Interactive Brokers Canada (IB Canada)

a couple ottomh hypotheses:

- i think one can safely assume that the profits weren't there in the IB canadian operation, hence the parent was seeking either to 1) cut costs by eliminating the physical canadian office or 2) sell if a decent buyer price would be presented.

- might one also conjecture that canadian origin option volume is declining? i don't mean options in canadian stocks, many of these are principally traded in US markets anyhow. I don't mean volume of options traded on the sole canadian option exchange, either.

what i mean are option orders arising from clients who are registered with the broker as canadian resident institutions or individuals. Might these have been declining in recent years?

from time to time one does hear that canadian option order volume is declining. I imagine this rumour would also have to include institutional option trading. If i look at the 2 online firms where i have accounts, one struggles to maintain the early option expertise that it used to deliberately encourage in its staff. The other never had any option expertise to begin with.

- moving on, one asks oneself whether logarithmic trading has not taken centre stage, whether day-trading by retail clients is now the top focus for online brokers, for the good reason that such trades are 100% automated & therefore easier & more profitable for the broker to handle?

- to be able to dance is awesome, but in the short space of time that my partner & i foxtrotted back & forth across the dance floor last week, the broker's system could have handled 500 or 1000 simple buy or sell automated transactions.

- the constant rise in foreign exchange (FX) fees over the past few years is telling me that online brokers' costs have been rising precipitously. But what is causing this rise?

- system costs have been declining. Increased cost has to come more from the HR side of the business. I am aware, for example, that it's difficult for online brokers to find experienced staff. A highly-specialized broker like Interactive does not have a large staff, but it definitely has to be a knowledgeable staff. In its search for talent, IB canada has even been known to recruit staff from other cities, at times.

- IB canada has a large business clearing canadian-origin option orders through its sister company Timber Hill canada, which is directly owned by the US Interactive parent. It's not known whether Timber Hill is continuing this business as usual.

- not that the opinion of a poor pie would matter in the least, but i think that IB canada is making a serious mistake in not announcing its news properly. The company should disclose the names of its new owners as well as whether or not US-owned Timber Hill is continuing its clearing operations out of the same physical office, which is situated in montreal, quebec.

turns out there has been no "severing" of IB canada from its parent in the US, nor any sale.

here's the full text of the message sent to IB clients. It's actually about administration of the accounts:


Dear IB Customer,

We are sending you this communication to inform you of an upcoming change to Interactive Brokers Canada Inc.’s (IB Canada) operations, which will have minimal impact in terms of changes required of you, but offers a number of benefits intended to simplify the management of your account.

As background, IB Canada has traditionally relied upon Interactive Brokers LLC, it’s U.S. affiliate, to provide various operational and back office services. This arrangement, while advantageous from the standpoint of internal operational efficiencies, introduces a number of drawbacks to clients which, as our Canadian presence has expanded, we seek to eliminate by managing these services directly through IB Canada. In particular, the benefits of this change include the following:

Elimination of the Pattern Day Trading requirement;
Reg. T margin rule will no longer apply (i.e., no distinct initial and maintenance margin requirements or SMA calculation;
Opportunity for more favorable interest debit/credit calculations as balances currently segmented between securities and commodities will now be consolidated;
Simplified statement presentation due to consolidation of security and commodity segments;

It’s important to note that this change will have no impact upon the products offered, commissions or the manner in which you access your account and enter orders. As part of the conversion, which is scheduled to begin mid-September, you will be provided with an updated account ID (note that your user name will remain unchanged) at 2013 year end will receive two sets of annual statements and tax forms.

We look forward to providing you with the benefits of this conversion and invite you to contact our Canadian Customer Service Center toll free at 1-877-745-4222 or direct at 1-514-847-3499 with any questions regarding this matter

1) questrade didn't ditch penson, penson went bankrupt.

http://www.bloomberg.com/news/2013-01-11/penson-worldwide-inc-files-for-bankruptcy-in-delaware.html

2) the house illustration doesn't fly. A house owner owns a house, holds title, his name goes on the tax rolls.

investors holding shares in street or nominee form at brokers don't have title to their shares. Only the broker has title. It's up to each broker to keep order among all the shares in its name & all the UBOs (ultimate beneficial owners).

i for one wouldn't trust fain's remarks for one second. If he's an employee of either questrade or IB, he's inviting the sack. No broker tolerates employees who are foolish enough to discuss, in public, critical private information.

if he's not an employee, he'd have no real knowledge about the vague, unsourced assertions he's making.

if he's reporting rumour or hearsay, good journalism practice requires him to state this.

About assets being safe in a brokerage account ... not nearly as safe as you might think.

For one, cash amounts are unsecured loans to the broker. Cash can easily disappear in the case of a broker's collapse. Read about the cases with Refco and MF Global. This is why forex and futures accounts can be so dangerous, because they involve large cash positions. MF Global customers lost around $1 billion as cash from client accounts was used to cover the firm's losses.

You should never leave significant cash balances sitting in a brokerage.

Stock holdings are safer, yes. But it's not at all like the house analogy ... a house is a uniquely identifiable asset like the home at 123 Elm St owned by Joe Blo. Stocks & bonds on the other hand are held in the broker's name, and the broker just has a big list of assets. Who owns what (your account) is just an electronic record.

And that list is very dynamic and electronic. Fraud and mistakes also happen.

Leaving aside fraud, there are still threats to your account "holdings". If you're employing margin, then securities can be taken away in securities lending operations for instance. Again it's not really a matter of them being taken "out" of your account... they never are "in" your account to begin with!

If you're at all concerned about a broker collapse, then avoid any use of margin. You should have fully paid for shares. When I opened my parents' account, I opened a cash settled (non margin) account just to make absolutely sure there wasn't any margin possibility.

Read about Opes Prime in Australia to see how bad customer losses can get when dealing with margin during a broker collapse...

So if you have fully paid for shares, don't use margin, or are using a non-margin account I think that's your best hope of keeping your shares safe. Even then it's just a matter of broker record keeping and you just pray there is no fraud

james4 the interesting thing is that, in a margin account, long stock with options held against it is not usually available for the broker to borrow against (brokers borrow stock in order to lend it out to other clients who are shorting).

ie what is preventing the brokers (there are 2) from borrowing my shares is the fact that my shares are, generally speaking, already out on call to the options exchanges.

the options exchanges themselves are the counterparties to each option contract. Risk in options does not proceed onwards, past the exchanges, to the ultimate counterparties. Thus i have more faith in organized options exchanges than i do in futures or forward markets, where there is direct counterparty risk.

do i have more faith in the options exchanges than i do in the brokers? perhaps slightly more.

may i mention that, in spite of the prohibition against borrowing clients' shares when these are already pledged to option contracts, nevertheless the brokers do practice a little bit of this, from time to time. Tch.

at rare intervals, i've noticed that the brokers are borrowing part of a short optioned stock holding, usually no more than 10-15%. Tch. This usually happens in a canadian bank stock. The shares are always returned within a few days or weeks at the most.

who knows, james4? maybe these episodes happened because you were indulging in one of your short sprees & you had cornered the short market in canadian banks :biggrin: