Should you close your IB accounts now?

In the reference to the original post I don't think IB ever accepts long stocks as a margin for short ES, only cash. In case of portfolio margining when the risk is calculated on the entire portfolio I doubt the positions would have been liquidated.

In all fairness to IB.

 

I guess the OP is correct. The financial health of the broker is less important than that of an under capitalized trader.

*************************************************

MF Global Loss Narrows, Plans Up to 15% Staff Cut (Update1)
Share Business ExchangeTwitterFacebook| Email | Print | A A A

By Matthew Leising

May 20 (Bloomberg) -- MF Global Holdings Ltd., the futures and options broker headed by former New Jersey Governor Jon Corzine, posted an unexpected loss in its fourth quarter and plans to eliminate as much as 15 percent of its workforce.

“This performance is simply unacceptable,” Corzine, who took over as chief executive officer in March, said in an e- mailed statement. MF Global fell as much as 8.9 percent in pre- market trading.

The loss attributable to common shareholders in the quarter ended March 31 narrowed to $96.5 million, or 78 cents a share, from $119.3 million, or 98 cents, a year earlier, the New York- based company said in a statement. Excluding certain costs, the company lost 17 cents. On that basis, MF Global was estimated to earn 1 cent, according to a Bloomberg survey of 11 analysts.

The company will freeze hiring, eliminate 10 percent to 15 percent of its 3,200 workers this quarter and is restructuring, postponing or terminating “non-core initiatives” and associated “non-compensation expenses,” according to the release. Those steps should produce savings of more than $60 million in the next year, said Corzine, the former chairman of Goldman Sachs Group Inc.

“We are taking decisive action to fundamentally improve the earnings profile of this company,” Corzine said.

Interest Income

Benchmark interest rates near zero percent have cut into the broker’s interest income, the revenue it receives from client money it holds as collateral for trades on exchanges. While that amount rose 57 percent to $156.5 million, the firm earned $1.77 billion in the same quarter in 2007 when rates were 5.25 percent. MF also earns fees for brokering trades at futures and options exchanges.

Revenue rose 20 percent to $565 million from $471 million in the same period last year, the company said. Compensation and benefit expenses climbed 20 percent to $184 million while interest outlays almost quadrupled to $109 million from $28 million.

Shares of MF Global, formerly the brokerage unit of Man Group Plc, the world’s largest publicly traded hedge-fund manager, dropped 35 cents yesterday to $8.12 in New York Stock Exchange composite trading. The shares had gained 17 percent through yesterday this year.

Bonuses Cut

The firm said it can’t estimate the charge it will incur to reduce its payroll by as much as 15 percent, according to a regulatory filing today.

Last quarter’s results included one-time pretax items such as impairment of goodwill of $51.7 million, costs associated with cutting future sign-on bonus and retention payments to employees that resulted in an upfront compensation charge of $27.5 million and costs related to its initial public offering of $6.7 million, the company said.

The amount of client money MF Global had during the quarter for investments rose to $12 billion compared with $11.8 billion a year ago, the company said.

The number of trades MF Global executed on exchanges for clients fell 23 percent in the quarter to 87.8 million while the transactions it sent to clearinghouses rose 24 percent to 338.2 million.

(The company plans to hold a conference call for analysts at 8:30 a.m. New York time. To listen, access the company’s Web site, http://www.mfglobalinvestorrelations.com.)

To contact the reporter on this story: Matthew Leising in New York at mleising@bloomberg.net.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aF9jLXAZCJdA&pos=5

 

Well, it is the options stuff that really is the issue here. Recall the case from the option thread. A guy was long the SPY 119 puts and short the SPY 114 puts. In the craziness of the flash crash there was a point where the price on the SPY 114 puts exceeded the price on the SPY 119 puts by enough to force the auto liquidation. The stupid bot first sold the 119 puts, thus creating a *real* margin call (since the 114 puts were no longer hedged) and then bought back the 114 puts at some ridiculous price.

The issue is NOT whether a bot has to guess whether some price is reasonable or not. It is NOT whether option prices are supposed to follow some model or another. It is NOT whether there is any liquidity in the options market. The issue is whether IB's bot is programmed to understand the legal obligations and rights of an option contract. To put it simply, if you are short an option then no matter how big the negative number is on your screen you do not incur one dime of realized losses unless you either buy back the option or the option is assigned. Now suppose that 114 put had been assigned. If that happens the trader exercises his 119 put. He is forced to buy SPY at 114 and immediately sells it at 119. He gets his $5 gain no matter what the options prices are or what their liquidity is. (It would be helpful if there was a way to tell IB that "this" long option hedges "that" short option so please exercise it if the short option is assigned.)

 

You obviously haven't read the comments by IB on this thread. The liquidation was NOT caused by the option prices or the spread. It was caused by other components of the portfolio falling into a deficit.

 

It seems that you say that a debit spread would not trigger liquidation. But I had an instance that the “only” position in my account was a call “debit” spread and I got liquidated. Would you care to explain IB’s official policy regarding debit spreads?

 

Does anyone know if IB ever commented on this statement which suggests different liquidation rules for portfolio margin accounts?

 

Its obvios that IB people want people to know as little as possible re their liquidation policies. Questions about their liquidation rules are almost never answerd by IB bloggers.

 

That's something , I would like to now too...

 

I find it odd that IB representative def only choose to answer certain questions and can post lengthy details to explain certain things which portrays their strength but choose to ignore other questions, presumably due to their inability to come out with a favourable answer?

I have seen quite a few instances where no answers were given when pressed further.

 

Gotta love to see an imbecile like you make such statements because it sort of brings a smile to those of us who can't stand you.

Crazy A