a speeding ticket? back when I was a long haul truck driver, the speed limit nationwide was 55 mph. Every month I figured out how much more money I could make driving faster vs how much I had to pay for speeding tickets. Back then there was no recipricocity. One time the cop asked me for my license. I just told him, "You can keep that one, I'm done with it." average speed 65 mph over 55 mph was about 2k a month (minus the time you spent on the side of the road bribing cops. Not a single ticket I ever paid on the spot, green cash, ever showed up on my driving record.) Until one time in Illinois, a cop told me, "Right now, all you have is a speeding ticket. If you try to bribe me then you will have a much more serious charge." I always remember that guy, he gives me hope in the human race.
you clearly dont understand how FCM's hold funds... lets be clear... customer accounts(funds) are segregated and separate from the FCM operating funds... (and customer funds are lumped together) ... the FCM can earn anything they want on those funds and deposit as long as they can be withdrawn on demand (I forget within what timeframe, but there is one) ... holding funds on a currency that will enable you to do a carry trade, is not the same as buying junk bonds from EU... CHF/JPY are very liquid... (not sure how they were hedging the risk of having to guarantee a value, but I am sure they are quite smart and have that taken care of... unlike MFG, IB has excess net capital to cover over 65% of their customer funds... so while they only have to have around $300M capital requirements against their $2.1B+ in customer funds, they actually have $1.6B, or 1.3B over what they required by the CFTC to have... in contrast, MFG had less than $500M, with a required $350M or so, to cover $7B+ of customer segregated funds... I think I pick IB any day even if they were chasing higher yield on customer seg accounts (which they keep btw) and converted funds over to currency without checking all the rules..
I am surprised the best answer, so far, came from you and not IB. I think that tells us something. Within your framework... do you see a re hypothecation risk. ------ from wikipedia.. Rehypothecation Re-hypothecation occurs when banks or broker-dealers re-use the collateral posted by clients such as hedge funds to back the broker's own trades and borrowing. In the UK, there is no limit on the amount of a clients assets that can be rehypothecated,[3] except if the client has negotiated an agreement with their broker that includes a limit or prohibition. In the US, re-hypothecation is capped at 140% of a client's debit balance.[4][5][6] In 2007, rehypothecation accounted for half the activity in the shadow banking system. Because the collateral is not cash it does not show up on conventional balance sheet accounting. Before the Lehman collapse, the International Monetary Fund (IMF) calculated that US banks were receiving over $4 trillion worth of funding by rehypothecation, much of it sourced from the UK where there are no statutory limits governing the reuse of a client's collateral. It is estimated that only $1 trillion of original collateral was being used, meaning that collateral was being rehypothecated several times over, with an estimated churn factor of 4.[5] Following the Lehman collapse, large hedge funds in particular became more wary of allowing their collateral to be rehypothecated, and even in the UK they would insist on contracts that limit the amount of their assets that can be reposted, or even prohibit rehypothecation completely. In 2009 the IMF estimated that the funds available to US banks due to rehypothecation had declined by more than half to $2.1 trillion - due to both less original collateral being available for rehypothecation in the first place and a lower churn factor.[5][6] The possible role of rehypothecation in the financial crisis of 2007â2010 and in the shadow banking system was largely overlooked by the mainstream financial press, until Dr. Gillian Tett of the Financial Times drew attention in August 2010 [6] to a paper from Manmohan Singh and James Aitken of the International Monetary Fund which examined the issue.[5] [edit]Rehypothecation in repo agreements Rehypothecation can be involved in repurchase agreements, commonly called repos. In a two-party repurchase agreement, one party sells to the other a security at a price with a commitment to buy the security back at a later date for another price. Overnight repurchase agreements, the most commonly used form of this arrangement, comprise a sale which takes place the first day and a repurchase that reverses the transaction the next day. Term repurchase agreements, less commonly used, extend for a fixed period of time that may be as long as three months. Open-ended term repurchase agreements are also possible. A so-called reverse repo is not actually different than a repo; it merely describes the opposite side of the transaction. The seller of the security who later repurchases it is entering into a repurchase agreement; the purchaser who later resells the security enters into a reverse repurchase agreement. Notwithstanding its nominal form as a sale and subsequent repurchase of a security, the economic effect of a repurchase agreement is that of a secured loan.
Interesting discussion. Should security of customers' funds be the primary consideration? How many IB customers would remain customers on the express understanding that security of customers' funds is a secondary consideration, maximising IB's return on those funds supercedes other considerations? Would you sign an agreement that read "Our primary concern is maximising our return on your funds lodged with us. In so doing, you will be subject to risk and possible losses, for which we will not be held accountable"? If security of customers' funds is the primary consideration, was that best served by IB speculating in the FX market using said customers' funds?