I was hoping someone experience can explain to me what are the details involved in the DVP process. If I have a prime brokerage/custodian account and use IB as an excuting broker do I typically have to pay an additional per share charge at the prime brokerage as well on top of the IB fees. Do I have to deposit funds at IB if I have a DVP arrangement with a Prime. thanks. I have been prop trading for 10yrs, just been offer to run a hedge fund. No idea on how all this DVP stuff works. My lawyer says important because of potential Broker dealer failure. any help thx
Nobie, the DVP setup at IB is pretty good and extremely competitive on fees. Send me a PM with your e-mail address or contact details along with your location and I'll ask a sales rep to contact you
From my personal experience with prime brokers, every case of executing outside still involved a fee by the prime broker. In that case you'd pay a fee to your executing broker, and also to your prime. If you are going to use a prime broker you will want to first figure out what kind of trading you're going to be doing, what amount of capital you'll be dealing with, and what you're going to need from the prime. Then call around and see who meets your needs the best, and importantly, who wants your business. It's great to have a major name as your prime/clearing broker, but at the same time it sucks when you're the smallest client and you don't get much attention. Yout gotta weigh that.
That's why you would do a DVP. You do not pay per execution but per position that you xfer. Thus if you scalp in and out there is no fee to the prime broker. You'd have to maintain some money at IB to cover your interday trades and/or positons you want to carry until you do a DVP but you'll probably end up saving a great deal in execution fees.
Prime brokerage accounts usually charge a ticket fee in the range of $15 per stock per side. This is on top of the execution fees you pay to the executing broker. DVP's do NOT require deposits. Even cash accounts do NOT need deposits until the transaction is done and money is sent in prior to settlement. Any firms who require deposits are probably not reputable. If you have more questions, let me know.
fatty, Call it what you want but as IB will be clearing trades, funds will need to be available on the IB side to cover the margin for a given day, week or time frames trades. if it is a straight give-up situation, funds would not be required. But that is a different case than DVP.
IB's DVP is a joke. I can't believe anyone would even consider it. First of all, the whole reason a person or institution opens a Prime Brokerage account is to keep all of their funds in one place while gaining the ability to trade anywhere on earth. The money is all in one safe home, and trades done anywhere are delivered back to that home and reported to that home. So, for accounting and reporting purposes, it's like you just have one account (funds require this to keep accounting manageable). The power of a Prime Brokerage account is flexibility. If I decide today that I want to place a trade with any broker (except IB). I can simply call them up, fax a one page agreement and make the trade. In fact, some will do the trade and then fax the agreement (they have until settlement to work out the details). So basically I can trade with anyone, for any reason. The trade is then delivered back to my Prime. So I end up paying a trading commission to the executing broker, and a clearing fee or "ticket charge" to my prime broker. The key point here is that the shares are delivered to my prime brokerage account. So my money never moves. This is very important if any margin situations ever arise. For example, if you have 10M at your prime, then you can go long 20M without violating reg T. Of that 20M you could buy 5M long through 4 different brokers and have all the shares delivered back to your prime. Now if you wanted to use IB to trade and you were to call them and inquire about it, you would get an idiot on the phone who didn't know what he was talking about. Further, that idiot would not let you speak to anyone else. So, maybe I was misinformed, but this is what the idiot told me; If I open a trading account at IB and want them to DVP back to my prime broker, get this.....I have to transfer money to IB. So with the example above, if I have 10 million in my prime and I want to trade 20M with IB, I have to send 10M to IB........Oh, oh wait a minute if I transfer all the money out of my prime, then I would have zero in my prime and I would be out of business. That is not a DVP account it is a steaming lump of shit. So what if I have 10M in my prime and I want to trade 2M with IB? Well then I have to send them 1M......and here is the catch, I have to send IB the money before I trade. So I have to basically open and fund an account with IB. Then and only then, will I be allowed to trade with them. How the hell is this DELIVERY VS. PAYMENT? Hell, it is DELIVERY AND PAYMENT!!! So if I want to trade 20M with Goldman today, I cannot. Now I can only do 18M with someone else because IB is tying up my capital!!! That is not a DVP account it is a steaming lump of shit. Actually, it is just opening a regular brokerage account that can also DVP shares back to my prime. But why would I want to DVP back to my prime if IB is tying up my capital? For example, I buy 11M at IB (which I had to fund with a 5.5M transfer, yesterday!) and DVP back to my prime with 4.5M remaining. Now I get a margin call because I just transferred 11M of stock back to my prime and I have only 9M of buying power (because I had to transfer money to IB). So I have effectively decreased my buying power from 20M to 9M. That is not a DVP account it is a steaming lump of shit. In addition, IB charges you the same per share commission rate for trading only. Hardly an incentive to do business with them. Most brokers charge less for just doing the trade, because they don't incur clearing costs, but not IB. Remember, when you are clearing through your prime you are paying ticket charges for the clearing in addition to the trading fee's. So, maybe I just spoke with the village idiot (he was definitely an idiot, but I don't know if he was the village idiot of just one of the crowd). I do know that I was only allowed to speak with one person who stated it was company policy to only have one point of contact with a customer. For a broker who wants to get institutional business, that is not acceptable. To be clear, the IB guy did send all kinds of follow up documentation, which I read carefully. The above examples are accurate if you want to DVP with IB. I don't want to hear from anyone about margin risk, all of the above were just examples, and DEF, please don't write a response telling me how you know all these fine institutions that use IB for DVP. If you were to write a response telling me how all your friends enjoy a steaming lump of shit for breakfast it would only convince me of the company you kept! Just fix the fucking problem if you want institutional business! PM me if you would like a recommendation on Prime brokers or information on DVP accounts, I did plenty of looking around before I selected mine.