IB is Refco 2.0!

Discussion in 'Stocks' started by bsparkyman, Jul 6, 2007.

  1. We all benefit when markets are regulated to protect us against fraud and other criminal conduct. Such protection reduces the risk of using markets, and so, it provides an incentive for market participants to take the limited risks of providing liquidity, and thereby reducing transaction costs. You are assuming, without giving any basis, that the IB Chairman's complaint about manipulation has no validity. Your philosophy seems to be that criminals, frauds, and manipulators should be permitted to run amok in our markets, without any restraints whatsoever, and that complaints against them should just be dismissed without any investigation or consideration. I think your position is totally unreasonable, and that if your policy were ever adopted officially, it would wreak havoc on financial markets and on entire economies.
     
    #21     Jul 7, 2007
  2. airwalk

    airwalk Guest

    IB would not complain about gain in case of being on right side of trade like it was planned. It is doubtful that they did not know about options calculation mechanism all the time, and apparently their trading system did not notify them about dangerous condition, and apparently this business of providing liquidity for options is very risky, though the probability of high risk is low. It looks like this is the situation of typical hedge fund when it gets in trouble, so what do they complain about and what law did company brake declaring special dividend before expiration?
     
    #22     Jul 7, 2007
  3. thrunner

    thrunner

    IB had plenty of opportunity to hedge their position by buying the 25% sell off in AAA - they chose not to and took a hit. You can claim manipulation all you want when the trade goes against you but the bottom line is that there were good tax reasons for traders to unload AAA before the ex-dividend date and buy it back the next day. The 64% run up in AAA the next day was also the result of the panic buying on the part of IB and others after they neglected to hedge properly in the days prior to ex-dividend.
     
    #23     Jul 7, 2007
  4. timcar

    timcar

    Its interesting you say this above because the best line in the markwatch story was:

    "As a practical matter, since Mr. Peterffy owns approximately 85% of Interactive Brokers, he would have been exposed to nearly as much of the loss if he had not purchased the claims."

    Mr. Peterffy is actually buying just the other 15% of the lost. That little bit of the, % of the shares actually outstanding.
     
    #24     Jul 7, 2007
  5. The best reason for buying the loss is that it may remove any threat of shareholder action for IB's mismanagement of its MM. Without a loss, shareholders have no beef!
     
    #25     Jul 7, 2007
  6. zdreg

    zdreg

    #26     Jul 7, 2007
  7. Investors were frustrated by the clarity of the disclosures," Miller wrote. "We hope that in the future, management makes a stronger effort to communicate complex issues."

    You all miss my point, by a mile. An overeaching CEO playing the cya card. This is a public company. Where was the board on this matter? Can the CEO personally buy and sell assets and liabilities of the company? And what are the covenants if he profits on the purchase of the liability? Not just this one but any.

    It is a question of corporate governance and full disclosure.
     
    #27     Jul 7, 2007
  8. FLY7788

    FLY7788

    One POLL for bsperman
     
    #28     Jul 7, 2007
  9. rayl

    rayl

    I am intrigued by the comment that TP purchased the claims so he can personally pursue them. Is this legal under German law? In the U.S., generally only insurers and lenders have subrogation rights. You may assign a claim, but not the right to sue to anyone else.

    The other comment that the action frees IB from any claims of wrongdoing.... I don't know that those would be valid in the first place.

    I think the lack of clarity in why the purchase was made, despite the fact that in does seem to clearly beneift IB shareholders viewed in isolation, is hurting on the communications front.

    Oh, on the comment that 80% of options expire worthless -- MMs make money on the spread and want to offload risk as quickly as possible. Not from the 80% (or whatever) that expire worthless. As a matter of fact, most options MM are net long gamma, not net short gamma. Also, most MMs are unable to capture the full spread in aggregate bec MMs tend to make continuous markets by machine and are almost always the victims of inferior information on a particular underlying. Though again, in upsets me in this case when the multiplier adjustment is well known, that the risk wasn't correctly factored into the models.
     
    #29     Jul 7, 2007
  10. One problem here is the multiplier adjustment. But the other problem has to do with thee 31 million shares sold at the close, and called "presumably prearranged" by Peterffy. You can be familiar with the adjustment....but how can you be familiar with a prearranged trade of 31 million shares?

    OldTrader
     
    #30     Jul 8, 2007