insurance for futures(commodities).
  5. Turok


    There are lots of ways to measure size, but IB made a hell of a lot more money last year than Schwab -- $507m to $229m

    They are also on the Forbes 500 list of largest private companies.

  6. drlenny


    I would prefer to hold a written contract on paper in my hand, and I would also be willing to pay for it (e.g. 50 USD) in order to keep the commissions as they are!!!

    If they take the servers of the net I have just some printouts of the contract that I signed electronically. And I am sure, that is even more than most customers have...

    If they would do this paperwork and provide something written on paper about the insurance etc., I would probably be willing to put more funds into the account.

    Maybe I should add to this, that I have already been with an german onlinebroker that went broke, and that there are currently rumors about one of the top onlinebrokers in the country now going broke as well. Unfortunately they provided the minimal necessary paperwork on a piece of paper, and they had very high additional insurance as well (about 15 Mill USD cash protection, securities were here held as private property of the owner anyway!!!). To compare this numer, IB has a 10 Mill USD Protection, as I read on the homepage. And I understand this includes not only the cash, because IB is holding all of the stocks in their name, as far as I understood.

    Because of this background, and that IB needs to create fees to provide the marketdata some of my thoughts went into this direction as well.
  7. def

    def Sponsor

    never say never but the financials of the company are very solid.
    yes, a week or so ago IB Group was put on the forbes 500 list of private companies (number 433), it has an investment grade rating from S&P and given the number of people in the firm 400-500 relative to the number of trades per day (prop and brokerage) > 200,000, it must be one of the most efficient trading firms in the world.

    however, to be fair this means nothing if the firm takes a huge hit.

    so why are your funds safe:
    1. all client funds are segregated. thus if the prop side blows up clients funds will not be affected.

    2. all excess client funds not at a clearing house are deposited in SEC approved accounts (i.e. treasuries).

    3. software controls to limit the size, value, and of any trade/position

    4. auto-liquidation of any account that violates margin limits (i.e. the firm doesn't make margin calls and this also reduces the possibility of one rogue trader (witness europe last week) hurting the entire firm.

    5. a conservative approach to financial and regulatory matters

    On the brokerage side, which has been developed on the backbone of the prop side, i personally see little if any risk. On the prop side where there is an enormous portfolio (typically over 50,000 open positions in different option/stock/futures contracts at any given time) there is risk. (note: I've stayed out of the discussions on mechanical/discretionary trading but given that this portfolio is largely computer driven you know which side I stand on). However, the firm on a global basis has a policy of being net long volatility which is insurance for any major shock to the markets. for an in depth analysis of the firms risks, read the S&P report on the web site. you may find it fairly interesting.

    sorry to make this sound like a sales pitch but i've been with the company since '85 and thought this was a decent opportunity to tell a bit more about the firm.
    nzbryant likes this.
  8. Vishnu


    Thanks for the replies. I'm in the middle of my research on this but I'm leaning towards giving it a try. Thanks again.
  9. ddefina


    Def, Is the Prop side all In-house system trades via computer, or an army of individual prop traders using similar systems? I saw the figure of $500M + thrown out for profit last year, was prop trading a very large percentage of that?
  10. def

    def Sponsor

    prop side is for the firms account trading one system. for open outcry pits, traders have hand held computers providing guidance on the options/futures markets. for markets that are electronic - like the ISE options or all markets in Europe and Asia, all prices are computer generated. we obviously manage the system but given that we're making markets and responding electronically to hundreds of thousands of strikes/products at any given time, it is not micro-managed. most of the firms profits have come from market making/proprietary trading.

    one point of note: we are not market makers in the sense that we profit off of order flow. timber hill are liquidity providers and do not see order flow. its little black box just calculates prices and sends them out to the appropriate exchange.
    #10     Nov 27, 2001
    nzbryant likes this.