Interactive Brokers "Illliquidity Surcharge" on margin of deferred months

Discussion in 'Commodity Futures' started by comintel, Jun 18, 2011.

  1. The following has resulted in a huge initial margin amount at IB for me when trading contracts in deferred months out a year or two. On spreads, it appears that they charge it on both sides of the spread without increasing the credits for the spread.

    It does not affect maintenance margin, but it limits what other trades can be placed in the account and in my opinion can therefore increase risk instead of decreasing it.

    Is this policy is unique to IB?




    Dear Trader,

    In an effort to accurately recognize the correlation and liquidity risk inherent in longer-dated derivative contracts (which includes ALL non-single-stock derivatives), IB is implementing an Illiquidity Charge (defined as an in-house additional initial margin) for these positions.

    Since this only affects initial margin, this charge can not directly result in a margin deficit, though it will decrease an account¿s buying power. Therefore you see a difference between initial and maintenance margin.

    For each contract, there will be a start date and an end date - depending on the product category and maturity calendar (monthly vs. quarterly etc). Contracts that mature on or after will have illiquidity charge (additional initial margin) = 125% of existing maintenance margin. Contracts that mature before or on do not have an additional charge. Contracts that mature between the and are charged the prorated amount.

    As indicated, this will not affect the maintenance margin requirements, only the initial margin. Your current margin requirement has taken into account the spread margin reduction. Please note, in terms of calendar spreads, if one (or both) legs of the spread are being assessed an illiquidity charge, this will be on top of any existing spread offset margin reduction and will apply to each affected leg separately. Any portion of the initial margin requirement over and above the indicated standard margin for that contract, should be attributed to an illiquidity charge.

     
  2. look, if they have to sell you out into an 'abyss' , then normal margin will probably not be sufficient.

    if you are taking risky , low liquidity positions, YOU have to be the one who pays the freight,
     
  3. They are not risky and they are not low liquidity.

    The far out months are far *less* volatile than the near months in crude.
     
  4. bone

    bone

    If these are exchange cleared products like the Nymex CL, for example, there are published performance bond margins by the CME or ICE under a tab on the product spec page. Look for the month/year product code tier. If they are charging you more than that amount, then tell them to eat the peanuts out of your shit. They are exchange members and are bound to abide by exchange rules. If, in fact, they are gouging you, take it up with the exchange. The margin rates are set by the exchange, and it is not clear to me how much liberty the clearing member firm has with respect to jacking around with it.

    In any event, it's worth yelling at them if it makes you feel better.
     
  5. Why do you need > 20:1 leverage in volatile futures market...
    With the world on the edge of Crisis since 2007...
    And far more than that on spreads?

    Why would IB want Customers like that?
     

  6. Because people actually know how to trade on 20:1 leverage unlike yourself.

    You should work at the SEC. I think that'd be a great job for someone of your caliber.
     
  7. I'm facing the same problem trading eurodollar spreads. The "illiquidity charge" means that my initial margin is currently nine times the maintenance margin. This must be the most retarded decision ever from IB.
     
  8. It also makes it extremely precarious to try to roll over spreads.

    If you lift one leg momentarily you may not be able to get it back on (even though adding it back should reduce margin) because initial margin, including their enormous surcharge, must be met again.

    I lost quite a bit of money when I suddenly encountered this unexpectedly.

    I has assumed that, in the process of rolling over a leg, I would be able to add another leg back since it would reduce margin. Nope.

    Now I have figured out ways to deal with it to a degree.
     
  9. bone

    bone

    Umm, I can't see your statement from here of course. But, if what you say is true regarding Eurodollar spreads, it is supposed to work the other way around. By exchange regulation you are required to receive a substantial margin credit. You are supposed to get the credit intraday as well - both Advantage Futures and RCG give my clients 4:1 credit for intraday spreads as a setting the firm's Risk Manager enables in their execution platforms.

    I carry a Dec11-Dec Eurodollar spread overnight for $560 as of two weeks ago. This is the SPAN vol margin for one flat price future in the same tier: CME INTEREST RATES
    EURODOLLAR FUTURES
    ED
    09/2012
    06/2014
    743 USD
    550 USD
    0.001

    If what you are saying is true, then that would explain why clients who come to me clearing IB always end up changing.

    Eurodollar Intra Spread Margin Rates:

    http://www.cmegroup.com/clearing/margins/intras.html#e=CME&a=INTEREST+RATES&p=ED

    CME

    INTEREST RATES

    EURODOLLAR

    ED

    1

    1

    B

    A

    09/2014

    09/2012

    06/2015

    06/2013

    675 USD

    500 USD



    CME

    INTEREST RATES

    EURODOLLAR

    ED

    1

    1

    B

    A

    09/2014

    09/2013

    06/2015

    06/2014

    405 USD

    300 USD



    CME

    INTEREST RATES

    EURODOLLAR

    ED

    1

    1

    B

    A

    09/2014

    09/2014

    06/2015

    06/2015

    135 USD

    100 USD



    CME

    INTEREST RATES

    EURODOLLAR

    ED

    1

    1

    A

    B

    09/2014

    09/2015

    06/2015

    06/2016

    338 USD

    250 USD



    CME

    INTEREST RATES

    EURODOLLAR

    ED

    1

    1

    A

    B

    09/2014

    09/2019

    06/2015

    06/2020

    540 USD

    400 USD

    SPAN Spread Margin Credit Calculation:

    http://www.cmegroup.com/clearing/margins/spread-calc.html