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

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

  1. piezoe

    piezoe

    "Beware the Online Broker" -- Arthur Levitt, former SEC Chairman.

    "I learned quickly that the investment business at every level makes even a whorehouse look antiseptic. The business is a sewer."
    -- Swan Noir, former brokerage firm partner.
     
    #261     Dec 13, 2011
  2. terryor

    terryor

    I've been reading this thread for a few days and have gleaned a few things from it.
    1. stocks are always the last to know.
    2. The vast majority of home gamers are fools.
    3 If they knew where they stood in the food chain they would just give up and go home.
    4. They don't 'till they are broke.
    5. They never figure out what went wrong.
    6. Home gamers aren't the only fools.
    7. If you haven't figured out who the fool is in the poker game then it's you.

    It's been fun pick'en you off!

    http://www.thehedgefundjournal.com/magazine/200811/commentary/prime-broker-insolvency-risk.php
     
    #262     Dec 13, 2011
  3. Options12

    Options12 Guest

    This is a good question.

    If you write options and have in your account $100 in cash and some short positions that require $50 in collateral to hold, then can the $100 (or any amount of it) be re-hypothecated?
     
    #263     Dec 14, 2011
  4. I do not know, but one futures broker told me that many futures firms do not want accounts of customers who are option sellers, because, he said, they "tie up the broker's capital."

    I was puzzled as to why that would be the case, but maybe whatever the real reason is offers a clue also as to the answer to your question.
     
    #264     Dec 14, 2011
  5. Options12

    Options12 Guest

    Thanks for sharing that.

    Maybe without a margin loan there's no way to leverage the customer account. The cash and short positions are just a liability.
     
    #265     Dec 14, 2011
  6. just a guess but it's prob b/c the brokers are very aware of traders who sold options then blew up not only themselves but wiped out the firms equity b/c they sold spx puts for $0.10 that were later worth $10.00 with no way to pay for them.
     
    #266     Dec 15, 2011
  7. Options12

    Options12 Guest

    Yeah but brokers are more sophisticated now.

    They'd be inclined to quickly hate the game and not the player, in this case, by adjusting customer margin requirements to make sure that the customer first or simultaneously puts on an off-setting trade or maintains a cash surplus that would justify allowing a customer to sell risk that might imperil the broker or other customers.
     
    #267     Dec 15, 2011
  8. Options12

    Options12 Guest

    #268     Dec 15, 2011
  9. The way I see it is that the biggest risk for rehypothecation is a liquidity crunch caused by longer term traders pulling their stocks and equity. Since we all know IB boasts about it's high number of trades per customer, and this makes sense since they are low cost and good for daytrading, they don't even have a very large numbers of longer-term type of trader as their customer. So, even if they wanted to, they can't really rehypothecate that much because most of the traders don't hold over night. This assertion, in my view, also makes IB less risky when rehypothecation is concerned.
     
    #269     Dec 15, 2011
  10. yeah that sucks for him but it sucks just as much for someone else who lost the same amount that was an individual trader. money's money. this is like buying homeowner's insurance and finding out the premiums you paid vanished and the co. doesn't exist anymore. as has been said many times before, the only solution to this is to go w/ a broker that doesn't do prop trading and/or is tbtf so the feds bail them out.
     
    #270     Dec 16, 2011