Author Topic: IBKR - Interactive Brokers  (Read 189632 times)

vinod1

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Re: IBKR - Interactive Brokers
« Reply #590 on: April 30, 2020, 11:55:31 AM »
Thank guys! Great feedback. This gives me a lot more comfort.

The scenario I am thinking about is if prices for certain securities fall to stupid levels for a few minutes for technical reasons. Say Apple, Google, FB and Amazon to a $1 for a few minutes. Do the automated risk management quickly liquidate their customers holdings to meet the required margin levels? Even Apple at -$300 for a couple of minutes let us say. Would IBKR be liable to clients? Just trying to think of scenarios that are very unlikely but would still be possible to trip up an automated risk management software.

Their customer's equity is $160 billion, their cash/investments is $8 billion. So I see there is a lot of equity that needs to be wiped out before it gets to start impacting clients.

(I do realize this might be at the level of bleach injection to cure Covid.)

Vinod
The fundamental algorithm of life: repeat what works. –Charlie Munger


rb

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Re: IBKR - Interactive Brokers
« Reply #591 on: April 30, 2020, 11:58:38 AM »
Wouldn't you have circuit breakers tripping way before any of that happens? Even before circuit breakers trip you'd have price and volatility halts all over the damn place.

Gregmal

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Re: IBKR - Interactive Brokers
« Reply #592 on: April 30, 2020, 12:03:39 PM »
I hate IBKR but keep most of my stuff there because its got the best margin rates. Nothing else. If Fidelity lent at 1% I'd have all my assets and AUM there.

And FWIW, almost all firms have additional coverage(most actually use Lloyds as well), and when you sign the margin agreement, you basically acknowledged the firm can do whatever it wants with your securities. You have no recourse during a flash crash.

vinod1

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Re: IBKR - Interactive Brokers
« Reply #593 on: April 30, 2020, 12:20:49 PM »
Wouldn't you have circuit breakers tripping way before any of that happens? Even before circuit breakers trip you'd have price and volatility halts all over the damn place.

Good point. Makes sense. Thanks!

Vinod
The fundamental algorithm of life: repeat what works. –Charlie Munger

KCLarkin

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Re: IBKR - Interactive Brokers
« Reply #594 on: April 30, 2020, 12:36:58 PM »
Most likely scenario is that feds facilitate a take under by another brokerage a la Bear Stearns.

IIRC, some of the silly trades during the flash crash were cancelled?

There is a small risk but this is true no matter your broker. I split between IBKR and a Big 5 Canadian bank. Bank might be safer but IBKR has much better security (2 factor). The risk of my bank brokerage account being hacked seems much higher than IBKR going insolvent.

benhacker

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Re: IBKR - Interactive Brokers
« Reply #595 on: April 30, 2020, 01:00:09 PM »
Most likely scenario is that feds facilitate a take under by another brokerage a la Bear Stearns.

IIRC, some of the silly trades during the flash crash were cancelled?

There is a small risk but this is true no matter your broker. I split between IBKR and a Big 5 Canadian bank. Bank might be safer but IBKR has much better security (2 factor). The risk of my bank brokerage account being hacked seems much higher than IBKR going insolvent.

The above I think is the biggest issue.  You are more likely to get your assets stolen than your broker to fail.

on failure, IBKR has a CEO / management with their net worth on the line ahead of you for losses, most mega-brokerages can't say the same (though I would still say IB's riks is "above average" vs. Fido or a Big bank).  On security, IB is lowest risk IMO.
Ben Hacker
Beaverton, Oregon - USA

WneverLOSE

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Re: IBKR - Interactive Brokers
« Reply #596 on: April 30, 2020, 01:37:58 PM »
From IBKR website :

Quote
Broker-dealers affiliated with banks are subject to further supervision by banking regulators, which results in additional uncertainty as to who has rights to the assets in the event of a bankruptcy. Since IBKR is not a bank, we believe clients' assets would be returned in a more timely fashion than for bank- owned broker-dealers. Moreover, in a financial crises scenario, IBKR’s financial resources would be dedicated solely to ensuring the continued smooth operations of the broker-dealer. Bank-affiliated broker-dealers, on the other hand, are capitalized by their bank affiliate, and are generally set-up as a subsidiary of a bank holding company affiliate. Unlike IBKR these bank-affiliated broker-dealers are not independent, self-capitalized entities adding a layer of additional risk for their clients. In a financial crisis those broker-dealers are competing with their banking affiliates for capital and liquidity. This could result in the capital being pulled out of the broker-dealer and funds being deployed at the affiliated banking entity to the detriment of brokerage clients. Lehman Brothers, and Bear Stearns are historical examples of entities that raided their broker-dealer affiliates for capital to try to save the banks, which were the root cause of their financial troubles. Both entities filed for bankruptcy. As a result, their clients experienced significant delays in accessing their assets and transferring them to an operational broker-dealer.

Indeed, during the height of the financial crisis, while clients were removing funds and equity from these bank- affiliated broker-dealers, those clients were depositing their assets with IBKR as a safe haven. As a result of IBKR's strong financial position, client equity and client cash increased by 77% and 65% respectively from November 2008-November 2009.

Don't forget that almost every big bank you guys are talking about was basically insolvent just a few years ago (and banks are experiencing financial strains once again)
« Last Edit: April 30, 2020, 01:44:24 PM by WneverLOSE »

fareastwarriors

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Re: IBKR - Interactive Brokers
« Reply #597 on: May 08, 2020, 02:16:01 PM »
Oil Crash Busted Broker’s Computers and Inflicted Big Losses

Interactive Brokers users couldn’t trade when oil broke zero
Incident will cost firm more than $100 million, chairman says

https://www.bloomberg.com/amp/news/articles/2020-05-08/oil-crash-busted-a-broker-s-computers-and-inflicted-huge-losses

patientcapital

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Re: IBKR - Interactive Brokers
« Reply #598 on: May 08, 2020, 02:21:41 PM »
Top comment from YC Hacker News related to the Bloomberg article (https://news.ycombinator.com/item?id=23116898):

"On another aside, I have known folks who have worked at IB in the past, and their systems absolutely suck dead goats. Huge masses of legacy C++ code with poor testing. Most of these brokerage firms have legacy code base from the 90s that is poorly understood. They also have nonexistent organizational quotient around code validation, correctness and testing their risk models. A futures margin model is not something one can whip up over a weekend but a good CS undergraduate can program one over a couple months.

Sorry for the IB customers but I have zero sympathy for IB or should I say negative ;)"

fareastwarriors

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Re: IBKR - Interactive Brokers
« Reply #599 on: May 08, 2020, 02:33:40 PM »
Top comment from YC Hacker News related to the Bloomberg article (https://news.ycombinator.com/item?id=23116898):

"On another aside, I have known folks who have worked at IB in the past, and their systems absolutely suck dead goats. Huge masses of legacy C++ code with poor testing. Most of these brokerage firms have legacy code base from the 90s that is poorly understood. They also have nonexistent organizational quotient around code validation, correctness and testing their risk models. A futures margin model is not something one can whip up over a weekend but a good CS undergraduate can program one over a couple months.

Sorry for the IB customers but I have zero sympathy for IB or should I say negative ;)"


 As markets keep doing things they have never done before, things tend to break.

Having worked in buy side in the past, most of tech is dated and buggy in the best of times... The companies were making upgrades and moving to new software but it takes many, many years to implement.


Side note, continued good employment opportunities for programmers since so many sectors besides finance need to upgrade their software.
« Last Edit: May 08, 2020, 02:40:36 PM by fareastwarriors »