Tools Provided to Monitor and Manage Margin

IB provides a variety of tools and information intended to provide account holders with real-time details as to their state of margin compliance so as to avoid forced liquidations. These include the following:

a.      Account Window – The account window is available for real-time account activity monitoring.  This window will display key values that update with every price change in the portfolio.  Included are account balances (cash, Net Liquidation Value, Equity with Loan Value), margin requirements (current, look ahead, overnight and post expiration), and balances available for trading (Available Funds and Excess Equity).
 
b.      Preview Order/Check Margin – Prior to transmitting an order it can be previewed including the impact upon the margin requirement were the order to be executed. Additional information may be found in KB644.
 
c.       Communications – IB will act to send out communications via TWS bulletin and/or email when the margin cushion in an account reaches 5% and a margin deficiency is therefore approaching. Account holders may also create their own margin alerts based upon the margin cushion which, when triggered, may generate email or text message alerts, TWS pop-up messages, flashing rows and sound alarms.
 
d.      Reports – A Daily Margin Report is made available with Account Management which reflects key margin balances and for portfolio margin accounts, requirements broken down by security class. 
 
In addition, IB provides a Last to Liquidate feature within the TWS Account window that allows customers to specify the positions they would prefer IB liquidate last in the event of a margin deficit. While IB will attempt on a best efforts basis to adhere to such requests, account positions and market conditions may make doing so impractical and IB therefore reserves the right to liquidate in the sequence it deems most optimal.

Trading on margin in an IRA account

IRA accounts, by definition, may not use borrowed funds to purchase securities and must pay for all long stock purchases in full, may not carry short stock positions and may not hold a debit cash balance (in any currency). IRA accounts are eligible to carry futures and option contracts. In addition, IB offers a specific form of IRA account referred to as a “Margin IRA” that allows the account holder to trade with unsettled funds, carry American style option spreads and maintain long balances in multiple currency denominations.

For additional information regarding trading permissions in an IRA account, refer to KB188.
 

How to determine if you are borrowing funds from IB

If the aggregate cash balance in a given account is a debit, or negative, then funds are being borrowed and the loan is subject to interest charges. A loan may still exist, however, even if the aggregate cash balance is a credit, or positive, as a result of balance netting or timing differences. The most common examples of this are as follows:

 
1.       Long vs. Short Currency Balances – accounts holders may borrow cash denominated in one currency if it can be secured by a credit balance in another.  Take, for example, a USD base currency account holding a long USD settled cash balance of 10,000, a short EUR settled cash balance of 5,000, with a EUR.USD exchange rate of 1.38:1. Here, for statement reporting and interest computation purposes, the overall cash balance is a USD credit of 3,088 (10,000 – (5,000 * 1.38)). As each currency is subject to a unique funding and reinvestment arrangement, the short balance would be subject to financing costs based upon its benchmark rate and tier. This cost may be offset by any interest earned on the long balance based upon its benchmark rate and tier.
 
2.       Gross Balances by Segment – IB’s Universal Account contains multiple sub accounts or segments, each of which holds positions and collateral which, for regulatory and customer protection purposes, may not be commingled. This separation does not allow for netting of balances across segments and a credit in one segment may therefore not offset a debit in another. Take, for example, an IB LLC account holding both securities and commodities positions with the securities segment maintaining a debit cash balance of USD 3,000 and the commodities segment a credit cash balance of USD 8,000. While the account holds an overall net credit balance of USD 5,000, the short balance would be subject to an interest charge which may be partially offset by any interest earned on the long balance.
 
3.       Short Sales – a short sale is a margin transaction in which the account holder is borrowing stock rather than cash. While the proceeds from the short sale are credited to the cash balance of the account, these funds must be posted with the lender of the shares as collateral to secure their return. As a result, and in recognition of the fact that the loan transaction is subject to its own financing terms, the cash collateralizing the loan is excluded for the purpose of determining whether a margin loan exists.
 
As example, consider an account reporting net liquidating equity (all balances in USD) of  9,000 comprised of a credit cash balance of 4,000, long stock valued at 10,000 and short stock valued at 5,000. In order to determine whether funds are being borrowed to finance the long stock position, the 5,000 portion of the cash pledged as collateral to the lender of the shares is deducted from the overall 4,000 cash balance, resulting in a 1,000 debit. This debit is subject to interest charges and the cash underlying the stock borrow either an interest charge in the case of hard to borrow shares or a short stock rebate if the shares are easy to borrow and reinvestment rates sufficiently high.
 
4.       Unsettled Funds - borrowings are determined based upon settled funds and the timeframe by which payment is due or received for a given transaction is product specific (e.g., stocks generally settle in 3 business days, spot currencies 2 and derivatives 1). For statement and trading platform purposes, cash balances are reported on a trade date rather than settlement date basis, as if settlement has completed.
 
As a result, an account reporting a credit cash balance may, in fact, still be carrying a margin loan if that balance includes proceeds from the sale of stock purchased with borrowed funds awaiting settlement. Similarly, an account may report a trade date based debit balance, but not yet incurring a margin loan and interest charges, as the trade has not yet settled.
 
For additional information regarding interest calculations, please refer to How Interest is Calculated.

Overview of Margin Methodologies

Introduction

The methodology used to calculate the margin requirement for a given position is largely determined by the following three factors:
 
1.      The product type;
2.      The rules of the exchange on which the product is listed and/or the primary regulator of the carrying broker;
3.      IB’s “house” requirements.
 
While a number of methodologies exist, they tend to be categorized into one of two approaches: rules based or risk based.  Rules based methods generally assume uniform margin rates across like products, offer no inter-product offsets and consider derivative instruments in a manner similar to that of their underlying. In this sense, they offer ease of computation but oftentimes make assumptions which, while simple to execute, may overstate or understate the risk of an instrument relative to its historic performance. A common example of a rules based methodology is the U.S. based Reg. T requirement.
 
In contrast, risk based methodologies often seek to apply margin coverage reflective of the product’s past performance, recognize some inter-product offsets and seek to model the non-linear risk of derivative products using mathematical pricing models. These methodologies, while intuitive, involve computations which may not be easily replicable by the client. Moreover, to the extent that their inputs rely upon observed market behavior, may result in requirements that are subject to rapid and sizable fluctuation. Examples of risk based methodologies include TIMS and SPAN,
 
Regardless of whether the methodology is rules or risk based, most brokers will apply “house” margin requirements which serve to increase the statutory, or base, requirement in targeted instances where the broker’s view of exposure is greater than that which would satisfied solely by meeting that base requirement. An overview of the most common risk and rules based methodologies is provided below.
 
Methodology Overview
  
Risk Based
a.      Portfolio Margin (TIMS) – The Theoretical Intermarket Margin System, or TIMS, is a risk based methodology created by the Options Clearing Corporation (OCC) which computes the value of the portfolio given a series of hypothetical market scenarios where price changes are assumed and positions revalued. The methodology uses an option pricing model to revalue options and the OCC scenarios are augmented by a number of house scenarios which serve to capture additional risks such as extreme market moves, concentrated positions and shifts in option implied volatilities. In addition, there are certain securities (e.g., Pink Sheet, OTCBB and low cap) for which margin may not be extended. Once the projected portfolio values are determined at each scenario, the one which projects the greatest loss is the margin requirement.
 
Positions to which the TIMS methodology is eligible to be applied include U.S. stocks, ETFs, options, single stock futures and Non U.S. stocks and options which meet the SEC’s ready market test.
 
As this methodology uses a much more complex set of computations than one that is rules based, it tends to more accurately model risk and generally offers greater leverage. Given its ability to offer enhanced leverage and that the requirements fluctuate and may react quickly to changing market conditions, it is intended for sophisticated individuals and requires minimum equity of $110,000 to initiate and $100,000 to maintain. Requirements for stocks under this methodology generally range from 15% to 30% with the more favorable requirement applied to portfolios which contain a highly diversified group of stocks which have historically exhibited low volatility and which tend to employ option hedges.
 
b.       SPAN – Standard Portfolio Analysis of Risk, or SPAN, is a risk-based margin methodology created by the Chicago Mercantile Exchange (CME) that is designed for futures and future options.  Similar to TIMS, SPAN determines a margin requirement by calculating the value of the portfolio given a set of hypothetical market scenarios where underlying price changes and option implied volatilities are assumed to change. Again, IB will include in these assumptions house scenarios which account for extreme price moves along with the particular impact such moves may have upon deep out-of-the-money options. The scenario which projects the greatest loss becomes the margin requirement. A detailed overview of the SPAN margining system is provided in KB563.
 
Rules Based
a.      Reg. T – The U.S. central bank, the Federal Reserve Board, holds responsibility for maintaining the stability of the financial system and containing systemic risk that may arise in financial markets. It does this, in part, by governing the amount of credit that broker dealers may extend to customers who borrow money to buy securities on margin. 
 
This is accomplished through Regulation T, or Reg. T as it is commonly referred, which provides for establishment of a margin account and which imposes the initial margin requirement and payment rules on certain securities transactions. For example, on stock purchases, Reg. T currently requires an initial margin deposit by the client equal to 50% of the purchase value, allowing the broker to extend credit or finance the remaining 50%. For example, an account holder purchasing $1,000 worth of securities is required to deposit $500 and allowed to borrow $500 to hold those securities.
 
Reg. T only establishes the initial margin requirement and the maintenance requirement, the amount necessary to continue holding the position once initiated, is set by exchange rule (25% for stocks). Reg. T also does not establish margin requirements for securities options as this falls under the jurisdiction of the listing exchange’s rules which are subject to SEC approval.  Options held in a Reg.T account are also subject to a rules based methodology where short positions are treated like a stock equivalent and margin relief is provided for spread transactions. Finally, positions held in a qualifying portfolio margin account are exempt from the requirements of Reg. T. 

 

Where to Learn More

Key margin definitions

Tools provided to monitor and manage margin

Determining buying power

How to determine if you are borrowing funds from IB

Why does IB calculate and report a margin requirement when I am not borrowing funds?

Trading on margin in an IRA account

What is SMA and how does it work?

Securities Ineligible for Portfolio Margining

Outlined in the table below are ETN products which will no longer be eligible for Portfolio Margining and will be subject to Reg. T margin during the week beginning May 19, 2014.

Note that the term "Class Group" refers to an aggregation of securities of a like issue and which are afforded full offset between their respective risk computations at a given scenario.  The term "Product Group" refers to an aggregation of one or more Class Groups which have historically exhibited sufficiently high positive correlation to allow partial offset between their respective risk computations.

Class and Product Group offsets are offered only under the Portfolio Margining methodology and once positions are subject to Reg. T methodology, these offsets will not be recognized and the margin requirement on positions previously offset will increase.

 

 

Symbol Description Product Type Class Group Product Group
DRR Market Vectors Double Short Euro ETN Stock & Option 35 35
URR Market Vectors Double Long Euro ETN Stock & Option 35 35
DLBL iPath US Treasury Long Bond Bull ETN Stock & Option 345 145
DLBS iPath US Treasury Long Bond Bear ETN Stock & Option 345 145
ADZ PowerShares DB Agriculture Short ETN Stock 230 230
AGA PowerShares DB Agriculture Double Short ETN Stock 230 230
DAG PowerShares DB Agriculture Double Long ETN Stock & Option 230 230
DTO PowerShares DB Crude Oil Double Short ETN Stock & Option 202 234
SZO PowerShares DB Crude Oil Short ETN Stock & Option 202 234
OIL iPath Goldman Sachs Crude Oil Total Return Index ETN Stock & Option 204 234
DGP PowerShares DB Gold Double Long ETN Stock & Option 237 244
DGZ PowerShares DB Gold Short ETN Stock & Option 237 244
DZZ PowerShares DB Gold Double Short ETN Stock & Option 237 244
AGF POWERSHARES DB AGRICULT LNG Stock AGF 999
ALTL RBS US L/C ALTERNATOR ETN Stock ALTL 999
AMJ JPMorgan Alerian MLP Index ETN Stock & Option AMJ 999
AMU ETRACS ALERIAN MLP ETN Stock AMU 999
AYT IPATH GEMS ASIA 8 ETN Stock AYT 999
BAL iPath Dow Jones-UBS Cotton Subindex Total Return Callable ETN Stock & Option BAL 999
BARL MORGAN STANLEY S&P 500 CRUDE Stock BARL 999
BCM IPATH PURE BETA BROAD CMDTY Stock BCM 999
BDCL ETRACS 2X WELLS FARGO BDCI Stock BDCL 999
BDCS E-TRACS WELLS FARGO BDCI ETN Stock BDCS 999
BDD PowerShares DB Base Metals Double Long ETN Stock & Option BDD 999
BDG POWERSHARES DB METALS LONG Stock BDG 999
BLNG IPATH PURE BETA PREC METALS Stock BLNG 999
BOM PowerShares DB Base Metals Double Short ETN Stock & Option BOM 999
BOS PowerShares DB Base Metals Short ETN Stock & Option BOS 999
BUNL POWERSHARES DB GERMN BND FUT Stock BUNL 999
BUNT POWERSHARES DB 3X GRMAN BUND Stock BUNT 999
BWV IPATH CBOE S&P 500 BUYWRITE Stock BWV 999
BXUB Barclays ETN+long B Leveraged ETN Linked to S&P 500 Stock & Option BXUB 999
BXUC Barclays ETN+long C Leveraged ETN Linked to S&P 500 Stock & Option BXUC 999
CAFE IPATH PURE BETA COFFEE Stock CAFE 999
CAPE BARCLAYS ETN+ SHILLER CAPE Stock CAPE 999
CEFL ETRACS MONTH PAY 2X LEV C/E Stock CEFL 999
CHOC IPATH PURE BETA COCOA Stock CHOC 999
CNY MARKET VECTORS-RENMINBI/USD Stock CNY 999
COW iPath Dow Jones-UBS Livestock Subindex Total Return ETN Stock & Option COW 999
CSCB CREDIT SUISSE CMMDTY BENCHM Stock CSCB 999
CSCR CREDIT SUISSE CMMDTY ROTAT Stock CSCR 999
CSLS CS LONG/SHORT LIQUID INDEX Stock CSLS 999
CSMA CS MERGER ARBITRAGE INDEX Stock CSMA 999
CSMN CS MARKET NEUTRAL GLO EQTY Stock CSMN 999
CTNN IPATH PURE BETA COTTON Stock CTNN 999
CUPM IPATH PURE BETA COPPER Stock CUPM 999
CVOL C-TRACKS ETN VOLATILITY INDX Stock CVOL 999
DCNG IPATH SEASONAL NATURAL GAS Stock DCNG 999
DDP PWRSHS DB COMMODITY SHORT Stock DDP 999
DEE PowerShares DB Commodity Double Short ETN Stock & Option DEE 999
DEFL POWERSHARES DB US DEFLATION Stock DEFL 999
DFVL IPATH US TREASURY 5-YR BULL Stock DFVL 999
DFVS IPATH US TREASURY 5 YR BEAR Stock DFVS 999
DGAZ VELOCITYSHARES 3X INVERSE NA Stock DGAZ 999
DGLD VelocityShares 3x Inverse Gold ETN linked to S&P GSCI Gold Index Excess Return Stock & Option DGLD 999
DIRT IPATH PURE BETA AGRICULTURE Stock DIRT 999
DJCI ETRACS DJ-UBS COMMODITY INDX Stock DJCI 999
DJP iPath Dow Jones-UBS Commodity Index Total Return ETN Stock & Option DJP 999
DPU POWERSHARES DB COMMODITY LNG Stock DPU 999
DSLV VelocityShares 3x Inverse Silver ETN linked to S&P GSCI Silver Inverse Index Stock & Option DSLV 999
DTUL IPATH US TSY 2Y BULL Stock DTUL 999
DTUS IPATH US TSY 2Y BEAR Stock DTUS 999
DTYL IPATH US TSY 10Y BULL Stock DTYL 999
DTYS IPATH US TSY 10Y BEAR Stock DTYS 999
DVHI ETRACS DIVERSIFIED HIGH INC Stock DVHI 999
DVHL ETRACS MON PAY 2XLEV HI INC Stock DVHL 999
DVYL ETRACS 2X DJ SEL DVD ETN Stock DVYL 999
DWTI VelocityShares 3x Inverse Crude ETN Stock & Option DWTI 999
DYY PowerShares DB Commodity Double Long ETN Stock & Option DYY 999
EEH ELEMENTS SPECTRUM ETN Stock EEH 999
EMLB IPATH LE MSCI EM INDEX ETN Stock EMLB 999
EMSA IPATH SE MSCI EM INDEX ETN Stock EMSA 999
ERO IPATH EUR/USD EXCHANGE RATE Stock ERO 999
FBG FI ENHANCED BIG CAP GR ETN Stock FBG 999
FEEU FI ENHANCED EUROPE 50 ETN Stock FEEU 999
FIBG CS FI ENHANCED BIG CAP GROW Stock FIBG 999
FIEG FI ENHANCED GLOBAL HI YLD Stock FIEG 999
FIEU CS FI ENHANCED EUROPE 50 ETN Stock FIEU 999
FIGY FI ENHANCED GLOBAL HIGH YLD Stock FIGY 999
FLAT IPATH US TSY FLATTENER Stock FLAT 999
FOIL IPATH PURE BETA ALUMINUM Stock FOIL 999
FUD ETRACS CMCI FOOD TR ETN Stock FUD 999
GAZ iPath Dow Jones-UBS Natural Gas Subindex Total Return ETN Stock & Option GAZ 999
GBB IPATH GBP/USD EXCHANGE RATE Stock GBB 999
GCE CLAYMORE CEF GS CONNECT ETN Stock GCE 999
GLDI Gold Shares Covered Call ETN Stock & Option GLDI 999
GRN IPATH GLOBAL CARBON ETN Stock GRN 999
GRU ELEMENTS MLCX Grains Index TR ETN Stock & Option GRU 999
GRWN IPATH PURE BETA SOFTS Stock GRWN 999
GSC GS CONNECT S&P GSCI ENH COMM Stock GSC 999
GSP IPATH GSCI TOTAL RETURN Stock GSP 999
HEVY IPATH PURE BETA INDUSTRIALS Stock HEVY 999
ICI IPATH OPTIMIZED CURRENCY ETN Stock ICI 999
IMLP IPATH S&P MLP ETN Stock IMLP 999
INFL POWERSHARES DB US INFLATION Stock INFL 999
INP iPath MSCI India Index ETN Stock & Option INP 999
INR MARKET VECTORS-RUPEE/USD ETN Stock INR 999
ITLT POWERSHARES DB 3X ITAL TR BD Stock ITLT 999
ITLY POWERSHARES DB ITALIAN TR BD Stock ITLY 999
IVOP IPATH INVERSE S&P 500 VIX II Stock IVOP 999
JEM IPATH GEMS INDEX ETN Stock JEM 999
JGBD POWERSHARES DB 3X INVER JPN Stock JGBD 999
JGBL POWERSHARES DB JAPANESE GOVE Stock JGBL 999
JGBS POWERSHARES DB INVERSE JAPAN Stock JGBS 999
JGBT POWERSHARES DB 3X JAPAN GOVT Stock JGBT 999
JJA IPATH DJ-UBS AGR SUBINDX TOT Stock JJA 999
JJC iPath Dow Jones-UBS Copper Subindex Total Return ETN Stock & Option JJC 999
JJE iPath Dow Jones-UBS Energy Subindex Total Return ETN Stock & Option JJE 999
JJG iPath Dow Jones-UBS Grains Subindex Total Return ETN Stock & Option JJG 999
JJM IPATH DJ-UBS INDSTR METALS Stock JJM 999
JJN IPATH DJ-UBS NICKEL SUBINDEX Stock JJN 999
JJP IPATH DJ-UBS PRECIOUS METALS Stock JJP 999
JJS IPATH DJ-UBS SOFTS SUBINDEX Stock JJS 999
JJT IPATH DJ-UBS TIN SUBINDX TOT Stock JJT 999
JJU IPATH DJ-UBS ALUMINUM SUBIND Stock JJU 999
JO iPath Dow Jones-UBS Coffee Subindex Total Return ETN Stock & Option JO 999
JYN IPATH JPY/USD EXCHANGE RATE Stock JYN 999
LBND POWERSHARES DB 3X LONG 25+ T Stock LBND 999
LD IPATH DJ-UBS LEAD SUBINDX TO Stock LD 999
LEDD IPATH PURE BETA LEAD Stock LEDD 999
LSTK IPATH PURE BETA LIVESTOCK Stock LSTK 999
MFLA IPATH LE MSCI EAFE INDEX ETN Stock MFLA 999
MLPG ETRACS ALERIAN NAT GAS MLP Stock MLPG 999
MLPI ETRACS ALERIAN INFRASTRUCTUR Stock MLPI 999
MLPL ETRACS 2X LEV LG ALERIAN MLP Stock MLPL 999
MLPN Credit Suisse MLP Equal Weight Index ETN Stock & Option MLPN 999
MLPS ETRACS 1XM SH ALERIAN MLP IN Stock MLPS 999
MLPW ETRACS WELLS FARGO MLP INDEX Stock MLPW 999
MLPY Morgan Stanley Cushing MLP High Income Index ETN Stock & Option MLPY 999
MORL ETRACS MONTHLY PAY 2XLEVERAG Stock MORL 999
NIB iPath Dow Jones-UBS Cocoa Subindex Total Return ETN Stock & Option NIB 999
NINI IPATH PURE BETA NICKEL Stock NINI 999
OFF ETRACS FISHER-GARTMAN RISK Stock OFF 999
OLEM IPATH PURE BETA CRUDE OIL Stock OLEM 999
OLO POWERSHARES DB CRUDE OIL LNG Stock OLO 999
ONG IPATH PURE BETA ENERGY Stock ONG 999
ONN ETRACS FISHER-GARTMAN RISK Stock ONN 999
OSMS BARCLAYS OFI STEELPATH MLP Stock OSMS 999
PGD IPATH ASIAN & GULF CURRENCY Stock PGD 999
PGM IPATH DJ-UBS PLATINUM SUBIND Stock PGM 999
PTM ETRACS CMCI Long Platinum Total Return ETN Stock & Option PTM 999
RGRA RBS ROGERS ENHANCED AGRICULT Stock RGRA 999
RGRC RBS ROGERS ENHANCED COMMODIT Stock RGRC 999
RGRE RBS ROGERS ENHANCED ENERGY Stock RGRE 999
RGRI RBS ROGERS ENHANCED INDUSTRI Stock RGRI 999
RGRP RBS ROGERS ENHANCED PRECIOUS Stock RGRP 999
RJA ELEMENTS Rogers Intl Commodity Agri ETN Stock & Option RJA 999
RJI ELEMENTS Rogers Intl Commodity ETN Stock & Option RJI 999
RJN ELEMENTS Rogers Intl Commodity Engy ETN Stock & Option RJN 999
ROLA IPATH LX RUSSELL 1000 ETN Stock ROLA 999
RTLA IPATH LX RUSSELL 2000 ETN Stock RTLA 999
RWXL ETRACS 2X LEV DJ INTL RE SEC Stock RWXL 999
SBND POWERSHARES DB 3X SH 25+ TR Stock SBND 999
SBV IPATH PURE BETA S&P GSCI Stock SBV 999
SDYL ETRACS 2X S&P DVD ETN Stock SDYL 999
SFLA iPath Long Extended S&P 500 TR Index ETN Stock & Option SFLA 999
SGAR IPATH PURE BETA SUGAR Stock SGAR 999
SGG iPath Dow Jones-UBS Sugar Subindex Total Return ETN Stock & Option SGG 999
SLVO SILVER SHARES COVERED CALL Stock SLVO 999
SPGH ETRACS S&P 500 GOLD HEDGED Stock SPGH 999
SPLX ETRACS MNTHLY RESET 2XS&P500 Stock SPLX 999
STPP IPATH US TREASURY STEEPENER Stock STPP 999
TCHI RBS CHINA TRENDPILOT CHINA Stock TCHI 999
TVIX VelocityShares Daily 2x VIX Short Term ETN Stock & Option TVIX 999
TVIZ VelocityShares Daily 2x VIX Medium Term ETN Stock & Option TVIZ 999
TWTI RBS OIL TRENDPILOT ETN Stock TWTI 999
UAG ETRACS BBG CMCI AGRICULTURE Stock UAG 999
UBC ETRACS CMCI LIVESTOCK TR ETN Stock UBC 999
UBG ETRACS CMCI GOLD TR ETN Stock UBG 999
UBM ETRACS CMCI INDUST MTLS TR Stock UBM 999
UBN ETRACS CMCI ENERGY TR ETN Stock UBN 999
UCI ETRACS CMCI TOTAL RETURN ETN Stock UCI 999
UGAZ VelocityShares 3x Long Natural Gas ETN Stock UGAZ 999
UGLD VelocityShares 3x Long Gold ETN linked to the S&P GSCI Gold Index Stock & Option UGLD 999
USLV VelocityShares 3x Long Silver ETN linked to the S&P GSCI Silver Index Stock & Option USLV 999
USV ETRACS CMCI SILVER TR ETN Stock USV 999
UWTI VelocityShares 3x Long Crude ETN Stock & Option UWTI 999
VIIX VelocityShares VIX Short Term ETN Stock & Option VIIX 999
VIIZ VELOCITYSHARES VIX MED-TERM Stock VIIZ 999
VXX iPATH S&P 500 VIX Short-Term Futures ETN Stock & Option VXX 999
VXZ iPATH S&P 500 VIX Mid-Term Futures ETN Stock & Option VXZ 999
WEET IPATH PURE BETA GRAINS Stock WEET 999
XIV VelocityShares Daily Inverse VIX Short Term ETN Stock & Option XIV 999
XVIX ETRACS DAILY LONG/SHORT VIX Stock XVIX 999
XVZ IPATH S&P 500 DYN VIX ETN Stock XVZ 999
XXV iPath Inverse S&P 500 VIX Short-Term Futures ETN Stock & Option XXV 999
ZIV VelocityShares Daily Inverse VIX Medium Term ETN Stock & Option ZIV 999

 

 

Securities Subject to Higher House Margin Requirement

Background: 

Outlined below is a list of securities which IB has placed subject to a house maintenance margin requirement equal to the greater of 35% or existing (if higher) effective as of the October 11, 2013 U.S. open. Please note that these securities remain under elevated risk review and subject to further increases over the upcoming days.

Symbol Name
169 WANDA COMMERCIAL PROPERTIES
566 HANERGY SOLAR GROUP LTD
1808 HASEKO CORP
3765 GUNGHO ONLINE ENTERTAINMENT
3888 KINGSOFT CORP LTD
4321 KENEDIX, INC
4974 TAKARA BIO INC
7004 HITACHI ZOSEN CORP
7774 JAPAN TISSUE ENGINEERING CO
 AAMC ALTISOURCE ASSET MANAGEMENT
 ACAD ACADIA PHARMACEUTICALS INC
 AEGR AEGERION PHARMACEUTICALS INC
 BSL BLUESCOPE STEEL LTD
 CLDX CELLDEX THERAPEUTICS INC
 CSIQ CANADIAN SOLAR INC
 FB FACEBOOK INC
 FNM FANNIE MAE
 HIMX HIMAX TECHNOLOGIES INC
 LIN LIN MEDIA LLC
 MTG MGIC INVESTMENT CORP
 MU MICRON TECHNOLOGY INC
 NFLX NETFLIX INC
 NQ NQ MOBILE INC
 OCDO OCADO GROUP PLC
 RAD RITE AID CORP
 SCTY SOLARCITY CORP
 SHLD SEARS HOLDINGS CORP
 SPWR SUNPOWER CORP
 TCG THOMAS COOK GROUP PLC (FWB)
 TCG THOMAS COOK GROUP PLC (LSE)
 TL0 TESLA MOTORS INC (FWB)
 TSLA TESLA MOTORS INC
 VIPS VIPSHOP HOLDINGS LTD
 VWS VESTAS WIND SYSTEMS A/S
 WLH WILLIAM LYON HOMES
 YELP YELP INC
QIHU QIHOO 360 TECHNOLOGY CO
SFUN SOUFUN HOLDINGS LTD
SRPT SAREPTA THERAPEUTICS INC

 Revision Date: 10/10/13

 

Margin Loan Restrictions

概観: 

As a result of recently imposed regulatory restrictions, IB has implemented a margin change, the effect of which is to restrict Australian residents from creating or increasing a margin loan. While this change is intended to be temporary in duration, IB is currently unable to confirm the date at which margin lending will be restored for Australian residents. In the meantime, clients are encouraged to log into Account Management, if they have not already done so, to review the Regulatory Notice which provides more detailed information.

Key implications of this change are as follows:

- The change only impacts accounts belonging to natural persons and does not affect most organizations

- The change applies to securities transactions and does not directly impact futures or forex transactions

In addition, outlined below are a series of FAQs relating to this topic.

 

AUSTRALIAN MARGIN RESTRICTION FAQS

1. Does this margin restriction mean that account holders can no longer trade?

No. Account holders who log into Account Management and affirm the Customer Agreement may continue to trade securities using cash (i.e., must pay for securities transactions in full) and, if approved, futures and forex.

 

2. What happens if an account holder attempts to enter an opening order which would create or increase a margin loan balance?

Opening orders which serve to create or increase the loan balance will prompt the following alert message when transmitted and will be rejected:

 

3. Will this restriction prevent account holders from entering closing orders?

No. Account holders who experience problems transmitting orders which close positions should contact their local Customer Service Center.

 

4. Does this margin restriction apply to all Australian residents?

No. This restriction applies solely to accounts associated with a natural personal and not entities such as corporations. In the case of trust accounts, the restriction applies if any of the trustees are natural persons.

 

5. Does this margin restriction apply to all products?

No. The restriction applies to securities transactions and not futures or forex. Note, however, cash may not be transferred from the securities segment to support the margin required on a futures transaction if that transfer would serve to create or increase a margin loan within the securities segment.

 

6. Does this restriction require that I immediately pay back my current margin loan?

No. The restriction does not impose any time condition with respect to the payment of existing margin loans. Such loans may be sustained at their current level as long as client continues to remain margin compliant.  The margin loan balance, however, may not be increased.

 

7. If I repay a margin loan either in whole or in part will I later be able to obtain a loan for portion which has been repaid?

No. Reductions to a margin loan made subsequent to the implementation of this restriction serve to place a new cap on the size of the loan allowed. In other words, no order will be accepted which would serve to create or increase the loan balance in effect at the point of its entry.

 

8. Does this margin restriction impact cash withdrawals?

If after giving effect to the withdrawal a margin loan would be created or increased, then the withdrawal will not be allowed.

 

9. Where can I get additional information or direct my questions?

IB has set up a special email address for inquiries relating to the Australian margin restriction. Please forward such inquiries to: auclients@interactivebrokers.com

Determining Buying Power

Buying power serves as a measurement of the dollar value of securities that one may purchase in a securities account without depositing additional funds. In the case of a cash account where, by definition, securities may not be purchased using funds borrowed from the broker and must be paid for in full, buying power is equal to the amount of settled cash on hand. Here, for example, an account holding $10,000 in cash may purchase up to $10,000 in stock.

In a margin account, buying power is increased through the use of leverage provided by the broker using cash as well as the value of stocks already held in the account as collateral. The amount of leverage depends upon whether the account is approved for Reg. T margin or Portfolio Margin. Here, a Reg. T account holding $10,000 in cash may purchase and hold overnight $20,000 in securities as Reg. T imposes an initial margin requirement of 50%, which translates to buying power of 2:1 (i.e., 1/.50). Similarly, a Reg. T account holding $10,000 in cash may purchase and hold on an intra-day basis $40,000 in securities given IB’s default intra-day maintenance margin requirement of 25%, which translates to buying power of 4:1 (i.e., 1/.25).

In the case of a Portfolio Margin account, greater leverage is available although, as the name suggests, the amount is highly dependent upon the make-up of the portfolio. Here, the requirement on individual stocks (initial = maintenance) generally ranges from 15% - 30%, translating to buying power of between 6.67 – 3.33:1. As the margin rate under this methodology can change daily as it considers risk factors such as the observed volatility of each stock and concentration, portfolios comprised of low-volatility stocks and which are diversified in nature tend to receive the most favorable margin treatment (e.g., higher buying power).

In addition to the cash examples above, buying power may be provided to securities held in the margin account, with the leverage dependent upon the loan value of the securities and the amount of funds, if any, borrowed to purchase them. Take, for example, an account which holds $10,000 in securities which are fully paid (i.e., no margin loan). Using the Reg. T initial margin requirement of 50%, these securities would have a loan value of $5,000 (= $10,000 * (1 - .50)) which, using that same initial requirement providing buying power of 2:1, could be applied to purchase and hold overnight an additional $10,000 of securities. Similarly, an account holding $10,000 in securities and a $1,000 margin loan (i.e., net liquidating equity of $9,000), has a remaining equity loan value of $4,000 which could be applied to purchase and hold overnight an additional $8,000 of securities. The same principals would hold true in a Portfolio Margin account, albeit with a potentially different level of buying power.

Finally, while the concept of buying power applies to the purchase of assets such as stocks, bonds, funds and forex, it does not translate in the same manner to derivatives. Most securities derivatives (e.g., short options and single stock futures) are not assets but rather contingent liabilities and long options, while an asset, are short-term in nature, considered a wasting asset and therefore generally have no loan value. The margin requirement on short options, therefore, is not based upon a percentage of the option premium value, but rather determined on the underlying stock as if the option were assigned (under Reg. T) or by estimating the cost to repurchase the option given adverse market changes (under Portfolio Margining).

Margin Treatment for Foreign Stocks Carried by a U.S. Broker

As a U.S. broker-dealer registered with the Securities & Exchange Commission (SEC) for the purpose of facilitating customer securities transactions, IB LLC is subject to various regulations relating to the extension of credit and margining of those transactions. In the case of foreign equity securities (i.e., non-U.S. issuer), Reg T. allows a U.S. broker to extend margin credit to those which either appear on the Federal Reserve Board's periodically published List of Foreign Margin Stocks, or are deemed to have a have a "ready market" under SEC Rule 15c3-1 or SEC no-action letter.

Prior to November 2012, "ready market" was deemed to include equity securities of a foreign issuer that are listed on what is now known as the FTSE World Index. This definition was based upon a 1993 SEC no-action letter and was premised upon the fact that, while there may not have been a ready market for such securities within the U.S., the securities could be readily resold in the applicable foreign market.  In November of 2012, the SEC issued a follow-up no-action letter (www.sec.gov/divisions/marketreg/mr-noaction/2012/finra-112812.pdf) which expanded the population of foreign equity securities deemed to have a ready market to also include those not listed on the FTSE World Index provided that the following four conditions are met:

 

1. The security is listed on a foreign exchange located within a FTSE World Index recognized country, where the security has been trading on the exchange for at least 90 days;

2. Daily bid, ask and last quotations for the security as provided by the foreign listing exchange are made continuously available to the U.S. broker through an electronic quote system;

3. The median daily trading volume calculated over the preceding 20 business day period of the security on its listing exchange is either at least 100,000 shares or $500,000 (excluding shares purchased by the computing broker);

4. The aggregate unrestricted market capitalization in shares of the security exceed $500 million over each of the preceding 10 business days.

Note: if a security previously meeting the above conditions no longer does so, the broker is provided with a 5 business day window after which time the security will no longer be deemed readily marketable and must be treated as non-marginable.

Foreign equity securities which do not meet the above conditions, will be treated as non-marginable and will therefore have no loan value. Note that for purposes of this no-action letter foreign equity securities do not include options.

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