Wanted to just say thanks to Zboy for the help... Also Steve, the reason for this thread is due to the recent article which puts IB using the same loophole techniques as MFG which caused the loss of segregated client accounts...
No one has suggest raising commissions 10-fold. I only said that I personally would rather pay even 10 times more per round trip rather than risk losing 100% of funds - that doesn't mean I think it's a good idea to raise commissions to that rate. So, you might as well just ignore that comment. My point is simply that, due to widespread concern over credit risk in the wake of the failure to protect segregated funds, there will be ample demand for accounts offering very low credit risk, even at the cost of somewhat higher commissions. Brokers should start providing these accounts, so that people who wish can trade and pay a fair market rate for secure trading, instead of being subsidised with lower commissions that are funded solely by brokers exposing them to 100% loss of capital.
Lol. Check out the MF GLobal thread - *before* they went under, people were saying "I'm not concerned, my funds are in a segregated account." 2 weeks later, their money was gone. It's extremely naive to rely fully on insurance and regulation. All they do is reduce risk, they don't eliminate it entirely. It is quite possible for legal bollocks, insurance failure/underfunding, regulatory change, or government force majeure actions to render any insurance or regulatory protection useless. A proper trader mentality is to always assume protections can fail, and to have multiple measures in place, so that if one fails, you have a chance to avoid being totally screwed. It is naive and foolhardy to rely on a single line of defence.
Maybe this was already covered earlier in the thread...I don't have the patience to dig through 20 pages. But comparing IB's balance sheet with MF Global's, I get: MF Global - $18B in repo liabilities / $1.4B in equity = 12.85x Total assets / equity = 32.8x Interactive Brokers - $8.4B in repo liabilities / $4.6B in equity = 1.83x Total assets/equity = 8.3x Not quite the same leverage picture.
From what I understand it seems almost impossible the determine actual leverage. from the Reuters article:
Trying to find that out. Looking into IB's statement of financial position as of June 30, 2011. Looking at Footnote 11: http://institutions.interactivebrokers.com/download/IBLLC_2Q2011_Unaud_Finls.pdf Similar language from the MF Global 10-K, Note 3: http://www.sec.gov/Archives/edgar/data/1401106/000119312511145663/d10k.htm#tx172225_11 So, if I'm reading this correctly, IB could have pledged up to $16.8B, but it only had $4.5B pledged as of June 30th. Compare that to MF Global where they received $48.7B in collateral, but had pledged $61B in repos. Again, as of the dates of these figures, IB had $4.5B in total equity versus $1.4B for MF Global. You can see the massive leverage differential. Perhaps the $14.5B number in the article was a reference to the amount IB is permited to repledge.
I thought we learned from the Enron days that if the financial statements don't make it immediately clear, something is "not right", by definition. Nobody should be having to work this hard to decipher what is happening. That's just a bad bad sign. IMO.