Stock Yield Enhancement Program FAQs

What is the purpose of the Stock Yield Enhancement Program?
The Stock Yield Enhancement program provides customers with the opportunity to earn additional income on securities positions which would otherwise be segregated (i.e., fully-paid and excess margin securities) by permitting IB to lend out those securities to third parties. Customers who participate in the program will receive a portion of the fee paid by the borrower as loan compensation for any day the loan exists and will receive cash collateral to secure the return of the stock loan at its termination.

 

What are fully-paid and excess margin securities?
Fully-paid securities are securities in a customer’s account that have been completely paid for. Excess margin securities are securities that have not been completely paid for, but whose market value exceeds 140% of the customer’s margin debit balance.

 

How is the income received by a customer on any given Stock Yield Enhancement Program loan transaction determined?
The income which a customer receives in exchange for shares lent depend upon loan rates established in the over-the-counter securities lending market. These rates can vary significantly not only by the particular security loaned but also by the loan date. In addition, IB assesses a Management Fee equal to 50% of the net loan fees paid in exchange for initiating, terminating and managing transactions. In determining the customer’s portion of these fees, the Market Fee Rate % is applied to the loan collateral and this daily Gross Lending Fee is split equally between IB and the customer.  For example, assume loan collateral of $10,000 and an annualized Market Fee Rate of 15%. In this example the daily Gross Lending Fee would be $4.16 (($10,000 *.15)/360), of which $2.08 would accrue to the customer and $2.08 to IB as its Management Fee. Lending fees are calculated and accrued daily similar to interest credits.

 

How is the amount of cash collateral for a given loan determined?
The cash collateral underlying the security loan and used for determining interest payments is determined using standard industry convention whereby the closing price of the stock is multiplied by 102% and then rounded up to the nearest whole dollar. For example, a loan of 100 shares of a stock which closes at $59.24 would be equal to $6,100 ($59.24 * 1.02 = $60.4248; round to $61, multiply by 100).

 

What are the eligibility requirements for participation in the IB Stock Yield Enhancement Program?
All IB LLC and IB UK margin accounts or IB LLC and IB UK cash accounts with equity over $50,000 at the time of application are eligible. IB Canada, IB Japan and IB India customers are not eligible. Japanese and Indian clients maintaining accounts with IB LLC are eligible.


In addition, Financial Advisor client accounts, fully disclosed IBroker clients, non-disclosed IBroker clients and Omnibus Brokers who meet the above requirements can participate. In the case of Financial Advisors and fully disclosed IBrokers, the clients themselves must sign the agreements. For non-disclosed IBroker and Omnibus Brokers, the broker signs the agreement.

 

Are IRA accounts eligible to participate in the Stock Yield Enhancement Program?
Yes.

 

How do I enroll in the IB Stock Yield Enhancement Program?
Clients who are eligible and who wish to enroll in the Stock Yield Enhancement Program may do so by selecting Trading Access and then Trading Configuration from Account Management and then checking the box on the Trading Permissions matrix titled "United States (Stock Yield Enhancement Program)".

 

What happens if equity in a participating cash account falls below the $50,000 qualifying threshold?
The cash account must meet this minimum equity requirement solely at the point of signing up for the program. If the equity falls below that level thereafter there is no impact upon existing loans or the ability to initiate new loans.

 

What is the difference between AQS and the IB Stock Yield Enhancement Program?
Clients lending through AQS participants self-direct their activity based upon information provided via AQS’ automated centralized market. In contrast, loans transacted through the Stock Yield Enhancement Program are determined and managed by IB.

 

Can I participate in both AQS and the IB Stock Yield Enhancement Program?
Clients can only lend in one program at a time. If, for example, a client signs up for the Yield program and is already approved for AQS lending, we will disable their ability to lend at AQS and recall their loans. They will still, however, retain the ability to borrow through AQS and can see market data. If the client disables the Yield Enhancement Program, their AQS loan permissions will be re-enabled. In sum, the yield program always takes precedence.

 

If my account is eligible for AQS am I automatically eligible to participate in the IB Stock Yield Enhancement Program?
No.

 

If my account is eligible for the IB Stock Yield Enhancement Program am I automatically eligible to participate in AQS?
No.

 

How does one terminate Stock Yield Enhancement Program participation?
Clients who wish to terminate participation in the Stock Yield Enhancement Program may do so by selecting Trading Access and then Trading Configuration from Account Management and then removing the check from the box on the Trading Permissions matrix titled "United States (Stock Yield Enhancement Program)".
Requests to terminate are typically processed at the end of the day.

 

What types of securities positions are eligible to be lent?
Eligible securities include U.S. common stocks (exchange listed, PINK and OTCBB), ETFs, preferred stocks and corporate bonds. Municipal bonds and non-U.S. securities are not eligible.

 

Is there any restriction on lending stocks which are trading in the secondary market following an IPO?
No, as long as IB is not part of the selling group.

 

How does IB determine the amount of shares which are eligible to be loaned?
The first step is to determine the value of securities, if any, which IB maintains a margin lien upon and can lend without client participation in the Stock Yield Enhancement Program. A broker who finances client purchases of securities via margin loan is allowed by regulation to loan or pledge as collateral that client’s securities in an amount up to 140% of the cash debit balance. For example, if a client maintaining a cash balance of $50,000 buys securities having a market value of $100,000, the debit or loan balance will be $50,000 and the broker holds a lien on 140% of that balance or $70,000 of securities. Any securities held by the client in excess of that amount are referred to as excess margin securities ($30,000 in this example) and are required to be segregated unless the client provides IB the authorization to lend through the Stock Yield Enhancement Program.

The debit balance is determined by first converting all non-USD denominated cash balances to USD and then backing out any short stock sale proceeds (converted to USD as necessary). If the result is negative then we free up 140% of that negative number. In addition, cash balances maintained in the commodities segment or for spot metals and CFDs are not considered.

EXAMPLE 1: Customer is long EUR 100,000 in a USD Base Currency account with a EUR.USD rate of 1.40. Customer purchases USD denominated stock valued at $112,000 (EUR 80,000 equivalent). All securities are deemed fully-paid as cash balance as converted to USD is a credit.

Component EUR USD Base (USD)
Cash 100,000 (112,000) $28,000
Long Stock   $112,000 $112,000
NLV     $140,000

EXAMPLE 2: Customer holds long USD of 80,000, long USD denominated stock of $100,000 and short USD denominated stock of $100,000. Long securities totaling $28,000 are deemed margin securities and the remainder of $72,000 excess margin securities. This is determined by subtracting the short stock proceeds from the cash balance ($80,000 - $100,000) and multiplying the resultant debit by 140% ($20,000 * 1.4 = $28,000)

Component Base (USD)
Cash $80,000
Long Stock $100,000
Short Stock ($100,000)
NLV $80,000

 

Will IB lend out all eligible shares?
There is no guarantee that all eligible shares in a given account will be loaned through the Stock Yield Enhancement Program as there may not be a market at an advantageous rate for certain securities, IB may not have access to a market with willing borrowers or IB may not want to loan your shares.

 

Are Stock Yield Enhancement Program loans made only in increments of 100 (similar to AQS)?
No. Loans can be made in any whole share amount although externally we only lend in multiples of 100 shares. Thus the possibility exists that we would lend 75 shares from one client and 25 from another should there be external demand to borrow 100 shares.

 

How are loans allocated among clients when the supply of shares available to lend exceeds the borrow demand?
In the event that the demand for borrowing a given security is less than the supply of shares available to lend from participants in our Yield Enhancement Program, loans will be allocated on a pro rata basis (e.g. if aggregate supply is 20,000 and demand is 10,000, each client will be eligible to have 50% of his/her shares lent)

 

Are shares loaned only to other IB clients or to other third parties?
Shares may be loaned to any counterparty and is not limited solely to other IB clients.

 

Can the Stock Yield Enhancement Program participant determine which shares IB can lend?
No. The program is entirely managed by IB who, after determining those securities, if any, which IB is authorized to lend by virtue of a margin loan lien, has the discretion to determine whether any of the fully-paid or excess margin securities can be loaned out and to initiate the loans.

 

Are there any restrictions placed upon the sale of securities which have been lent through the Stock Yield Enhancement Program?
Loaned shares may be sold at any time, without restriction. The shares do not need to be returned in time to settle your sale of the share and proceeds from the sale are credited to the client’s account on the normal settlement date. In addition, the loan will be terminated on the open of the business day following the security sale date.

 

Can a client write covered calls against stock which has been loaned out through the Stock Yield Enhancement Program and receive the covered call margin treatment?
Yes. A loan of stock has no impact upon its margin requirement on an uncovered or hedged basis since the lender retains exposure to any gains or losses associated with the loaned position.

 

What happens to stock which is the subject of a loan and which is subsequently delivered against a call assignment or put exercise?
The loan will be terminated on T+1 of the action (trade, assignment, exercise) which closed or decreased the position.

 

What happens to stock which is the subject of a loan and which is subsequently halted from trading?
A halt has no direct impact upon the ability to lend the stock and as long as IB can continue to loan the stock, such loan will remain in place regardless of whether the stock is halted.

 

Can the cash collateral from a loan be swept to the commodities segment to cover margin and/or variation?
No. The cash collateral securing the loan never impacts margin or financing.

 

What happens if a program participant initiates a margin loan or increases an existing loan balance?
If a client maintains fully-paid securities which have been loaned through the Stock Yield Enhancement Program and subsequently initiates a margin loan, the loan will be terminated to the extent that the securities do not qualify as excess margin securities. Similarly, if a client maintaining excess margin securities which have been loaned through the program increases the existing margin loan, the loan may again be terminated to the extent that the securities no longer qualify as excess margin securities.

 

Under what circumstances will a given stock loan be terminated?
In the event of any of the following, a stock loan will be automatically terminated:

- If the client elects to terminate program participation
- Transfer of shares
- Borrowing of a certain amount against the shares
- Sale of shares
- Call assignment/put exercise
- Account closure

 

Do participants in the Stock Yield Enhancement Program receive dividends on shares loaned?
While the lender of the securities is entitled to receive the amount of all dividends and distributions made on loaned securities, they may receive cash payments, commonly referred to PILs, in lieu of dividends. Depending upon ones holding period for the shares loaned, the receipt of a PIL may have an adverse tax impact for certain U.S. taxpayers as such payments are taxed as ordinary income rather than at the reduced rate associated with qualified dividends.  IB will attempt to mitigate the payment of PILs by recalling shares prior to a dividend, however, IB cannot guarantee that the borrower will be able to return the shares within the necessary time frame to avoid PIL treatment.

 

Do participants in the Stock Yield Enhancement Program retain voting rights for shares loaned?

No. the borrower of the securities has the right to vote or provide any consent with respect to the securities if the Record Date or deadline for voting, providing consent or taking other action falls within the loan term.

 

How are loans reflected on the activity statement?

Loan collateral, shares outstanding, activity and income is reflected in the following 6 statement sections:


1. Cash Detail – details starting cash collateral balance, net change resulting from loan activity (positive if new loans initiated; negative if net returns) and ending cash collateral balance.
 

 

2. Net Stock Position Summary – for each stock details total Shares at IB, the number of Shares Borrowed, the number of Shares Lent (through AQS or the Stock Yield Enhancement Program) and the Net Shares (=Shares at IB + Shares Borrowed - Shares Lent).

 

3. IB Managed Securities Lent – lists for each stock loaned through AQS or the Stock Yield Enhancement Program the Quantity of shares loaned, the Net Fee Rate (%) and the Collateral Amount.

 

4. IB Managed Securities Lent Activity – details the loan activity for each security including Loan Return Allocations (i.e., terminated loans); New Loan Allocations (i.e., initiated loans); the share Quantity; the Net Fee Rate (%) and the Collateral Amount.

 

5. IB Managed Securities Lent Activity Fee Details – details on an individual loan basis the Market Fee Rate (%); the Gross Lend Fee (represents the total fee charged to the borrower which is equal to {Collateral Amount * Market Fee Rate}/360); the IB Management Charge (equals 50% of the Gross Lend Fee); the Net Lend Fee Rate (represents the half of the Market Fee Rate which the client earns) and the Net Lend Fee (represents the client’s portion of the fee income. Equals the Gross Lend Fee - IB Management Charge).
Note: This section will only be displayed if the Net Lend Fee accrual exceeds USD 1 for the statement period.  

 

6. Interest Accruals – the loan fee income is accounted for here as an interest accrual and is treated as any other interest accrual (aggregated but only displayed as an accrual when exceeding $1 and posted to cash monthly). For year-end reporting purposes, this fee income will be reported as miscellaneous income on the Form 1099 issued to U.S. taxpayers.

 

Considerations for Optimizing Order Efficiency

Account holders are encouraged to routinely monitor their order submissions with the objective of optimizing efficiency and minimizing 'wasted' or non-executed orders.  As inefficient orders have the potential to consume a disproportionate amount of system resources. IB measures the effectiveness of client orders through the Order Efficiency Ratio (OER).  This ratio compares aggregate daily order activity relative to that portion of activity which results in an execution and is determined as follows:

 

OER = (Order Submissions + Order Revisions + Order Cancellations) / (Executed Orders + 1)

Outlined below is a list of considerations which can assist with optimizing (reducing) one's OER:

 

1. Cancellation of Day Orders - strategies which use 'Day' as the Time in Force setting and are restricted to Regular Trading Hours should not initiate order cancellations after 16:00 ET, but rather rely upon IB processes which automatically act to cancel such orders. While the client initiated cancellation request which serve to increase the OER, IB's cancellation will not.

2. Modification vs. Cancellation - logic which acts to cancel and subsequently replace orders should be substituted with logic which simply modifies the existing orders. This will serve to reduce the process from two order actions to a single order action, thereby improving the OER.

3. Conditional Orders - when utilizing strategies which involve the pricing of one product relative to another, consideration should be given to minimizing unnecessary price and quantity order modifications. As an example, an order modification based upon a price change should only be triggered if the prior price is no longer competitive and the new suggested price is competitive.

4. Meaningful Revisions – logic which serves to modify existing orders without substantially increasing the likelihood of the modified order interacting with the NBBO should be avoided. An example of this would be the modification of a buy order from $30.50 to $30.55 on a stock having a bid-ask of $31.25 - $31.26.

5. RTH Orders – logic which modifies orders set to execute solely during Regular Trading Hours based upon price changes taking place outside those hours should be optimized to only make such modifications during or just prior to the time at which the orders are activated.

6. Order Stacking - Any strategy that incorporates and transmits the stacking of orders on the same side of a particular underlying should minimize transmitting those that are not immediately marketable until the orders which have a greater likelihood of interacting with the NBBO have executed.

7. Use of IB Order Types - as the revision logic embedded within IB-supported order types is not considered an order action for the purposes of the OER, consideration should be given to using IB order types, whenever practical, as opposed to replicating such logic within the client order management logic. Logic which is commonly initiated by clients and whose behavior can be readily replicated by IB order types include: the dynamic management of orders expressed in terms of an options implied volatility (Volatility Orders), orders to set a stop price at a fixed amount relative to the market price (Trailing Stop Orders), and orders designed to automatically maintain a limit price relative to the NBBO (Pegged-to-Market Orders).

The above is not intended to be an exhaustive list of steps for optimizing one's orders but rather those which address the most frequently observed inefficiencies in client order management logic, are relatively simple to implement and which provide the opportunity for substantive and enduring improvements. For further information or questions, please contact the Customer Service Technical Assistance Center.

 

List of Chinese Stocks Subject to Increased Margin Requirements

Übersicht: 

As a result of elevated risk concerns, the list of stocks below are subject to an increased 'house' margin requirement of 100% (i.e. no loan value). Note that this list may be subject to periodic updates.

 

ISSUER NAME   SYMBOL   PRIMARY LISTING EXCHANGE
3SBIO INC-ADR  SSRX  NASDAQ
AAA ENERGY INC  AAV  FWB
ABRA MINING LTD AII ASX
ACORN INTERNATIONAL INC-ADR  ATV  NYSE
ACTIONS SEMICONDUCTOR CO-ADR  ACTS  NASDAQ
AGRIA CORP - ADR  GRO  NYSE
AIRMEDIA GROUP INC-ADR  AMCN  NASDAQ
AIRTAC INTERNATIONAL GROUP  1590 TAI
AMBOW EDUCATION HOLDING-ADR  AMBO  NYSE
ANDATEE CHINA MARINE FUEL SE  AF0  SWB
ANDATEE CHINA MARINE FUEL SE  AMCF  NASDAQ
APOLLO SOLAR ENERGY INC  FXA  SWB
A-POWER ENERGY GENERATION  APWR  NASDAQ
A-POWER ENERGY GENERATION  4OS  FWB
ASIAINFO-LINKAGE INC ASIA NASDAQ
ASIAINFO-LINKAGE INC  AFB  IBIS
ATA INC-ADR  ATAI  NASDAQ
BCD SEMICONDUCTOR MANUFA-ADR  BCDS  NASDAQ
BIOSTAR PHARMACEUTICALS INC  7BN  SWB
BIOSTAR PHARMACEUTICALS INC  BSPM  NASDAQ
BITAUTO HOLDINGS LTD-ADR  BITA  NYSE
BODISEN BIOTECH INC  DZ9  FWB
BOHAI PHARMACEUTICALS GROUP  3B2  SWB
BONA FILM GROUP LTD-SPON ADR  BONA  NASDAQ
BOYUAN CONSTRUCTION GROUP IN  BOY  TSE
CAMELOT INFORMATION SYS-ADS CIS NYSE
CHANGYOU.COM LTD-ADR  CYOU  NASDAQ
CHARM COMMUNICATIONS INC-ADR  CHRM  NASDAQ
CHEMSPEC INTL LTD - ADR  CPC  NYSE
CHINA 3C GROUP  GXS  SWB
CHINA BAK BATTERY INC  B6J  FWB
CHINA BAK BATTERY INC  CBAK  NASDAQ
CHINA CABLECOM HOLDINGS LTD  CCUN  IBIS
CHINA CABLECOM HOLDINGS LTD  CABL  NASDAQ
CHINA CENTURY DRAGON MEDIA I  ZDR  SWB
CHINA CERAMICS CO LTD  CCCLU  NASDAQ
CHINA CERAMICS CO LTD  C9E  SWB
CHINA CGAME INC  CA6N  IBIS
CHINA CGAME INC  CCGM  NASDAQ
CHINA DASHENG BIOTECHNOLOGY  16D  FWB
CHINA DIGITAL TV HOLDING-ADR  STV  NYSE
CHINA DISTANCE EDUCATION-ADR  DL  NYSE
CHINA ENERGY CORP  ZCE  SWB
CHINA ENERGY RECOVERY INC CNI FWB
CHINA FINANCE ONLINE CO-ADR  JRJC  NASDAQ
CHINA GENGSHENG MINERALS INC  CGS  FWB
CHINA GRENTECH CORP LTD-ADR  GRRF  NASDAQ
CHINA INDUSTRIAL WASTE MANAG GD9 TIQSSWB
CHINA KANGTAI CACTUS BIO-TEC IWN1 FWB
CHINA LINEN TEXTILE INDUSTRY C60 SWB
CHINA MASS MEDIA CORP-ADR  CMM  NYSE
CHINA MEDICAL TECH-SPON ADR  CMED  NASDAQ
CHINA MEDICINE CORP  XM2  SWB
CHINA NEPSTAR CHAIN DRUG-ADR  NPD  NYSE
CHINA NUOKANG BIO-PH-SP ADR  NKBP  NASDAQ
CHINA ORGANIC AGRICULTURE IN  4CA  FWB
CHINA POWER EQUIPMENT INC  5XP  TIQSSWB
CHINA REDSTONE GROUP INC RS0 SWB
CHINA RITAR POWER CORP  YXC  SWB
CHINA RUNJI CEMENT INC WRJ SWB
CHINA SHENGDA PACKAGING GROU  0CH  FWB
CHINA SHENGDA PACKAGING GROU  CPGI  NASDAQ
CHINA SHENGHUO PHARMACEUTICA  54C  IBIS
CHINA SHENGHUO PHARMACEUTICA  KUN  AMEX
CHINA SHUANGJI CEMENT LTD  C99N  FWB
CHINA SOLAR & CLEAN ENERGY S NCS2 FWB
CHINA SUN GROUP HIGH-TECH CO BP7 FWB
CHINA SUNERGY CO LTD-ADR  CSUN  NASDAQ
CHINA TECHFAITH WIRELESS-ADR  CNTF  NASDAQ
CHINA TMK BATTERY SYSTEMS IN T35 SWB
CHINA WATER GROUP INC  DI1  FWB
CHINA XD PLASTICS CO LTD  02Y  FWB
CHINA XINIYA FASHIO-SPON ADR  XNY  NYSE
CHINA ZENIX AUTO INTERNA-ADR  ZX  NYSE
CHINACACHE INTERNAT-SPON ADR  CCIH  NASDAQ
CHINAEDU CORP-ADR  CEDU  NASDAQ
CLEANTECH SOLUTIONS INTERNAT CLNT NASDAQ
CLEANTECH SOLUTIONS INTERNAT CWZN FWB
CNINSURE INC-ADR CISG NASDAQ
CONCORD MEDICAL - SPON ADR  CCM  NYSE
COUNTRY STYLE COOKI-SPON ADR  CCSC  NYSE
DAQO NEW ENERGY CORP-ADR  DQ  NYSE
DEHAIER MEDICAL SYSTEMS LTD  J8D  FWB
DEHAIER MEDICAL SYSTEMS LTD  DHRM  NASDAQ
DUOYUAN PRINTING INC DPT FWB
EASTERN ENVIRONMENT SOLUTION V5E SWB
E-COMMERCE CHINA-SPON ADR  DANG  NYSE
EFUTURE INFORMATION TECHNOLO  4EF  FWB
ELONG INC-SPONSORED ADR  LONG  NASDAQ
ETERNAL TECHNOLOGIES GROUP  ETO  FWB
FORLINK SOFTWARE CORP  YNO1  FWB
FUNTALK CHINA HOLDINGS LTD  FTLK  NASDAQ
FUQI INTERNATIONAL INC 3F6A IBIS
FUWEI FILMS HOLDINGS CO LTD  F4B  IBIS
GC CHINA TURBINE CORP 7GC SWB
GLG LIFE TECH CORPORATION  GLG  TSE
GLOBAL EDUCATION & TECH-ADR  GEDU  NASDAQ
GOLD HORSE INTERNATIONAL INC 0GH SWB
GUSHAN ENVIRONMENTAL ENE-ADR  GU  NYSE
HANGFENG EVERGREEN INC  HF  TSE
HARTCOURT COMPANIES INC  HCT  SWB
HIGHPOWER INTERNATIONAL INC  HKN  SWB
HIGHPOWER INTERNATIONAL INC  HPJ  NASDAQ
HISOFT TECHNOLOGY INT-ADR  HSFT  NASDAQ
HOLLYSYS AUTOMATION TECHNOLO  46H  FWB
HOLLYSYS AUTOMATION TECHNOLO  HOLI  NASDAQ
IFM INVESTMENTS LTD-ADS  CTC  NYSE
ITONIS INC  IX2  IBIS
JA SOLAR HOLDINGS CO LTD-ADR JASO NASDAQ
JADE ART GROUP INC JAC SWB
JIAYUAN.COM INTERNATIONA-ADR  DATE  NASDAQ
JINGWEI INTERNATIONAL LTD  WJI  SWB
JINKOSOLAR HOLDING CO-ADR JKS NYSE
JINPAN INTERNATIONAL LTD  3QN  FWB
JINPAN INTERNATIONAL LTD  JST  NASDAQ
KANDI TECHNOLOGIES CORP  K8A  FWB
KINGTONE WIRELESSINFO SO-ADR  KONE  NASDAQ
KU6 MEDIA CO LTD-SPN ADR  KUTV  NASDAQ
LDK SOLAR CO LTD -ADR LDK NYSE
LEGEND MEDIA INC LM2 SWB
LENTUO INTERNATI-SPON ADS  LAS  NYSE
LINKWELL CORP  LHX  SWB
LIZHAN ENVIRONMENTAL CORP  LZEN  NASDAQ
MECOX LANE LTD-ADR  MCOX  NASDAQ
MIGAO CORPORATION  MGO  TSE
MINCO SILVER CORPORATION  MSV  TSE
MINDRAY MEDICAL INTL LTD-ADR MR NYSE
NETQIN MOBILE INC - ADR  NQ  NYSE
NEW DRAGON ASIA CORP  BQ4  IBIS
NOAH EDUCATION HOLDINGS-ADR  NED  NYSE
ORIGIN AGRITECH LTD  39O  SWB
ORIGIN AGRITECH LTD  SEED  NASDAQ
ORSUS XELENT TECHNOLOGIES IN  O5X  FWB
ORSUS XELENT TECHNOLOGIES IN  ORS  AMEX
OSSEN INNOVATION CO-SPON ADR  OSN  NASDAQ
PHOENIX NEW MEDIA LTD -ADS  FENG  NYSE
PRIME ACQUISITION CORP  PACQ  NASDAQ
PRIME ACQUISITION CORP  PACQU  NASDAQ
QIAO XING MOBILE COMMUNICATI  F2A  IBIS
QIAO XING MOBILE COMMUNICATI  QXM  NYSE
QIAO XING UNIVERSAL RESOURCE  QXU  FWB
QIAO XING UNIVERSAL RESOURCE  XING  NASDAQ
RDA MICROELECTRON-SPON ADR  RDA  NASDAQ
RECON TECHNOLOGY LTD HRC FWB
RECON TECHNOLOGY LTD  RCON  NASDAQ
RENESOLA LTD-ADR SOL NYSE
SANCON RESOURCES RECOVERY IN FTVA SWB
SEARCHMEDIA HOLDINGS LTD  IDI  AMEX
SEARCHMEDIA HOLDINGS LTD-UTS  IDI U  AMEX
SGOCO GROUP LTD  SGOC  NASDAQ
SHANGPHARMA CORP-ADR  SHP  NYSE
SHENGTAI PHARMACEUTICAL INC ESZ SWB
SINA CORP  YIN  FWB
SINO GAS & ENERGY HOLDINGS L  SEH  ASX
SINO GAS INTERNATIONAL HOLDI QGS SWB
SINOBIOMED INC  G8U  FWB
SINOHUB INC  7S3  FWB
SINOTECH ENERGY LTD-SPON ADR  CTE  NASDAQ
SINOVAC BIOTECH LTD  SVQ  FWB
SINOVAC BIOTECH LTD  SVA  NASDAQ
SKY DIGITAL STORES CORP  YN3  FWB
SKY-MOBI LTD-SP ADR  MOBI  NASDAQ
SKYSTAR BIO-PHARMACEUTICAL  GNJC  FWB
SOHU.COM INC  XOU  FWB
SUNTECH POWER HOLDINGS-ADR STP NYSE
SYSWIN INC-SPON ADS  SYSW  NYSE
TAL EDUCATION GROUP- ADR  XRS  NYSE
TAOMEE HOLDINGS LTD-SP ADR TAOM NYSE
TELESTONE TECHNOLOGIES CORP  MSOA  FWB
THE9 LTD-ADR  NCTY  NASDAQ
TIANLI AGRITECH INC  7TA  FWB
TIANLI AGRITECH INC  OINK  NASDAQ
TIBET PHARMACEUTICALS INC  TXP  SWB
TIBET PHARMACEUTICALS INC  TBET  NASDAQ
TRINA SOLAR LTD-SPON ADR TSL NYSE
TRI-TECH HOLDING INC  TTW  FWB
TRI-TECH HOLDING INC  TRIT  NASDAQ
TRUNKBOW INTERNATIONAL HOLDI  TBJ  IBIS
TRUNKBOW INTERNATIONAL HOLDI  TBOW  NASDAQ
U.S. CHINA MINING GROUP INC RJ2B SWB
UTSTARCOM INC  UTS  FWB
UTSTARCOM INC  UTSI  NASDAQ
UTSTARCOM INC  UTSI  MEXI
VIMICRO INTERNATIONAL CO-ADR  VIMC  NASDAQ
VISIONCHINA MEDIA INC-ADR  VISN  NASDAQ
WSP HOLDINGS LTD-ADR  WH  NYSE
XINHUA CHINA LTD  X5R  IBIS
XINYINHAI TECHNOLOGY LTD 3XI SWB
XINYUAN REAL ESTATE CO L-ADR  XIN  NYSE
YAYI INTERNATIONAL INC  8YJ  SWB
YINGLI GREEN ENERGY HOLD-ADR YGE NYSE
YOUKU.COM INC-SPON ADR YOKU NYSE
YUCHENG TECHNOLOGIES LTD  YCT  SWB
YUCHENG TECHNOLOGIES LTD  YTEC  NASDAQ
ZHENG HE GLOBAL CAPITAL LTD  ZHE  ASX
ZHONGPIN INC  CWP  FWB
ZOOM TECHNOLOGIES INC  ZT2A  FWB
ZUOAN FASHION LTD-SPON ADR  ZA  NYSE

Overview of SEC Fees

Under Section 31 of the Securities Exchange Act of 1934, U.S. national securities exchanges are obligated to pay transaction fees to the SEC based on the volume of securities that are sold on their markets. Exchange rules require their broker-dealer members to pay a share of these fees who, in turn, pass the responsibility of paying the fees to their customers.

This fee is intended to allow the SEC to recover costs associated with its supervision and regulation of the U.S. securities markets and securities professionals. It applies to stocks, options and single stock futures (on a round turn basis); however, IB does not pass on the fee in the case of single stock futures trades.  Note that this fee is assessed only to the sale side of security transactions, thereby applying to the grantor of an option (fee based upon the option premium received at time of sale) and the exerciser of a put or call assignee (fee based upon option strike price).

For the fiscal year 2015 the fee was assessed at a rate of $0.0000184 per $1.00 of sales proceeds, however, the rate is subject to annual and,in some cases, mid-year adjustments should realized transaction volume generate fees sufficiently below or in excess of targeted funding levels.1

Examples of the transactions impacted by this fee and sample calculations are outlined in the table below.

Transaction

Subject to Fee?

Example

Calculation

Stock Purchase

No

N/A

N/A

Stock Sale (cost plus commission option)

Yes

Sell 1,000 shares MSFT@ $25.87

$0.0000184 * $25.87 * 1,000 = $0.476008

Call Purchase

No

N/A

N/A

Put Purchase

No

N/A

N/A

Call Sale

Yes

Sell 10 MSFT June ’11 $25 calls @ $1.17

$0.0000184 * $1.17 * 100 * 10 = $0.021528

Put Sale

Yes

Sell 10 MSFT June ’11 $25 puts @ $0.41

$0.0000184 * $0.41 * 100 * 10 = $0.007544

Call Exercise

No

N/A

N/A

Put Exercise

Yes

Exercise of 10 MSFT June ’11 $25 puts

$0.0000184 * $25.00 * 100 * 10 = $0.46

Call Assignment

Yes

Assignment of 10 MSFT June ’11 $25 calls

$0.0000184 * $25.00 * 100 * 10 = $0.46

Put Assignment

No

N/A

N/A

 

1Information regarding current Section 31 fees may be found on the SEC's Frequently Requested Documents page located at: http://www.sec.gov/divisions/marketreg/mrfreqreq.shtml#feerate

 

 

FAQs - U.S. Securities Option Expiration

Übersicht: 

The following page has been created in attempt to assist traders by providing answers to frequently asked questions related to US security option expiration, exercise, and assignment.  Please feel free to contact us if your question is not addressed on this page or to request the addition of a question and answer. 

Click on a question in the table of contents to jump to the question in this document.

Table Of Contents:

How do I provide exercise instructions?

Do I have to notify IB if I want my long option exercised?

What if I have a long option which I do not want exercised?

What can I do to prevent the assignment of a short option?

Is it possible for a short option which is in-the-money not to be assigned?

Can IB exercise the out-of-the-money long leg of my spread position only if my in-the-money short leg is assigned?

What happens to my long stock position if a short option which is part of a covered write is assigned?

Am I charged a commission for exercise or assignments?

What happens if I am unable to meet the margin requirement on a stock delivery resulting from an option exercise or assignment?

 

Q&A:

How do I provide exercise instructions?
Instructions are to be entered through the TWS Option Exercise window. Procedures for exercising an option using the IB Trader Workstation can be found in the TWS User's Guide.

Important Note: In the event that an option exercise cannot be submitted via the TWS, an option exercise request with all pertinent details (including option symbol, account number and exact quantity), should be created in a ticket via the Account Management window. In the Account Management window, click on "Inquiry/Problem Ticket". The ticket should include the words "Option Exercise Request" in the subject line. Please provide a contact number and clearly state in your ticket why the TWS Option Exercise window was not available for use.

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Do I have to notify IB if I want my long option exercised?

In the case of exchange listed U.S. securities options, the clearinghouse (OCC) will automatically exercise all cash and physically settled options which are in-the-money by at least $0.01 at expiration (e.g., a call option having a strike price of $25.00 will be automatically exercised if the stock price is $25.01 or more and a put option having a strike price of $25.00 will be automatically exercised if the stock price is $24.99 or less). In accordance with this process, referred to as exercise by exception, account holders are not required to provide IB with instructions to exercise any long options which are in-the-money by at least $0.01 at expiration. 

Important Note: in certain situations (e.g., underlying stock halt, corporate action), OCC may elect to remove a particular class of options from the exercise by exception process, thereby requiring the account holder to provide positive notice of their intent to exercise their long option contracts regardless of the extent they may be in-the-money. In these situations, IB will make every effort to provide advance notice to the account holder of their obligation to respond, however, account holders purchasing such options on the last day of trading are not likely to be afforded any notice.

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What if I have a long option which I do not want exercised?
If a long option is not in-the-money by at least $0.01 at expiration it will not be automatically exercised by OCC. If it is in-the-money by at least that amount and you do not wish to have it exercised, you would need to provide IB with contrary instructions to let the option lapse. These instructions would need to be entered through the TWS Option Exercise window prior to the deadline as stated on the IB website.

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What can I do to prevent the assignment of a short option?
The only action one can take to prevent being assigned on a short option position is to buy back in the option prior to the close of trade on its last trading day (for equity options this is usually the Friday preceding the expiration date). When you sell an option, you provided the purchaser with the right to exercise which they generally will do if the option is in-the-money at expiration.

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Is it possible for a short option which is in-the-money not to be assigned?
While is unlikely that holders of in-the-money long options will elect to let the option lapse without exercising them, certain holders may do so due to transaction costs or risk considerations. In conjunction with its expiration processing, OCC will assign option exercises to short position holders via a random lottery process which, in turn, is applied by brokers to their customer accounts. It is possible through these random processes that short positions in your account be part of those which were not assigned.

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Can IB exercise the out-of-the-money long leg of my spread position only if my in-the-money short leg is assigned?
No. There is no provision for issuing conditional exercise instructions to OCC. OCC determines the assignment of options based upon a random process which is initiated only after the deadline for submitting all exercise instructions has ended. In order to avoid the delivery of a long or short underlying stock position when only the short leg of an option spread is in-the-money at expiration, the account holder would need to either close out that short position or consider exercising an at-the-money long option.

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What happens to my long stock position if a short option which is part of a covered write is assigned?
If the short call leg of a covered write position is assigned, the long stock position will be applied to satisfy the stock delivery obligation on the short call. The price at which that long stock position will be closed out is equal to the short call option strike price.

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Am I charged a commission for exercise or assignments?
There is no commissions charged as the result of the delivery of a long or short position resulting from option exercise or assignment of a U.S. security option (note that this is not always the case for non-U.S. options).

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What happens if I am unable to meet the margin requirement on a stock delivery resulting from an option exercise or assignment?
If an option exercise or assignment results in the delivery of a long or short stock position and the account holder does not maintain sufficient equity to meet the ensuing margin requirement, IB will act to liquidate positions to restore margin compliance. While IB retains the right to liquidate at any time in such situations, liquidations involving U.S. security positions will typically begin at approximately 9:40 AM ET as of the business day following expiration.

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Non-Guaranteed Combination Orders

A combination order is a special type of order that is constructed of multiple separate positions, or ‘legs’, but executed as a single transaction.  The legs of the combination may be comprised of the same position type (e.g. stock vs. stock, option vs. option or SSF vs. SSF) or different position types (e.g. stock vs. option, SSF vs. option or EFP).  It’s important to note that many combination order types, while submitted via the IB trading platform as a combination, are not native to (i.e., supported by) the exchanges and therefore may not be guaranteed by IB.  Accordingly, IB’s policy is to guarantee only Smart-Routed U.S. stock vs. option and option vs. option combination orders.

As combination orders which are not guaranteed are exposed to the risk of partial execution, both in terms of the quantity of legs and their balance, IB requires account holders to acknowledge the 'Non-Guaranteed' attribute at the point of order entry.  There are two methods for setting this attribute:

  • Method 1 - Users can select the Non-Guaranteed attribute in the Misc. section on the Order Ticket for a particular order
  • Method 2 - Users can add the Non-Guaranteed column to the Order Management section of the TWS

 

Notes:

  • Non-Guaranteed combination orders are not available for Financial Advisor allocation orders

 

The risk of such 'Non-Guaranteed' orders is illustrated through the example below:

Example

Assume the following quotes for a Stock vs. Stock combination order to purchase shares of Microsoft (MSFT) and sell shares of Appl (AAPL).

Current markets

MSFT - 26.30 bid, 26.31 offer
AAPL - 250.25 bid, 250.30 offer

A generic combination is created to buy 1 share AAPL and sell 1 share MSFT, the implied quote would be 223.94 bid, 224 offer.

The following order is entered:
Buy 200 AAPL, Sell 200 MSFT
Pay 224

Based on the current markets, the order would appear to be executable.

  • A buy of 200 shares of AAPL are routed with a 250.30 limit. Only 100 execute.
  • A sell of 200 shares of MSFT are routed with a 26.30 limit. No execution is received as the market moves to 26.29 bid.

With a Non-Guaranteed combination, the 100 shares of AAPL would be placed in the client account, even though no MSFT shares were executed.  The remainder of the combination order will continue to work until executed in its entirety or until it is canceled.

TWS Messages - Order quantity must be fully displayed for this instrument

Order types which provide privacy by either hiding the entire order quantity (i.e., Hidden Orders) or allowing the display of only a specified portion of the submitted order quantity (i.e., Iceberg/Reserves) are not supported for all product types and venues.

Examples of venues for which Hidden and Iceberg/Reserve stock orders are not supported are Pink Sheet and OTCBB.  Hidden or Iceberg/Reserve orders submitted to these venues will be rejected and will generate the following message: "Order quantity must be fully displayed for this instrument". Orders receiving this rejection message will require the removal of any hidden or display size attribute prior to resubmission.

Additional information regarding product types and venues for which these order types are supported is available through the links below:

Iceberg/Reserve:

http://individuals.interactivebrokers.com/en/trading/orders/iceberg.php?ib_entity=llc

Hidden :

http://individuals.interactivebrokers.com/en/trading/orders/hidden.php?ib_entity=llc

 

Equity & Index Option Position Limits

Übersicht: 

Equity option exchanges define position limits for designated equity options classes.  These limits define position quantity limitations in terms of the equivalent number of underlying shares (described below) which cannot be exceeded at any time on either the bullish or bearish side of the market.  Account positions in excess of defined position limits may be subject to trade restriction or liquidation at any time without prior notification.

Background: 

Position limits are defined on regulatory websites and may change periodically.  Some contracts also have near-term limit requirements (near-term position limits are applied to the side of the market for those contracts that are in the closest expiring month issued).  Traders are responsible for monitoring their positions as well as the defined limit quantities to ensure compliance.  The following information defines how position limits are calculated;

 

Option position limits are determined as follows:

  • Bullish market direction -- long call & short put positions are aggregated and quantified in terms of equivalent shares of stock.
  • Bearish market direction -- long put & short call positions are aggregated and quantified in terms of equivalent shares of stock.

The following examples, using the 25,000 option contract limit, illustrate the operation of position limits:

  • Customer A, who is long 25,000 XYZ calls, may at the same time be short 25,000 XYZ calls, since long and short positions in the same class of options (i.e., in calls only or in puts only) are on opposite sides of the market and are not aggregated
  • Customer B, who is long 25,000 XYZ calls, may at the same time be long 25,000 XYZ puts. Rule 4.11 does not require the aggregation of long call and long put (or short call and short put) positions, since they are on opposite sides of the market.
  • Customer C, who is long 20,000 XYZ calls, may not at the same time be short more than 5,000 XYZ puts, since the 25,000 contract limit applies to the aggregate position of long calls and short puts in options covering the same underlying security. Similarly, if Customer C is also short 20,000 XYZ calls, he may not at the same time have a long position of more than 5,000 XYZ puts, since the 25,000 contract limit applies separately to the aggregation of short call and long put positions in options covering the same underlying security.

 

Notifications and restrictions:

 

IB will send notifications to customers regarding the option position limits at the following times:

  • When a client exceeds 85% of the allowed limit IB will send a notification indicating this threshold has been exceeded
  • When a client exceeds 95% of the allowed limit IB will place the account in closing only. This state will be maintained until the account falls below 85% of the allowed limit. New orders placed that would increase the position will be rejected.

 

Notes:

Position limits are set on the long and short side of the market separately (and not netted out).
Traders can use an underlying stock position as a "hedge" if they are over the limit on the long or short side (index options are reviewed on a case by case basis for purposes of determining which securities constitute a hedge).
Position information is aggregated across related accounts and accounts under common control.

 

Definition of related accounts:

IB considers related accounts to be any account in which an individual may be viewed as having influence over trading decisions. This includes, but is not limited to, aggregating an advisor sub-account with the advisor's account (and accounts under common control), joint accounts with individual accounts for the joint parties and organization accounts (where an individual is listed as an officer or trader) with other accounts for that individual.

 

Position limit exceptions:

Regulations permit clients to exceed a position limit if the positions under common control are hedged positions as specified by the relevant exchange. In general the hedges permitted by the US regulators that are recognized in the IB system include outright stock position hedges, conversions, reverse conversions and box spreads. Currently collar and reverse collar strategies are not supported hedges in the IB system. For more detail about the permissible hedge exemptions refer to the rules of the self regulatory organization for the relevant product.

OCC posts position limits defined by the option exchanges.   They can be found here.
http://www.optionsclearing.com/webapps/position-limits

Non-Objecting Beneficial Owner (NOBO)

Übersicht: 

A NOBO refers to an account holder who provides its carry broker (i.e., IB) permission to release their name and address to the companies or issuers of securities they hold.  These companies or issuers request this information in the event they need to contact shareholders regarding important shareholder communications such as proxies, circulars for rights offerings and annual/quarterly reports.  IB, by default, classifies clients as a NOBO but allows client to have their classification changed to that of an Objecting Beneficial Owner (OBO).  To do so, clients are required to provide formal notice of their request to be classified as an OBO through a Message Center ticket available via Account Management.

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