While i'm at it, from my above reply to def, we've learned from article that the REALLY BIG hypothecation scandal is by transferring broker assets to the UK, where their rehypothecation standards are virtually non-existant. While there are limits to rehypothecation in the US, they can literally do anything and in any amounts in the UK, and that is why these dealers that we've been discussing shifted assets there. To get the benefit of the UK's leniency. So, how much of IB's customer assets have been shifted to the UK? If you think none of them, while IB is listed with such a large amount of rehypothecation in the article, you would have to be very, very naive.
You're welcome and that's a good article too although I think it mostly just a rehash of the Reuters article which was wrong in naming IB, as we found out, and probably in other ways too. IB has made clear in their later reply that they are not using any of those techniques.
I read ib-an's response, and when he said that rehypothecation is a standard and essential practice, that was all i needed to know. I had never heard of 'reypothecation' before all of this business with mf transpired, and I am STUNNED to learn that 'rehypothecation' even exists. It is an absolutely ABHORRENT practice! That it is allowed simply stuns me. And no amount of "we at IB don't engage in the 'shadier version' of rehypothecation give me any source of comfort at all. Rehypothecation should not exist. It is a shady business practice on steriods.
What we are being asked to believe from IB is that "yes, we use your assets as collateral for our loans, but don't worry, because we promise that we won't make any huge Eurozone bets like MF did, so everything is ok." If anybody is comfortable with that, then i submit that you are simply not thinking clearly.
Not necessarily at all. All it means in the normal case is financing of margin loans using a lender. I think that every stock broker does this and that is an essential and normal part of stock margining. How else is the broker going to finance margin loans other than by pledging the customer's stock to the firm that is doing the financing?