That's a pretty unimpressive post, Def. Given what just happened at MF, and the general lack of transparency in this business, it is natural people are concerned. Disparaging them is just going to raise suspicions further, because that isn't the action of a confident, "right" organization. I wasn't particularly concerned before, really, but after reading your response, now I am.
Thanks for providing clarity Def. On a sidenote if you ever know IB is about to go under can you kindly give us here at Elitetrader a heads up. Cheers.
Thanks for replying Def. The margin lending you described appears to be standard hypothecation, which I am totally ok with. But it is re-hypothecation that I am concerned with. I found this definition on the web. "Re-hypothecation occurs when banks or broker-dealers re-use the collateral posted by clients such as hedge funds to back the broker's own trades and borrowings." Can you confirm that IB does not do this?
IB's customer agreement does allow re-hypothecation as well as hypothecation: Interactive or its Affiliates may deposit collateral, securities and/or other Customer property with third parties and may pledge, re-pledge, hypothecate or re-hypothecate Customer collateral, securities and/or other Customer property, either separately or together with other securities and/or other property of other Customers of Interactive for any amount due to Interactive in any Interactive Fully-Disclosed Account in which Customer has an interest
"Re-hypothecation occurs when banks or broker-dealers re-use the collateral posted by clients such as hedge funds to back the broker's own trades and borrowings." That definition may be inaccurate. http://financial-dictionary.thefreedictionary.com/Rehypothecate says: rehypothecate "To repledge stock as collateral for a loan. In practice, this term means to pledge securities (by a brokerage firm) for a bank loan when the securities have already been pledged to the firm by one of its customers. The brokerage firm essentially passes along the collateral in order to obtain a loan to finance the customer's account." This may be a better definition and be normal. In other words, there may be a perfectly good form of re-hypothecation involved in obtaining financing for a margin loan. Naturally the security for that loan has to be passed on to any third party who finances the loan. Hence the "re-".
if you want to compete and stay in biz,you need to go with the flow, whatever the flow is,if you are big( i.e..IB..that;s my story ,i'm sticking with it,signing off now)you have no choice if you want to stay competitive..if it sounds too good to be true..
Well, this kinda obliterates the possibility of "segregated funds." Funds are not segregated if they can be used as collateral for the firm's borrowing, or? What am I missing here...
I agree with def's post and think that IB is one of the better guys out there when looking out for client funds. However, this is the problem with ALL the financial firms right now - they'll all be saying the same thing, ie "we're good, we're not like the others, you can trust us, honest!" But I bet if you'd have emailed MF 6 months ago they would have said the exactly the same thing, ie 'we're safe, we're not a crazy bank, our risk management systems are robust and some of the best in the business, your funds are segregated etc etc etc'. Look at the corporate cliches on EVERY financial firms website, they all say the same crap. For example, one of ';Goldman's 10 commandments is 'our clients always come first' A sick joke if ever there was one.......