Those are back to back instruments with a corresponding position at the exchange. The implication large clients get special treatment and can do what they want is false. If anything, the larger the client the greater the scrutiny and review. There are borrowing cap limits in $value as well as limits based upon portfolio. As stated we have concentration limits, real time liquidation (note the banks which liquidated first do not seem to have be impacted as much), and look at other factors such as liquidity and more. While you can never guarantee a massive gap down in the markets I personally would more more concerned with other banks and brokers who don't have the financial strength of IB or may not have as stringent risk controls in place.
Good to have IBKR representative here. May I ask does IBKR extend extra wide leverage to its bigger clients like family office and hedge fund? Bill Hwang's banks lend so much to him until they die together.
GS and FS might have access to account info to sniff out those highly leveraged accounts, then they'd come in to sell these high fliers short first then pull the rug below them by issuing margin calls on these accounts it's my theory
"and look at other factors such as liquidity and more". There is your answer right there. Archegos's net capital -- essentially Hwang's wealth -- had reached north of $10 billion. That's tremendous liquidity right there. And based on this statement, IB wouldn't take those "factors" into consideration when extending margins and lending capacity to Bill Hwang? I mean I am sure the other banks and brokerages have lending limits too and borrowing caps too. Hell Goldman Sachs even refused to do business with Bill Hwang in the beginning due to Hwang's insider trading conviction but it caved eventually seeing how much profit it was missing out on. I am not doubting the fact that IB has all the risk management protocols in place but I also do not doubt for a moment that those protocols will be relaxed in the face of such huge investment firms that had double-digit of billions of dollars in net capital, not just capital and all the profit potential.
But why would they do that? Once those huge accounts are gone, there would be no money to be made for them. Why kill the golden goose when it's laying golden eggs permanently? I mean the casinos never want to bankrupt their whales; their goal is always to have the whales keep coming back. https://www.ndtv.com/world-news/the...hegos-and-how-it-collapsed-in-a-blink-2401987 It's that ridiculous that somebody can be allowed to have 600% to 800% leverage just because they are big when the maximum amount of leverage that we retail investors get is 1:33. LOL HOW do they expect him to pay back something that's 6 to 8 times of what he's borrowed? What they expected the stocks that he bought would appreciate 6 to 8 times??!! And I assume with no hedging otherwise a 20% drop in price wouldn't kill off an entire portfolio and make $100 billion evaporate in just one night!! As much as how the regulators are looking into regulating now family offices that don't have external investors, what they should be scrutinizing is the reckless and irresponsible margin lending practices of these big brokerages and issue an industry-wide margin limit for unhedged investment trading that is applicable to all accounts regardless of their size. Nobody should be allowed to borrow 6 to 8 times of what they are trading without delta-neutral or near-delta-neutral hedging in place no matter how big they are. Nobody is too big to fail. I thought they already saw that from the 2008 financial crisis. And you would think that these regulators would incorporate what they observed into their policies oh but wait all of the regulators were all ex-officers from those big brokerages...
Can you show a few examples where it really happened? If not it is just a wild theory without any proof.
No, if anything it would negatively impact knowing my experience as we have hard limits on max $ for any account. There are also regulatory restrictions on how much you can lend out against capital and more. JSOP - I will say white, you will say black. I get it, you don't like we don't like tail risk and you don't like us but you are misinterpreting what I say. By liquidity I refer to market liquidity which can include factors such as daily volume and quality of the bid/ask spread or book.
Interesting theory, but margin calls are not issued as GS or MS sees fit, they should be tied to MTM. Still what you are saying can be true, but it will involve deliberately manipulating the MTM to trigger the margin call (Just like the practice of hundreds of the bucket shops around, yet on a very large scale). This is why highly leveraged concentrated bets through swaps carry a much higher risk level. Your counter party top priority is not you, it's about their risk with you.
3 things I like about IB re risk. 1. Peterffy is an old school options market maker and you don't stay in that business for decades without REALLY understanding risk 2. I don't know the exact figure but I think the personal own over 50% of the company so talk about skin in the game. 3. I also get the impression that they don't stand for any nonsense from their clients re overextending. They'll cut you down first then ask questions later...