InteractiveBrokers "hyper-hypothecates" $14.5b of Customer Funds?

Discussion in 'Retail Brokers' started by Chicago_CTA, Dec 7, 2011.


    With weak collateral rules and a level of leverage that would make Archimedes tremble, firms have been piling into re-hypothecation activity with startling abandon. A review of filings reveals a staggering level of activity in what may be the world’s largest ever credit bubble.

    Engaging in hyper-hypothecation have been Goldman Sachs ($28.17 billion re-hypothecated in 2011), Canadian Imperial Bank of Commerce (re-pledged $72 billion in client assets), Royal Bank of Canada (re-pledged $53.8 billion of $126.7 billion available for re-pledging), Oppenheimer Holdings ($15.3 million), Credit Suisse (CHF 332 billion), Knight Capital Group ($1.17 billion),Interactive Brokers ($14.5 billion), Wells Fargo ($19.6 billion), JP Morgan($546.2 billion) and Morgan Stanley ($410 billion).



    The only Futures Commission Merchants I trust are smaller, privately-owned ones, like Dorman Trading, RCG and RJO.
  2. western


    Thanks for bringing this up. I was unaware prior to now that re-hypothecation even existed.
  3. Why are these immune to such things?
  4. western


    I think the only real way to ensure your funds is to either:

    1. Use a broker that is part of a bank deemed too big to fail, Like Goldman, Bank of America, JP Morgan

    2. Use a broker that does not engage in proprietary trading
  5. Nick29


    Does IB have something similar to the following in their customer agreement?:

    7. Consent To Loan Or PledgeYou hereby grant us the right, in accordance with Applicable Law, to borrow, pledge, repledge, transfer, hypothecate, rehypothecate,loan, or invest any of the Collateral, including, without limitation, utilizing the Collateral to purchase or sell securities pursuant to repurchase agreements [repos] or reverse repurchase agreements with any party, in each case without notice to you, and we shall have no obligation to retain a like amount of similar Collateral in our possession and control.

    From MF Global customer agreement.
  6. Nick29


  7. western


    Page three of the agreement:

    "Interactive or its Affiliates may deposit collateral, securities and/or other Customer property with third parties and may pledge, re-pledge, hypothecate or re-hypothecate Customer collateral, securities and/or other Customer property, either separately or together with other securities and/or other property of other Customers of Interactive for any amount due to Interactive in any Interactive Fully-Disclosed Account in which Customer has an interest."
  8. no wonder these big wall street firms fought so hard against Obama's Consumer Financial Protection Bureau . this is exactly the kind of thing that should be illegal.
  9. western


    I would like an IB rep on this board to explain exactly what it means that IB re-hypothecates $14.5 billion of customer funds, and what would happen if IB were to face a liquidity shortage that MF global did.
  10. pt199


    Worry not!

    IB is "too big to fail"
    #10     Dec 7, 2011