IBKR Notes Program

Discussion in 'Interactive Brokers' started by ET180, Nov 18, 2020.

  1. TimMykes

    TimMykes

    What does $GS borrow at

    You have to compare to a financial
     
    #11     Nov 18, 2020
  2. lpope

    lpope

    IB is reinstating a program that they used to have back in the day. I don't remember exactly when they discontinued the original notes program but somewhere around ten years ago.

    I'm not sure but guessing they're looking to diversify funding for ex-US margin loans. In the US, they can use credit balances to fund margin loans but there's regulatory restrictions on doing that in other countries according to comments on their most recent quarterly conference call.
     
    #12     Nov 19, 2020
    eastern_warrior likes this.
  3. Sig

    Sig

    USB, C, BK, PNC, and JPM are all currently around .15/.25 for equivalent tenor notes. The shortest term GS note I could find was 180 days out and it was at .27/.36. Given the yield curve that makes it commiserate with the other six companies for a 60 day note.

    I'm guessing that IB has to pay more because they are insisting on this convoluted holding company setup with one guy, Peterffy, having supermajority control. Why they would be willing to pay double the going interest rate to ensure this setup should set off some alarm bells, imho.
     
    #13     Nov 19, 2020
    Bad_Badness likes this.
  4. lpope

    lpope

    Marcus/GS offers a 50bps online savings account. C is at 70bps. Don't think there's much to read into the "high" rate, and regardless this is stickier funding than some money market that probably wants a premium to do the work to understand IBKR credit risk.
     
    #14     Nov 19, 2020
  5. Sig

    Sig

    Don't know much about C's offering but Marcus/GS is pretty clearly a teaser rate trying to get customers in for their new consumer banking product. Not for nothing you're limited to $1M in deposits at that rate, you don't limit the ability for people to use your product if it's market rate/making you money!
     
    #15     Nov 19, 2020
  6. lpope

    lpope

    You do if you want to avoid AML problems. Don't ask me how I know.

    50bps is a market rate for online savings - ALLY and DFS also.
     
    #16     Nov 19, 2020
  7. Sig

    Sig

    Then you're talking about a retail product then which isn't comparable to IB's notes, which I'll note require one to be an accredited investor. That makes it an apples to oranges comparison.

    As I pointed out, when you compare the rate IB is paying to the rate other comparable financial firms are paying on exactly the same product they are paying double the market rate. All I'm saying is that there's a reason for that. If one fully understands the reason then by all means partake, after all everything in finance is about risk adjusted returns. There's nothing to indicate to me that they mispriced the risk. So I'm just cautioning against viewing this as anything other than a product with twice the risk of comparable products, which is why the market demands twice the return. Again if you're seeking the higher return you can get it with a far lower idiosyncratic risk by investing in a short term note ETF that invests in a portfolio of notes with a commiserate risk/return profile. Or, as you point out, put the money in a high yield savings account which gets you the same or better return with significantly less risk, if you're retail.
     
    #17     Nov 19, 2020
    Bad_Badness likes this.
  8. ET180

    ET180

    I'm not 100% sure about this, but there might be a big difference between an online savings account or short term note ETF fund and the IB notes program. With the online savings account / fund, you are guaranteed to get the advertised interest rate (until they change it obviously) as long as you have money invested in the fund or savings account. With IB's program, it's not clear to me that you'll always earn interest. They set it up like a subscription and it appears that you simply specify the maximum amount you are willing to invest in the notes as well as the minimum amount of cash that you want to leave uninvested. Then they buy notes for you and you can turn it off any time you want. So that implies that if there are not notes available to invest in, you don't get paid any interest. So the higher rate might account for the fact that you might not be able to use the program all the time. Also, I think I read somewhere that the notes can be called before maturity. This could be similar to the stock yield enhancement program. I signed up for that program and I don't see any activity at all this year. I'm not using leverage and even in my IRA accounts which are long-only, I never see stocks/ETFs loaned out in my account statements. Could have something to do with the fact that I own mostly S&P500 companies and popular index funds. Maybe there's just no demand.

    As you said, if they had more predictability, they would likely tap the public markets. Also, I suspect that companies have to pay some fee to have their debt listed publicly. But if they go to the private market, maybe it's cheaper to issue the debt and that allows them to offer a slightly higher interest rate especially for such a short term. Anyhow, I think IB should weigh-in on the safety of the program as well as the mechanics of how it works -- how can one be assured of not getting charged margin rates when using the program.

    upload_2020-11-19_10-35-42.png
     
    #18     Nov 19, 2020
    eastern_warrior likes this.
  9. TimMykes

    TimMykes

    saying its TWICE the risk is kind of simplistic

    IB notes have always paid more than the market rate, if anything .5% sucks

    Don't think $ in the notes can be used for margin , would be interesting if it could
     
    #19     Nov 19, 2020
  10. Sig

    Sig

    Sure, using the term "risk" is inexact anyway in a MPT context. It's a not insignificantly higher risk, let's just say that.
     
    #20     Nov 19, 2020