i rant a lot about IB and fidelity - two of the top brokers, for which i have accounts at both. i do my main trading at IB, but have significant account with fidelity too. i havent seen much from fidelity during this fiasco, so ill keep this post ib-centric and explain the background of why i waste my time, and yours, talking about this kind of stuff
IB has certain stocks in 'closing only' status, meaning you can close an existing position:
- buy to close short
- sell to close long
but cannot open a new long or short.
not opening a short i can understand, because it may be hard or impossible to borrow. therefore if they cannot locate shares to borrow internally or from another broker, they are not allowed to let you open or increase a short position, by regulations.
not being able to open
- long stock
- long call
- long put
with your own money, im dissatisfied with it. let me be clear, i have nothing to do with GME or said basket of securities, nor interest in opening a position. im just not comfortable with not being allowed to do with my own cash what i choose
ive expressed my concerns to my contacts. they will take with grain of salt...why?
rewind:
historically, IB is pretty conservative when it comes to risk mitigation and protecting itself, stakeholders, and customer base. its a company ~80% owned by Mr P himself and the rest mainly by executives that have been with him for 20-30 years, in other words, similar to a family owned shop. they have sophisticated order routing and risk mgmt tools that benefit its customers via excellent execution at lowest cost, and best margin rates. everything is automated. hence the lowest cost structure of the brokers while maintaining best execution rankings. they also have a 0 comm offering in LITE, thats better structurally than RH (IBs LITE orders go to Liq Providers, but they still can obtain NBBO, unlike the mugging their order will get from RH and other brokers' 0 commission offerings), but no pro is using that anyway.
when you throw a monkey wrench like GME into the mix, being halted 5-10x a day, prices going from 500 to 156 back to 300 in between halts...its kinda hard to protect against the inherent danger that exists:
- each order must pass real-time customer equity check, market impact, etc
- when you have swings like that, a particular customer order can pass cash/margin requirements one second, and fail them the next
- then you have to worry about counterparty and clearing house risk...can the other side afford to settle this trade?
- are the other brokers vetting their orders as carefully, and making sure their customers have the cash/equity to cover the trade (2008 anyone?)
- if it turns out your real-time risk mgtm system failed, you have 10bb in equity to cover such screw-ups (oil price fiasco last year cost them about 100mm)
- the gamestop options alone have about 10-15bb of PnL to spread around (he was just on cnbc talking about it)
bottom line: scenarios like this expose, and welcome to the table, systemic risk. a few hedge funds getting taken down 30% is just the tip of the iceberg.
in my view...raise the margin requirement, or make it all cash only would be sufficient.
however, that in itself will stifle much of the trade volume, though. so the damage is already done. taking the margin leverage out of the equation is a sure fire way to blow off some froth. i wish they didnt couple it with 'closing only' aspect.
and no theyre not in bed with MMs and large HFs, so stop. IBs prime services are too conservative to attract funds like that as customers, so those types wont do business with them, because IB vets the strategy/portfolio real-time and if the risk is past threshold, they have to pay exposure fee. no HF or prop shop will do that, so they go to the big prime brokers to play there, and get to do what they want, for example, explode like melvin and maplelane. ive been down that road with IB before. they are protecting their family owned business from market risk, not pandering to shorts. two different things, unfortunately easy to mistake the optics given the media frenzy and stuff going on at RH (did robinhood really liquidate customers long holdings at sub market prices - tweet could be fake?)
in a family-ish shop like IB, they arent going to let GME take out the firm. in their eyes, theyd be happy to let a handful of speculative customers leave for RH or wherever and take their gunslinger YOLO trading with them. and i get it. i dont blame them, and frankly, i dont want to hold an account at a firm that is loosely controlled. this is not to say that any firm anywhere cannot have a disastrous mistake that can impact your account. they can. i disagreed with
@Nocturnal before when they said they wanted to leave ib, only because whats the alternative? its like going from one bad boyfriend/girlfriend to another when you change brokers. one does one thing to you, the next seems better until they screw with you in a different way; a trade, transfer, margin rate, corp action fees, not alerting you to something important, etc, etc.
all that said..i do not like the fact i cant open a trade with my cash. theres no risk there for the broker. its my $..not margin. i dont want to trade GME or that basket of junk... but if i did, and i couldnt, id be pissed - rant over
