As background, the short stock availability list represents the inventory of shares which IB has available to lend and which other brokers have indicated that they have available to lend. While it is updated on a near real-time basis throughout the day for changes to IB's inventory and periodically throughout the day to reflect updates to the availability lists of other brokers, many brokers provide updates only once per day.
It should be noted that the purpose of the short stock availability list is to meet the broker's regulatory obligation that they have made a reasonable determination that a security can be borrowed in time for settlement three business days later. There is no regulatory requirement, in most instances, that the broker pre-borrow shares to effect delivery on a short sale prior to settlement and the requirement which this list serves to address is completely separate from the SEC rules which require that the broker force-close any short position having a delivery obligation subject to fail with the clearinghouse on any given day.
It is these rules which we are adhering to when we review your short positions relative to our settlement obligations with the clearinghouse each day. While the shares necessary to cover your short sale may have been available as of the date your trade took place and subsequently thereafter, there can be no assurance that those shares can be borrowed indefinitely. The inventory of available shares to borrow is dynamic and subject to change throughout a given day. When we believe that there is a reasonable chance that we will not be able to maintain your borrow position on a particular day, we will make every effort to provide you with a notice of those short positions which are likely to be bought in absent preemptive action on your part.
The particular currency which is necessary to purchase and settle any given product is determined by the listing exchange not IB. If, for example, you enter into a transaction to purchase a security which is denominated in a currency that you do not hold and assuming that you have sufficient margin excess, IB will create a loan for those funds. Note that this is necessary as IB is obligated to settle that trade with the clearinghouse solely in the designated currency of denomination. If you do not wish to have such a loan created and incur its associated interest costs, you would need to either first deposit funds into your account in the required currency form and amount or convert existing funds in your account using either our IdealPro (for amounts in excess of USD 25,000 or equivalent) or odd lot (for amounts below USD 25,000 or equivalent) venues, both available through the TWS.
Also note that once you close out a security position which is denominated in a given currency, the proceeds will remain in that currency regardless of whether it is the Base Currency you've selected for your account. Accordingly, such proceeds will be subject to exchange rate risk relative to your Base Currency until such time you either perform a currency conversion or use those proceeds for another similarly denominated product.
Although the default method for order submission is intended to be direct entry by the client into either the TraderWorkstation, WebTrader or Mobile Trader execution platform, IB will provide broker assistance for select trades in the circumstances outlined below:
1. Large or Complex Orders - clients who trade large or complex orders having a trade size of at least 100 option contracts or 10,000 shares may wish to use the specialized services of our Broker Assisted Trading Desk. The Broker Assisted Trading Desk handles both opening and closing orders and is staffed to provide immediate access with no phone queue or wait time. Note that trades executed through this desk are subject to commision rates which are greater than the published rates for self-directed orders. As rates vary by product type and listing exchange, we recommend that you contact the desk directly at 1-203-618-4030 for specific pricing details. For additional information, please refer to the website link titled 'Broker Assistance' below.
2. Emergency Closing Orders - in the event the client is temporarily unable to access the trading platform and needs to close a position, assistance may be obtained by contacting the trade desk of one of our Customer Service Centers. It should be noted that this service is provided solely to accommodate closing trades and is associated with a Telephone Order commission surcharge. The amount of this surcharge varies by the Base Currency of the account with USD based accounts subject to a $30 surcharge (in addition to regular stated commissions). For additional information, please refer to the website link titled 'Fees' below.
IB allows account holders to designate and maintain their account as either a 'Margin' or 'Cash' type of account at the point of application. If one maintains a 'Margin' type account, the proceeds from closing stock sales are made available for trading effective with the sale transaction, however, the account holder may not withdraw those funds from the account until such time as settlement has taken place and IB has been credited with the proceeds from the clearinghouse (generally 3 business days).
If one maintains a 'Cash' type account, proceeds from closing stock sales are not available for trading or withdrawal until settlement has been completed. To provide otherwise would constitute an extension of credit which is prohibited from being offered to 'Cash' accounts.
Click here for information on upgrading from a 'Cash' type account to a 'Margin' type account.
For regulatory purposes IB is required to segregate the securities assets within your account from the commodities assets. Those commodities assets may include the market value of options on futures positions plus any cash required as margin as a result of commodities futures and options on futures positions. Periodically, the margin requirement on your commodities positions will be recomputed and should this requirement decline, cash in excess of that required as commodities margin will be transferred from the commodities side of your account to the securities side. Likewise, should the commodities margin requirement increase, IB will transfer any available cash from the securities side to the commodities side. As SIPC insurance is provided to assets on the securities side of your account but not the commodities, this periodic transfer is performed to ensure that your cash balance is afford the greatest protection possible. It should be noted that these cash movements represent journal entries within your account which serve to fully offset each other and therefore have no impact upon the aggregate cash balance within your account (see the Total column within the Cash Report section of the Activity Statement).
There are a variety of symbol conventions for denoting Berkshire Hathaway Class B shares (CUSIP 084670207). On the IB trading platforms, this security is designated by entering BRK, then a space and then B (BRK B). This compares to Bloomberg which uses the convention BRK/B and Yahoo Finance which uses BRK-B.
It should also be noted that this security has been designated as a 10-share unit issue by its primary listing exchange, NYSE Arca, due to its relatively low trading volume. A round lot in this security is therefore set at 10 shares as opposed to the standard round lot unit of 100 shares. If your opening buy or sell order is for an amount less than 10 shares, it is considered an odd-lot and subject to special handling considerations. Please review our website under the Trading and then Order Types menu options for additional details.
Interactive Brokers does not have a special rule regarding stocks that trade below $5. Although other brokerage firms may have a house rule regarding stocks trading below $5, IB does not employ such a rule.
There are other IB-specific rules to consider in this scenario, however. In general, IB would not have a special rule for long positions in stock trading below $5, as long as they are exchange-listed. Once a stock is delisted from one of the exchanges and moved to the OTC market, it would be subject to a 100% margin requirement, since the stock would no longer be considered marginable.
Also for long positions, the maintenance margin requirement is 30% of the stock value or $2,000, whichever is greater.
For short positions, the maintenance requirement on stock greater than $5, is $5 per share or 30% of the stock value, whichever is greater. For short positions in stock where the last sale price/share is less than $5, then the maintenance margin requirement is $2.50 per share or 100% of the stock value, whichever is greater.
Regulation SHO, adopted by the SEC in January 2005, sets forth the regulatory framework governing short sales. Two key provisions, intended to address problems associated with persistent fails to deliver and potentially abusive naked short selling, involve locate and close-out requirements.
Under the locate requirement, a broker-dealer must have reasonable grounds to believe that the security can be borrowed so that it can be delivered on the delivery due date before effecting a short sale order.
The close-out requirement requires that the clearing broker take immediate action to close out a fail to deliver position in a threshold security that has persisted for 13 consecutive settlement days by purchasing securities of like kind and quantity. Until the position is closed out, the broker may not effect further short sales in that threshold security without borrowing or entering into a bona fide agreement to borrow the security (known as the "pre-borrowing" requirement)
In October 2008, the SEC amended Regulation SHO with temporary Rule 204T (in place until July 31, 2009) which requires that any broker having a fail to deliver position at NSCC on the settlement date immediately borrow or purchase securities to close out the amount of the fail to deliver position by no later than the beginning of regular trading hours on the following settlement date (the “Close-Out Date”). This close-out requirement requires that the broker take affirmative action to purchase or borrow securities and not offset the fail to deliver position with shares it will receive on the Close-Out Date. Rule 204T applies to all securities not just threshold securities.
When traders attempt to sell short a stock which IB does not currently have in inventory to loan them, IB will look for these shares “on the street”, which means from other brokerage firms. This search is conducted on a best-efforts only basis. While IB searches for the shares, the order status box on the TWS Order Management page should be dark green, and will show a small icon of a pair of binoculars, which indicates we are searching. In the WebTrader, there are no status colors or icons. The order will simply not execute as IB searches for the shares on the street.