Are there commissions associated with option exercise or assignment?

The answer depends upon the option type and its region of listing.  There is no IB commission associated with US stock and index security options and out-of-the-money Non-US index options.  A commission is charged for an exercise or assignment of an in-the-money Non-US index option and for options on futures. Please refer to the Pricing section of the website for details.

What positions are eligible for Portfolio Margining?

Overview: 

Portfolio Margining is eligible for US securities positions including stocks, ETFs, stock and index options and single stock futures.  It does not apply to US futures or futures options positions or non-US stocks, which may already be margined using an exchange approved risk based margining methodology.

Are there any qualification requirements in order to receive Portfolio Margining treatment on US securities positions and how does one request this form of margin?

Overview: 

In order to enabled for portfolio margining an account must be approved for option trading and must have at least USD 110,000 in net liquidating equity (USD 100,000 to maintain, once enabled). Account holders will also be required to acknowledge and sign the Portfolio Margin Risk Disclosure document and be bound by its terms.  

Portfolio margining may be requested through the on-line application phase (in the Account Configuration step)  or after the account has been approved. To apply once the account has already been approved, log into Account Management and select the Settings and Account Settings menu options. In the Configuration section, click the gear icon next to the words "Account Type". There you may choose the portfolio margin treatment which will initiate the approval process.  Please note that requests are subject  to review  (generally a 1-2 day process) and may be declined for  various reasons  including a  projected increase  in margin  upon upgrade  from Reg T to Portfolio Margining. 


What is SMA and how does it work?

Overview: 

SMA refers to the Special Memorandum Account, which represents neither equity nor cash, but rather a line of credit created when the market value of securities in a Reg. T margin account increase in value. Its purpose is to preserve the buying power that unrealized gains provide towards subsequent purchases which, absent this handling, could be assured only by withdrawing excess equity and depositing it at the time the subsequent purchase is made. In that sense, SMA helps to maintain a stable account value and minimize unnecessary funding transactions.

While SMA increases as the value of a security goes up, it does not decrease if the security falls in value. SMA will only decrease when securities are purchased or cash withdrawn and the only restriction with respect to its use is that the additional purchases or withdrawals do not bring the account below the maintenance margin requirement. Transactions which serve to increase SMA include cash deposits, interest income or dividends received (on a dollar for dollar basis) or security sales (50% of the net proceeds). It’s important to note that the SMA balance represents an aggregation of each historical bookkeeping entry impacting its level starting from the time the account was opened. Given the length of time and volume of entries this typically encompasses, reconciling the current level of SMA from daily activity statements, while feasible, is impractical. 

To illustrate how SMA operates, assume an account holder deposits $5,000 and purchases $10,000 of securities having a loan value of 50% (or margin requirement equal to 1 – loan value, or 50% as well). The before and after account values would appear as follows:

Line Item
Description
Event 1 - Initial Deposit
Event 2 - Stock Purchase
A.
Cash
$5,000
($5,000)
B.
Long Stock Market Value
$0
$10,000
C.
Net Liquidating Equity/EWL* (A + B)
$5,000
$5,000
D.
Initial Margin Requirement (B * 50%)
$0
$5,000
E
Available Funds (C - D)
$5,000
$0
F.
SMA
$5,000
$0
G.
Buying Power
$10,000
$0

Next, assume that the long stock increases in value to $12,000. This $2,000 increase in market value would create SMA of $1,000, which provides the account holder the ability to either: 1) buy additional securities valued at $2,000 without depositing up additional funds and assuming a 50% margin rate; or 2) withdraw $1,000 in cash, which may be financed by increasing the debit balance if the account holds no cash. See below:

Line Item
Description
Event 2 – Stock Purchase
Event 3 - Stock Increase
A.
Cash
($5,000)
($5,000)
B.
Long Stock Market Value
$10,000
$12,000
C.
Net Liquidating Equity/EWL* (A + B)
$5,000
$7,000
D.
Initial Margin Requirement (B * 50%)
$5,000
$6,000
E
Available Funds (C - D)
$0
$1,000
F.
SMA
$0
$1,000
G.
Buying Power
$0
$2,000

*EWL represents equity with loan value which, in this example, equals net liquidating equity.

Finally, note that SMA is a Reg. T concept used to evaluate whether securities accounts carried by IB LLC are in compliance with overnight initial margin requirements and it is not used to determine compliance with maintenance margin requirements on either an intraday or overnight basis. It is also not used to determine whether commodities accounts are margin compliant. Similarly, accounts which report negative SMA at the time each day when overnight, or Reg.T initial margin requirements go into effect (15:50 ET) are subject to position liquidations to ensure margin compliance.

 

 

How do I transfer my US securities positions from my current broker to IB?

Overview: 

Broker to broker transfers for US securities are conducted via a process known as the Automated Customer Account Transfer Service or ACATS.  This process generally takes between 4 to 8 business days to complete in order to accommodate the verification of the transferring account and positions. The request is always initiated via the receiving broker (IB in this case) and can be prompted by following the steps below.

1.      Log into Account Management and select the Transfer & Pay and then Transfer Positions menu options.

2.      From the Transaction Type drop-down list select 'Inbound Position'

3.      From the Method drop-down list select 'ACATS'.

4.      Enter the sending Broker Information in the fields provided, and click CONTINUE

5.      In the Transaction Information section, indicate whether or not you wish to transfer all assets and select Yes to the authorization option. 

a.       Note that a "transfer all assets" election does not require that you specify any assets as an attempt will be made to transfer your account in its entirety.  Account holders should note, however, that certain positions may not be on the list of securities eligible to trade at IB and others, while transferable, may be subject to a house margin requirement higher than that of the delivering broker.  In the event IB receives an asset list from the delivering broker which includes ineligible positions or the aggregate of the positions transferred are such that a margin deficit would exist were the transfer to occur, IB will attempt to contact you to remedy the situation within the allocated time frame after which an automatic reject of the full transfer would take effect.  Account holders may wish to minimize potential delays or problems associated with a ‘Full’ transfer request by verifying security eligibility and margin requirements via the Contract Search link located at the upper right hand corner of the IB homepage prior to initiating the transfer.

b.      If you elect to not "transfer all assets", the system will require that you specify the positions you wish to transfer. Click Add Asset to add the positions you wish to transfer. Fill out the Asset Search and Transaction Information sections and click Continue.

6.      On the page that appears, type your signature in the Signature field, and then click CONTINUE.
Click BACK to modify the transfer request.

Please note that brokers generally freeze the account during the transfer period to ensure an accurate snapshot of assets to transfer and may restrict the transfer of option positions during the week prior to expiration. You may wish to check with the delivering broker to verify their policy in this regard. In addition, please note if your IB account is currently maintaining positions on margin, any cash withdrawals or adverse market moves could increase the likelihood that your account falls out of margin compliance during the transfer period which may delay or prevent completion of the transfer. 

 

IMPORTANT NOTICE

Applicants may meet the initial account funding requirement through the transfer of securities positions and/or cash via the ACATS system.

Why am I not informed of the assignment on my US securities option position until the following day?

Overview: 

 

The processing of exercise notices for American style options on days other than the expiration date is not performed on a real-time basis, but rather as part of a nightly batch process by the Options Clearing Corporation (OCC).   The processing sequence, which by definition results in a notification lag of at least one day to the assigned customer, is as follows:

 

-         OCC generally allows its clearing members to submit exercise notices on behalf of the customers holding a long position electronically throughout the day, but generally no later that the start of their critical processing in the evening (Day E). 

-         As part of its evening position processing sequence, OCC randomly assigns the exercise notices it has received to the open interest of its clearing members.  That information is then made available by OCC to its clearing members early in the morning on the following day (Day E+1). 

-         At the point in which that information has been made available, clearing firms such as IB have already completed their processing of that day’s trade activity in order to provide timely statements, margin and settlement information to their clients.  Also, since OCC carries the customer positions of its clearing members in an omnibus manner (i.e., they do not know the identity of the customers, only the clearing firm), the clearing member must, in turn, execute a random process to assign those exercise notices to customers holding a short position in that particular option series. 

-         Once IB receives notice of the assignment from OCC and completes its random assignment process, the assignments will be readily posted to the Trader Workstation of the impacted accounts and reflected on the Daily Activity Statement as of that day’s close (E+1).

 

In addition, due to this processing sequence and the fact that a long option may have remaining time value, IB cannot automatically provide an exercise notice to OCC for any long option spread against the assigned short option as a means of offsetting the ensuing delivery obligation.

 

Account holders should refer to the Characteristics and Risks of Standardized Options disclosure document which is provided by IB to every option eligible customer at the point of application and which clearly spells out the risks of assignment.  This document is also available online at OCC's web site.

My account was debited for a dividend payment (Payment in Lieu) for a short stock position which I don’t recognize. How did this occur?

Overview: 

 

A short stock position may originate from an option position which you held in your account.  For example, if you hold a long put position in your account, that position may be subject to automatic exercise by the clearinghouse if it is in-the-money by a defined threshold at expiration.  This put exercise will generate a short stock position in your account (assuming you do not have an offsetting long position), and you are obligated to pay any dividends should you maintain a short stock position on the ex-dividend date. 

 

Similarly, a short call position in your account is subject to assignment should a call purchaser elect to exercise their right to purchase the stock and your account be allocated through the random clearinghouse and broker assignment process.  This call assignment will generate a short stock position in your account (assuming you do not have an offsetting long position), and you are obligated to pay any dividends should you maintain a short stock position on the ex-dividend date. 

 

These payments will be reflected on your Activity Statement as a 'Payment In Lieu Of Dividend'.

Syndicate content