IB provides a feature which allows account holders to check what impact, if any, an order will have upon the projected Exposure Fee. The feature is intended to be used prior to submitting the order to provide advance notice as to the fee and allow for changes to be made to the order prior to submission in order to minimize or eliminate the fee.
The feature is enabled by right-clicking on the order line at which point the Order Preview window will open. This window will contain a link titled "Check Exposure Fee Impact" (see red highlighted box in Exhibit I below).
Clicking the link will expand the window and display the Exposure fee, if any, associated with the existing positions, the change in the fee were the order to be executed, and the total resultant fee upon order execution (see red highlighted box in Exhibit II below). Account holders may simply close the window without transmitting the order if the fee impact is determined to be excessive.
Please see KB2275 for information regarding the use of IB's Risk Navigator for managing and projecting the Exposure Fee.
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:
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.
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:
Where to Learn More
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|
|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|
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.
|169||WANDA COMMERCIAL PROPERTIES|
|566||HANERGY SOLAR GROUP LTD|
|3765||GUNGHO ONLINE ENTERTAINMENT|
|3888||KINGSOFT CORP LTD|
|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|
|HIMX||HIMAX TECHNOLOGIES INC|
|LIN||LIN MEDIA LLC|
|MTG||MGIC INVESTMENT CORP|
|MU||MICRON TECHNOLOGY INC|
|NQ||NQ MOBILE INC|
|OCDO||OCADO GROUP PLC|
|RAD||RITE AID CORP|
|SHLD||SEARS HOLDINGS 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|
|QIHU||QIHOO 360 TECHNOLOGY CO|
|SFUN||SOUFUN HOLDINGS LTD|
|SRPT||SAREPTA THERAPEUTICS INC|
Revision Date: 10/10/13
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: firstname.lastname@example.org
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).
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.