As a recent IB customer, I've been following this thread with some interest and would note the following: - I suspect that the IB posters are under the impression that you Jayre have a basic understanding of regulations involving the separation between the proprietary trading and brokerage activities of clients (the Chinese Wall) and your questions are implying that they are willfully breaking these rules (which isn't going to endear yourself to anyone). The proprietary trading arm may or may not be realizing a profit if it takes the other side of a liquidation, but it's certainly not guaranteed as they are at the same risk of losing money as anyone else who may be on the other side of that liquidation. To imply that the trading side is aware when a client liquidation is underway and/or trading at a price which is more advantageous than any third party is ill-informed and not something that a reputable broker would do, nor could they do it for long as this activity is closely monitored in the course of regulatory examinations. It also exhibits a lack of understanding as to how a global market maker trading multiple securities manages its book as they're not likely looking at trading decisions based upon a single stock but rather at a basket level. Therefore, you're question as to whether they profit or not is indeterminable as it may be part of a hedge or offset against another position. - I think it's reasonable to assume that clients read their account agreements before signing and while IB's agreements provide them with broad discretion to liquidate positions when your account is no longer meets the maintenance margin requirement, they are not shy about making that clear either in the agreements or website. Looking at the history of your comments Jayre in which you continuously complain about this policy, one has to question whether you actually read the agreement beforehand (shame on you if you didn't). In any event, if you're so dissatisfied why are you still with IB as your posts indicate? I doubt you're going to change this policy and you hurt your credibility by not simply moving on as any other rational individual would do. It also suggests perhaps that there's another agenda going on here (competitor bashing?). - One of the things that's been made clear through this MF Global fiasco is that while customer assets are supposed to be segregated from firm assets (if the broker is on the level), they are not segregated from each other. The quickest way for a customer to lose money aside from his/her own trading activities is from other customers who, through margin lending, lose more money than they have available and which the firm's capital is insufficient to cover, thereby exposing one client's assets to those of another as the assets have been collectively pledged to other banks, brokers or clearinghouses. I'm comfortable controlling my own exposure but am not so comfortable with the behavior or knowledge of others which is why I feel comfortable with a broker such as IB who through protecting their own capital, protects my assets as well.
Obviously sometimes Timber Hill will be the best bid or ask at the time of liquidation and thus will benefit from the auto-liquidations in those cases.
Its obvious for me and you, but for some reason IB has a problem atmitting that timber hill does profit (somtimes) from these autoliquidations. I don't think any normal person would place a "market" order when it comes to an option, especially when there is a big bid/ask spread. Auto liquidation by IB, provides a rare opartunity for Timber Hill to buy options at distressed price, that's a huge benefit for them. (i understand that they get a prefrance as long as they are "matching" the bid price) Also I did read recently that Timber Hill is the biggest MM when it comes to iliquid options, I am not sure if that's true. But if it is, that would mean that any liquidation that involves iliquid options would be a "direct advantage" straight to Timber Hill.
Jayre: Does DEF work for Timber Hill? Probably not. Based on his posts over the years he appears to be in IB's Hong Kong office. If this is the case you can't expect him to be able to answer your question. You seem to have a problem accepting reality. I told you that more than one firm did auto-liquidations. You doubted that. Yet you never answered my question about calling Infinity back to verify what I told you about Infinity doing auto-liquidation of margin calls. You were wrong and proved wrong, yet will not admit it. The extracts from the IB brokerage statement specifically says that "In such cases IB's affiliate may act as principal in the resulting transaction and may earn a profit or incur a loss in connection with the transaction." They are a market maker. The odds are they will get some of the liquidation trades, not that they will make money on them, although that is their intent. A number of people, both IB and non-IB, have told you that it would be exceedingly difficult (or impossible) to always have the national best buy or sell on the books when a liquidation was being executed. That would mean that Timber Hill had access to IB's retail account data, something that would get them in serious legal difficulties. Yet your persist in attempting to validate your suspicion. If they did, which I absolutely reject, they certainly would not admit it here or anywhere else. Accept that you have been told the truth. I'm amazed that DEF continues to respond to your slurs. The people here at ET have been trying to help you understand how things work. You seem to think you are right and everyone else is wrong. I disagree. Jack
I called infinity once, and they explained me how their liquidation process works. They said they would not do anything to your positions if you close the margin deficit the same day. You replied saying you called infinity and they explained you that they auto liquidate. My question to you on Nov 3 was the following âSo what did Infinity told you how does the liquidation process work? Can you elaborate?â Liquidation can mean a lot of things it could be after 1 minute that there is a margin deficit, it could be overnight, it could be once 100% of the margin requirement has been diminishes, and it could be after the client ignored his deficits for a week. Before following your advice a second time and call âagainâ infinity, I wanted to hear from you what you have been told how does the liquidation process works, but you never bothered to answer. I hope you atleast, can give a straight forward answer what infinity told you with out going in to personal attacks.
You ask why I stay with IB, The reason is because IB is a wonderful company with great product/rates as I have said all alongâ¦. As long you will not use margin with IB you will be extremely happy. Stg, I appreciate your efforts to write your long post. But you misunderstood what I am implying in my posts. I will get to reply to you in more detail.
You are demanding IB admit to some ridiculous claim that they are profitting on auto-liquidation. And the way you express this frustration is to continue to trade with them?
I'm not certain this is correct, stg, since if TH makes a market in the security being liquidated from your account, and therefore holds inventory on both the long and short sides of the security, then the transaction they execute against YOUR liquidation will result in a profit or loss. The IB statement highlighted by Jack earlier in this thread seems to say as much; that a profit or loss may be realized and that such details may be disclosed to the customer upon request. This all seems to contradict IBsoft's assertion, however, that the profit or loss from TH against liquidated trades is simply not tracked. But I think IBsoft will explain this best themselves in an upcoming post. What Jayre really seems to be missing here is that IB's auto liquidations are likely a gift to ALL market makers and not just TH. IBKR, however, has a special duty of disclosure in this scenario for many reasons including just simply to help make sure that the Chinese Wall develops no cracks due to rogue employees. But the regulators are hopefully working on better enforcement of certain rules that may reduce the value of the auto liquidation gift to market makers by working to narrow the bid / ask spread. Check out: http://www.nanex.net/Research/StubRuleViolations/StubViolations.html which is a link someone posted on the active ET thread entitled: "Is IB designed to just feed liquidity to Timber Hill?"
I'm frustrated with IB's margin/liquidation conflict of interest. I express my frustration by not participating in their margin game, neither am I participating in their liquidation game.