Are there any particular risks that one should be aware of when using SSFs to either invest excess funds or borrow funds at available synthetic rates?

Overview: 

While the High and Low Synthetic strategies are both hedged positions, the futures leg is subject to a daily cash variation of the mark-to-market gain or loss whereas the stock leg is not (mark-to-market gain or loss is reflected in account equity but there is no cash impact until the position is closed).  If, for example, an account holds a High Synthetic position and the stock prices increases significantly, the resultant variation pay on the short futures leg may erode the account’s cash balance resulting in a debit balance which is subject to interest payments.  The net effect in this example would be to reduce and potentially erase the earnings on the High Synthetic position

Is there a benefit to using EFPs if one doesn’t have an existing long or short stock position to swap?

Overview: 

 

One can enter into an Exchange for Physical (EFP) to either invest excess funds or borrow funds at available synthetic rates. Synthetic rates are determined by taking the difference between the SSF and underlying stock and netting dividends to calculate an annualized synthetic implied interest rate over the period of the SSF.

 

High Synthetic Bid Rev Yield – represents the investment opportunity available through an EFP sale (buy stock and sell it forward at a premium higher than the interest your cash generates).

 

Low Synthetic Ask Rev Yield - represents the borrowing opportunity available through an EFP purchase (sell stock and buy it forward at a discount lower than the lending rate available).

Does a deposit subject to a "Credit Hold” accrue credit interest during the hold period?

Overview: 

The answer depends upon the method of deposit.  In the case of deposits made via ACH, any interest accrues from the date the deposit arrives through the four-business day credit hold period after which it is credited to the account.  In the case of check deposits other than Bank Checks, no interest is accrued during the credit hold period.  Bank Checks and wire transfers are credited to the account effective upon receipt and are therefore not subject to any credit hold.

Interest paid to you varies with market conditions.  For information regarding the amount of interest currently paid on credit balances see www.interactivebrokers.com/interest

Glossary terms: 

What does the Interest Accrual Reversal line item on the Activity Statement represent?

Overview: 

Each day, IBKR calculates and reports in the Interest Accruals section of the Activity Statement a forecast or accrual of interest earned or to be paid for the statement period. Around the first week of each month the interest which has been accrued during the prior month is "backed-out" or reversed and actual interest for the month is posted in the Cash Report section. These reversals, which occur once a month, should be close to the actual interest, although they may not always be exactly equal since accruals are a forecast of actual interest. 

Account holders should also note that accrued interest is only posted for any given reporting period when the amount exceeds $1, either positive or negative. Balances below $1 are retained and posted once, when aggregated with future accruals, the amount exceeds $1.

Interest credit on short stock proceeds

Overview: 

How to determine the interest credit or fee associated with a stock borrow position

Background: 

When an accountholder sells shares short, IBKR borrows equivalent shares on behalf of the accountholder in order to satisfy the accountholder’s obligation to deliver shares to the purchaser. The stock loan agreement through which these shares are borrowed requires that IBKR provide the lender of the shares with cash collateral for the loan. The amount of cash collateral is based on an industry standard calculation of the value of the shares called the Collateral Mark.

The lender of the shares provides interest to IBKR on the cash collateral and also charges a fee for providing this service by adjusting the interest paid to an amount less than the prevailing market interest rate for cash collateral deposits (typically the rate is pegged to the Fed Funds Effective rate for USD denominated cash deposits). For hard to borrow shares, the lender’s fee for providing the shares may result in a net negative interest rate charged to IBKR.

While many brokers pass a portion of this rebate only to institutional clients, all IBKR clients receive an interest credit on short stock sales proceeds that exceed USD 100,000 or the equivalent in another currency. When the supply of a given security available to borrow is high relative to its borrow demand, account holders can expect to receive an interest credit on their short stock balance equal to the Benchmark Rate (e.g., Fed Funds Effective overnight rate for USD denominated balances), less a spread (currently ranging from 1.25% on balances of USD 100,000 to 0.25% for balances over USD 3,000,000). The rates are subject to change without notice.

When the supply and demand attributes of a particular security are such that it becomes hard to borrow, the rebate provided by the lender will decline and may even result in a charge to the account. The rebate or charge will be passed on to the accountholder in the form of a higher borrow fee, which may exceed short sale proceeds interest credits and result in a net charge to the account. As rates vary by both security and date, IBKR recommends that customers utilize the Short Stock Availability tool accessible via the Support section in Client Portal/Account Management to view indicative rates for short sales. Customers can also add the Rebate Rate column to their TWS screen. Note that the indicative rates reflected in these tools are intended to correspond to the short sale proceeds interest IBKR pays on Tier III balances, that is, additional short sale proceeds of USD 3 million or greater. For lower balances, the rate is adjusted based upon the tier and the Benchmark Rate associated with the trading currency. The exact rate can be viewed by using the Interest Paid to You on Short Sale Proceeds Cash Balances calculator.

 

EXAMPLE

Assume that for Apple Inc. (NASDAQ: AAPL) the Short Stock Availability Tool and TWS show an indicative Current Rebate Rate of 1.60% and a Current Fee Rate of 0.25%.
This implies the account will receive net credit interest of 1.60% for shorting AAPL.

Tier III Short Stock Proceeds Interest Rate (Credit):  1.85%
AAPL Borrow Fee Rate (Debit): -0.25%
Net Rebate to Account: +1.60%

 

Please see more examples and a calculator on the Securities Financing page.

IMPORTANT NOTE
Information provided within the Short Stock Availability Tool and TWS relating to shares available to borrow and indicative rates, is offered on a best efforts basis without warranty as to its accuracy or validity. Share availability includes information from third parties which is not updated in real time. Rate information is indicative only. Trades executed in the current trading session generally settle in 2 business days and the actual availability and borrow costs are determined on settlement day. Traders should be aware that rates and availability can change significantly in the time between trade and settle dates, particularly in thinly-traded stocks, small cap stocks, and classes of stock that have an upcoming corporate action (including dividends). Please see Operational Risks of Short Selling for more details.


IMPORTANT NOTE

Information provided within the SLB tool, particularly that relating to shares available to borrow and indicative rates, is offered on a best efforts basis without warranty as to its accuracy or validity. Share availability includes information from third parties which is not updated in real time. Rate information is indicative only. Trades executed in the current trading session typically settle in 2 business days and the actual availability and borrow costs are determined on settlement day. Traders should be aware that rates and availability can change significantly in the time between trade and settle dates, particularly in thinly traded stocks, small cap stocks, and classes of stock that have an upcoming corporate action (including dividends).

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