IBKR - Interactive Brokers

[given2invest]

The real losses came in Q1 - all the customers had positive equity on Dec 31!

 

The main part of the screen needs to be liquidity (lack of).  But we are talking huge company for IB to lose $40M on top of whatever the customers lost, again assuming IB customers only owned small % of company.  How did they buy in first place if so illiquid?  We will find name eventually..guessing after IB is out of position.

 

EDIT:  From Conf Call, more color:

 

Second, we disclosed in early March, what was then a $47 million margin loan loss, which is now $42 million and on which we still are likely to collect more. This occurred in the U.S. listed stock in which several customers invested by borrowing on margin. The stock's price fell rapidly over a very brief period of time, while simultaneously the trading volume suddenly dried up. Due to the very low trading volume, we were unable to liquidate as much of the stock as we wanted. We have made and expect to make further recoveries here. We are continually looking to make our systems' algorithms better. As a result, we have tightened margin borrowing in very low trading volume stocks, and we'll be using average daily volume as a greater weight when we assess margin loan risk in future.

 

 

[Spekulatius]

Might be fraud too.  A small group of customers trade and otherwise illiquid stock amongst each other and bidding it up, as well as providing the illusion of liquidity, then pull the rug and let IBKR hold the bag. The money got transferred so to speak to other accounts which are of course are with another broker. Automated systems probably can get fooled by this. I believe there was such a case in Asia with IBKR a while ago.

[meiroy]

Wasn't there a similar IBKR issue in Singapore, awhile ago?

 

UPDATE: 

 

Note this is a non-current event, and posted just for context:

 

"Now I will explain these items in further detail. The unusual item is a $73 million loss we have reported on our books for the Singapore incident that we discussed - we disclosed in October. As a reminder, certain of our brokerage customers took large positions in a few related stocks listed on the Singapore Stock Exchange last year. In the beginning of the fourth quarter, these stocks lost over 90% of their value in a very short period of time and we are able to liquidate only a small portion for the exchange of the trading.

 

We are pursuing legal actions to recuperate our loss base and have secured freeze orders in Malaysia and Singapore, but this process will take a long time. We said in October, that the maximum loss would be $84 million. However, because we were able to take the stocks onto our books at a value of about $20 million to offset the margin call, we have a $64 million that has been recorded in bad debt in the Brokerage segment. These stocks have lost about half their value, so we've also recorded a loss of $10 million in the Corporate segment bringing the total impact to $74 million."

 

 

 

 

[stahleyp]

I rarely use margin but can't IB liquidate other securities to cover the margin call (though perhaps the customer only had that one stock)? Also, can't the broker go after the customer directly(lawsuits and the like)?

[given2invest]

Yes, they can and I'm sure did liquidate the entire portfolios ex the illiquid stock but clearly it was so big in each account it didn't matter.

 

It's possible it was a scam but if that was true the stock would probably be a 0 now and they wouldn't have the language about "depending on market conditions" etc.  Seems more likely a sketchy company w/ market cap 500m to 2b with a small float.

[muscleman]

Interesting stuff!

Can anyone run a screener to figure it out?

[Hielko]

Yes, they can and I'm sure did liquidate the entire portfolios ex the illiquid stock but clearly it was so big in each account it didn't matter.

 

It's possible it was a scam but if that was true the stock would probably be a 0 now and they wouldn't have the language about "depending on market conditions" etc.  Seems more likely a sketchy company w/ market cap 500m to 2b with a small float.

I'm pretty sure it must have been some kind of scam. Normal customers don't go long their whole account in one shady Chinese stock (I'm assuming it is YRIV). Not exactly sure how the scam worked, but think you see it sort of frequently with sketchy low float companies in Hong Kong were they just weird things keep happening with the stock price. Stock price of YRIV was also suspiciously stable in early 2018. My money is that that was connected to those accounts being massively long the stock at IB.

[writser]

What makes you think it was YRIV? Though it seems a likely candidate given what happened in the stock. Few interesting points:

 

- YRIV has ~170m shares outstanding. Volume in the first two week of April was ~250m shares. There could be some wash trades / HFT trades in there but I'd say IB should've been able to close out a big position by now.

 

- A big position should've shown up as a form 4 somewhere? Though if this was a scam maybe they didn't file on purpose? The CEO owns 90m shares, could it be his position?

 

- Agree it almost certainly must be a scam. But how / what? Something like: buy a lot of shares: push up the price, withdraw excess margin from IB account? Alarm bells should've been going off all over the place ..

 

 

[Hielko]

April wasn't part of the first quarter, so could be that they have now closed their position. But I'm not totally sure it's YRIV. IB says that after the drop liquidity dried up in the stock, but this one had sort of the same trading volumes pre and post drop (and indeed crazy volume last month, probably some kind of pump and dump in progress...)

[given2invest]

It's not YRIV.  The key here is:

 

Big drop Q4 and then bigger drop in Q1 & very low liquidity after there was decent liquidity.  I'm guessing sub $250,000 a day but def sub $1M a day.

[fuzzhead1506]

It could be so many things... long or short, so running a scan to help decide would not likely yield much fruit.

 

I'd imagine short VIX trade has that level of loss. Despite all of their efforts 2 years ago to mitigate the risk with higher margin requirements.  VIX more than doubled in December.

[KCLarkin]

In the transcript snippet they explicitly say it was a stock that lost value. So it must have been a long.

[Spekulatius]

Hielko’s YRIV is a good guess.

https://finance.yahoo.com/chart/YRIV#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%3D%3D

[fuzzhead1506]

In the transcript snippet they explicitly say it was a stock that lost value. So it must have been a long.

 

maybe I need to just go back to listening/skulking on the forum as this the second time you have appropriately corrected me in my 10-ish posts on the forum.  :-X

[given2invest]

It's not YRIV!  That went from extremely illiquid TO extremely liquid as it collapsed!  It's the opposite of what they are describing.  Go look at volumes in Q4 vs Q1.  SUPER LIQUID!

[Hielko]

It's not YRIV!  That went from extremely illiquid TO extremely liquid as it collapsed!  It's the opposite of what they are describing.  Go look at volumes in Q4 vs Q1.  SUPER LIQUID!

According to this article it is: https://finance.yahoo.com/news/chinese-firm-apos-plunge-cost-080000161.html

The answer, it turns out, is shares of an obscure Chinese company with years of losses, no revenue and a U.S. headquarters located in a New York City apartment. Its name is Yangtze River Port and Logistics Ltd., according to a person with knowledge of the matter who requested anonymity because Greenwich, Connecticut-based Interactive Brokers hasn’t revealed the firm’s identity.

[given2invest]

I just came here to post that...crazy.  I stand corrected!  I guess I see it didn't become liquid till it went below $1.  That chart is so ugly.

[Peregrino]

Long article from the WSJ on how Schwab's low fee model is taking market share, shaking up brokerage.

 

Not a single mention of Interactive Brokers... I don't know whether that's a good thing (IBKR remains under-followed), or a bad thing (no one thinks they are a serious contender)

 

https://www.wsj.com/articles/how-schwab-ate-wall-street-11556474103?mod=hp_lead_pos9

 

[fisch777]

Long article from the WSJ on how Schwab's low fee model is taking market share, shaking up brokerage.

 

Not a single mention of Interactive Brokers... I don't know whether that's a good thing (IBKR remains under-followed), or a bad thing (no one thinks they are a serious contender)

 

https://www.wsj.com/articles/how-schwab-ate-wall-street-11556474103?mod=hp_lead_pos9

 

Schwab is such a beast.  Have spent quite a bit of time on both it and IBKR the past few months, and still can't get there, mostly due to NIM exposure.  I get that rates <should> normalize at higher levels at some point/over cycle/etc, but I don't want to pay for it.

 

As far as why IBKR isn't mentioned, it's just not a contender in the mainstream financial "supermarket" space.  Schwab brokerage is arguably cheaper for most US investors who don't trade often, plus roll in banking accounts, commission-free ETFs/MFs, retirement accounts, etc all under one login.  Anecdotally, it is the only bank/broker I use ex high yield online savings guys.

 

I suppose IBKR valuation has come down significantly, but has discounted a massive adjustment in forward rate upside expectations, a significant slowdown in new account growth, and the founder/CEO selling 25K shares every day.

[Jurgis]

Looking for Europeans who have IB account for couple questions ( @writser? ):

 

- Assuming a person opens IB account with smallish sum of money, buys couple stocks and does not trade from there on what monthly fee IB charges in Europe (Eurozone)? (In US I believe they charge monthly $10 for any account smaller than $100K. I need Euro-side info though).

- How difficult it is to fund IB account from random EU country assuming you have EU bank account? Does IB give bank info to which you transfer money and you're funded?

 

Someone from Lithuania wants to open a brokerage account with rather small amount of money. IB was advertised on CoBF as the best solution in Europe.  ;D I am trying to gather info if they are economical for small accounts (not that other brokers are economical for small accounts either...  :-\ )

 

Any other info/gotchas?

 

Any info appreciated. We can move to general or PM if needed though I think this thread was used for IB-related info in the past.  8)

[Hielko]

IB doesn't have different fees in Europe. So you still have the $10 inactivity fee. And funding is easy, you can just do an transfer to an IBAN number (most likely to Germany). For small accounts (with few transactions) I doubt that IB is the best option. You could go for something like degiro.eu (not a broker I like a lot, but they are cheap and you can get for a decent amount of ETF's one free trade a month).

[Jurgis]

Thanks Hielko.

 

Edit: degiro.eu is not available for Lithuanian residents (there are long discussions how to go around the limitation, but the workaround holes are pretty much plugged by now).

[WneverLOSE]

I am trying to understand why the Net income available for common stockholders is lower than you would expect from their 18.1% interest in IBG LLC (the operating business).

 

Net income for 2018 : 1,125

18.1% from Net income : 203

Reported Net income available for common stockholders : 169

 

My guess is that the listing costs and maybe auditing costs are incurred by the holding company (i.e. only the public shareholders)

I was wondering if someone can explain the difference between the numbers and if the costs are written somewhere at the 10-K ?

[KCLarkin]

This is discussed upthread. It is related to taxation. They clearly talk through the pre-tax to post-tax EPS in most recent calls. Simplest way to explain it is that common shareholders get 18% of pre-tax income. But this isn’t quite true since the Partnership needs to pay its share of foreign taxes.

[WayWardCloud]

I'm looking at IBKR again due to the price falling down recently.

 

One thing that worries me, and yet I haven't read anyone talk about, is the possibility of the US and China technologically decoupling their strategic infrastructures. If we are only at the beginning of the rise of a new kind of technological Iron Curtain, as Google's Eric Schmidt predicts, wouldn't Interactive Brokers be at the top of the list of upcoming China bans? They handle extremely sensitive flux of information and the majority of their recent growth comes from Asia, mostly as an introductory broker if I remember correctly. If I were China, I wouldn't want a US company, especially one led by a very patriotic CEO who escaped the Eastern Block and hates communism, to control the underlying technological backbone for the trading platforms my people use.

 

I'd very much appreciate your opinions!