Buy-in Procedure for Short Sale Transactions

The following procedure relates to short sale transactions that fail to settle on the normal (T+3) settlement date. IB's implementation of the SEC regulations is as follows:

1. On the standard settlement date, at approximately 14:30 EST, IB will make an estimate of the transactions that have actually settled, including any borrow transactions required. Historically, stock borrowing activity is completed early in the morning of settlement day. With the 9/2008 rules, we observe settlement activity continuing right up to the DTC cutoff at 15:10 EST. Accordingly, our 14:30 estimation is a compromise which, while it does not include the last 40 minutes of settlement activity (typically less than 10% of the total activity), it does provide a longer time period to provide notification and to allow clients to make trading decisions before the end of the trading session at 16:00.

2. IB will disseminate an indication of possible buy-ins at about 14:50. Clients should recognize that these notifications communicate only the possibility, not the certainty, that we will be unable to make timely delivery thereby necessitating a buy-in. The purpose of the communication is to allow clients an opportunity to repurchase the short securities themselves thereby retaining greater control over their portfolios.

3. At about 17:00, IB will reconcile any late settlements as well as client transactions up to the end of the regular trading session at 16:00 EST. IB will consider the net of all trades on the day when determining the position, including any new short sales. Trades after 16:00 will not be included in our position reconciliation. IB will then calculate the expected buy-in requirement based on complete information.

4. IB will report predicted buy-in transactions on client statements and in the real time brokerage system shortly thereafter, using either an estimated price or the official closing price of the regular trading session, if available. The buy-in will be reflected under the Trades section of the statement with a code of "B;C" and the exchange designation of TRANSFER. The trade quantities should reflect the expected trade that will be allocated to client accounts, however, as the trades will only be executed the following day, the price is merely an estimate. IB's purpose to "pre-book" the buy-in trades is to allow clients the best possible view of their positions prior to the start of the next trading session.

5. On the morning of the next business day (generally the fourth day after trade date, also called "T+4"), and prior to the start of trading, IB will make a final attempt to locate and borrow the required securities. In the event we are able to do so, IB will send a notification reporting on an late borrow activity. The notification will list the reversal of any transactions pre-booked in step 4 (above) and will confirm remaining positions to be bought in.

6. IB will attempt to post the reversal of the pre-trade bookings prior to the start of trading at 09:30. Occasionally, it may take longer to correct the positions visible via the TWS but the adjustments will be visible in the trades window so it should be evident to clients for whom this real-time information is important.

7. On, or immediately after, the commencement of trading on T+4, IB will execute transactions in the open market to effect the actual buy-in, as required by the SEC rules. In case the buy-in transactions occur at multiple prices, we will calculate the volume weighted average price for the buy-ins.

8. On the statement of the 4th day, IB will rebook the buy-in trades by reversing the original "pre-booking" and reporting the final trade details.

IB Short Stock Buy-in Procedures

After a stock borrow transaction has been concluded, the lender of a security retains the right to request the return of the lent stock. When a stock is recalled, IB will attempt to find alternative lenders to replace the borrow transaction. If replacement is not possible, and IB fails to return the recalled stock, the lender has the right to issue a formal recall demand which allows for the execution of a buyin 3 days after issuance should IB fail to return the recalled stock. Note that the issuance of a formal recall demand (a) allows, but does not require, the lender to execute a buyin, and (b) is generally an automated process; the actual frequency of buyins is a small proportion of the recall demands. Due to this, IB does not provide advance warning to clients with respect to the issuance of a formal recall demand.

In the event a buyin is actually executed by a lender, IB does not handle the execution. Instead, the lending counterparty will effect the buyin in the open market and present IB with the execution prices. The buyin is allocated to client accounts based on a settled short stock position; therefore unsettled trades will not be considered when determining liability.

IB will try to report these buyin transactions to clients as quickly as possible through the trades window of the TWS. As such, the account will generally be updated prior to the account receiving notification which will occur at approximately 17:30 EST.