Def - I know of at least one broker who calls me every day begging me to put on one of his brilliant positions. They will gladly take the risk up front. Now they usually aren't trying to get me to buy/short more than 10K shares. Really?! If IB really does do give-ups then you should e-mail the US office and have a chat with the ONLY guy you have handling institutional accounts. Apparently he is unaware IB offers such services. All the more reason to make your full staff available to institutional clients. Nordic, a lot of Prime's are weary of the flip because it doesn't allow them to refuse a trade. The reason the right to refuse is important is that it gives both you and the prime some power. If a bad trade goes through on your behalf and it doesn't match the report you sent your prime then they will call you both and ask who is correct. Now they will leave the trading broker holding the bag only if they are totally wrong and totally belligerent. Oh yeah and totally a nobody on the street. If I place a trade with Merrill and their report doesn't match mine, do you think my prime is going to leave Merrill holding the bag.....lol.....hell no, now they will mediate and negotiate until they can reach something acceptable to both sides, but they will never leave Merrill holding the bag. You see a reputable broker can't go around screwing other reputable brokers or eventually they won't be a reputable broker any more and nobody will sign a prime agreement with them. So what the DVP does is essentially protect Prime's and you from brokers that aren't reputable. And there are plenty of those. With a flip, the executing broker can say you had a software error that we weren't responsible for and you bought 20Million MSFT for $100. Then you and your prime are stuck with arbitration. With a flip, basically your prime has to trust the executing as if it were themselves.
Ebo - exactly. I use them for my prime and they are very competitive. unparalleled depth and breadth of services. They also offer Tradefactory.
sure they will until there's a major mess up. Odds are that won't happen but if you think that way you might as well go out and sell cheap options for a living. If you click on institutions on the web site there is a link to Contact a sales person. That link has a number of people who handle institutional accounts. Fact is if you are big enough to satisfy IB's requirements, we do give-ups. All the sales personnel are aware of it. For smaller institutions we do DVP's but do require money up front. you think the big banks will never fail to take up trades? BS. I've seen it.
You are right. You don't know the dvp business. I don't know any trader/hedge fund that puts up capital with the DVP accounts. The capital deposits are Usually for cash accounts. I have accounts all over the street and no one requires capital. Is there is risk? Yes, but so is a customer opening a daytrading account that gives 4 to 1 bp. A stock could get held and fall 90%.
margin?? the margin is taken care of by the prime broker. what are you talking about? and giveups are usually done with the floorbrokers.
I am but one last attempt. But first I'll restate that I'm not an expert on US clearing and thus my request for a contact so a salesperson could explain. I've done some research overnight and now understand that we just do it differently and not according to industry convention. QUOTE]Quote from speedy: margin?? the margin is taken care of by the prime broker. what are you talking about? and giveups are usually done with the floorbrokers. [/QUOTE] Let me step back and try to explain.... IB's system is designed for active traders/institutions who often buy and sell the same product on a given day or short time frame. Under a standard DVP agreement, I believe the client will end up paying commissions to the executing broker as well as the prime broker. IB's offering will save $ for those firms who conduct such two sided trading. They keep funds at IB for their short term trades/positions and DVP over to their prime broker for longer term positions. Thus since we do not know nor require xfers of positions every day, IB requires collateral. We have a separate offering where we do not require clients to put up money and provide both NSCC and DTC clearing. (Earlier I got the NSCC and DTC confused. DTC is more time consuming to perform and does have a risk of trades failing and thus we charge more for DTC settlement.) I'm not going into this offering on these boards. If you want info, contact one of our sales people.
Still doesn't make sense. Prime Brokerage = No Capital @ Executing Broker. Anyone doing it different is nuts or inexperienced ...
If you were scalping the hell out of something, say in and out 200 times; all you would pay on the flip is 1 or 2 ticket charges on the trade. i.e. $10 to $20, with use of your excess daytrading buying power or extended leverage at your prime ...
def, for prime accounts, you pay a ticket charge (around $15) when the trades are dvp'd. the commission is only paid to the executing broker. why would you pay a commission to both executing broker and prime broker?