Notice to Financial and Non-Financial Counterparties trading OTC products (e.g. CFDs) not cleared by Central Counterparties
European regulators, as part of EMIR, issued technical rules concerning Risk Mitigation Techniques for derivatives not cleared by a Central Counterparty (“CCP”), which detail how the regulators expect these products to be margined from 1st March 2017. In general customers trading products subject to these rules are required to exchange variation margin.
Interactive Brokers (U.K.) Ltd. (“IBUK”) provides Contracts for Difference (‘CFDs’) that fall under these rules, and is your counter party to these trades. IBUK wishes to inform you how IBUK provides information regarding variation margin and reconciliation arrangements. This does not represent a material change from our current practice.
Variation Margin – Applicable where you are classified as FC or NFC+
All financial counterparties (‘FC’) and larger non financial counterparties (‘NFC+’) are subject to the EMIR variation margin rules for OTC derivatives. Whether larger non financial counterparties are subject to the rules is determined by reference to whether their 30-day rolling average of the gross notional OTC derivative positions entered into for non-hedging purposes are above specified clearing thresholds (eg EUR1bn for equity derivatives). IBUK ensures variation margin is exchanged with its counterparties with respect to OTC derivative transactions not centrally cleared by CCP.
IBUK provides customers with timely confirmations of trades each day via two secure platforms: by displaying them on our Trader Work Station (“TWS”) and via the Trade Confirmations and Daily Activity Statements in Account Management. The marked-to-market value of your OTC derivative contracts are shown in your Daily Activity statement.
The variation margin rule requires that variation margin is calculated on a daily basis based on the values of all the outstanding derivatives contracts under the IBUK Client Agreement for Products Carried by IBUK (the “Agreement”) on the previous business day.
Where this marked-to-market value of your transactions reflects a credit exposure for IBUK, IBUK collects variation margin equal to the positive mark-to-market value of its OTC derivatives. The variation margin collection is achieved through reduction in the net equity value available, an offset and/or liquidation of positions in the posting account. You may refer to the supplemental information about margin and the Agreement on the IB UK website for further details. Where the marked-to-market value reflects a credit to you, IBUK will reflect this via an increase in your net
equity.
Whilst the variation margin rule requires that variation margin is calculated on a daily basis, IBUK further expects that clients monitor their accounts continuously, including intraday, so that at all times the account contains sufficient equity to meet margin requirement as calculated by IBUK.
Reconciliation
Activity Statements are provided on a daily, monthly and annual basis. Customers can download this information using a "flex query" tool (which is available in our "account management system) in CSV type format.
You may reconcile the OTC positions detailed on these Trade Confirmations and Activity Statements account against your own records. The regulations state that you should reconcile your positions, contract information, valuation(s) and profits and losses and any related information.
If you note any discrepancies, you can contact IBUK customer service. Contact information for Interactive Brokers customer service is available on the IB website at:
https://www.interactivebrokers.com/en/?f=customerService.
The process for resolving any dispute is discussed in your client agreement with us.
Please note that the rules also require customers of firms that carry portfolios on a gross basis to carry out portfolio compression with the firm but this is not relevant as IBUK maintains your OTC positions on a net basis.
The rules also detail how often particular types of customers need to conduct these
reconciliations:
If you are an FC or a an NFC+ the rules require you to conduct portfolio reconciliations at the following frequencies:
• Daily, whenever you have 500 or more open OTC contracts;
• Weekly, if you have between 51 and 499 OTC contracts open at any time during the week;
• Quarterly, if you have 50 or fewer contracts open at any time during the quarter.
If you are a non-financial counter party not meeting the criteria to be an NFC+ (ie “NFC-“) you are required under the rules to carry out portfolio reconciliations at least:
• Quarterly, if you have more than 100 open OTC contracts open at any time in the quarter;
• Annually, if you have 100 or fewer open contracts at any time in the year.
Please note that this communication is not intended to serve as legal advice.
Interactive Brokers (U.K.) Limited
Overview of "EMIR" Reporting
This document will outline, in general terms, position and trade reporting requirements which fall under the European and Markets Infrastructure Regulation (“EMIR”). The new reporting requirement originates from the ESMA (European Securities and Markets Regulatory Authority), the European regulator’s need to create transparency in markets following the 2008 financial crisis.
What will need to be reported?
- As of February 12, 2014 – trades and positions of derivatives (futures, options, options on futures, CFDs) will need to be reported to a recognized “repository” no later than trade date + 1. Reporting is required for both on-exchange and over the counter derivatives
- As of August 16, 2014 – valuation and collateral reporting requirements for regulated financial firms and large organizations
- Back reporting to August 16, 2012 will be required
Who will be impacted?
- Regulated financial firms established in the European Union
- Organizations established in the European Union
What customers will not be eligible to report through Interactive Brokers?
- Individuals and joint accounts as they are not subject to reporting requirements
- Execution only customers
- Advisor master accounts
- Referrers
- Money/Wealth managers
- SIPP Administrators
- Employee Trak master accounts
- Fund Administrator accounts
If my fund is registered outside of the European Union, will IB report on my behalf?
In general, a fund which is registered or established outside of the European Union will not be required to report under EMIR. If however the fund manager is authorised under the Alternative Investment Fund Managers Directive ("AIFMD"), the fund may become subject to the requirements under EMIR.
Which repository will Interactive Brokers report through?
Interactive Brokers UK Limited will report trades and positions to the CME ETR, which is part of the CME Group.
It is important to note that while IB will report activity through CME ETR, the regulation places the responsibility of reporting on the customer, not the repository or IB.
What steps must I take to ensure my trades and positions are reported to CME ETR?
In order for IB to report on your behalf, you must obtain a Legal Entity Identifier (“LEI”). This is a unique identifier which will allow the regulator to identify a customer.
You may request that IB apply for an LEI on your behalf. In order to do so, you must log into Account Management and complete the steps to obtain an LEI and confirm that you wish for IB to carry out reporting on your behalf.
If you currently have an LEI, you may submit the LEI to IB through Account Management and confirm that you wish for IB to carry out reporting on your behalf.
Is more information available on EMIR reporting?
Yes, you may click here for additional information on EMIR reporting.
Margin Treatment for Foreign Stocks Carried by a U.S. Broker
As a U.S. broker-dealer registered with the Securities & Exchange Commission (SEC) for the purpose of facilitating customer securities transactions, IB LLC is subject to various regulations relating to the extension of credit and margining of those transactions. In the case of foreign equity securities (i.e., non-U.S. issuer), Reg T. allows a U.S. broker to extend margin credit to those which either appear on the Federal Reserve Board's periodically published List of Foreign Margin Stocks, or are deemed to have a have a "ready market" under SEC Rule 15c3-1 or SEC no-action letter.
Prior to November 2012, "ready market" was deemed to include equity securities of a foreign issuer that are listed on what is now known as the FTSE World Index. This definition was based upon a 1993 SEC no-action letter and was premised upon the fact that, while there may not have been a ready market for such securities within the U.S., the securities could be readily resold in the applicable foreign market. In November of 2012, the SEC issued a follow-up no-action letter (www.sec.gov/divisions/marketreg/mr-noaction/2012/finra-112812.pdf) which expanded the population of foreign equity securities deemed to have a ready market to also include those not listed on the FTSE World Index provided that the following four conditions are met:
1. The security is listed on a foreign exchange located within a FTSE World Index recognized country, where the security has been trading on the exchange for at least 90 days;
2. Daily bid, ask and last quotations for the security as provided by the foreign listing exchange are made continuously available to the U.S. broker through an electronic quote system;
3. The median daily trading volume calculated over the preceding 20 business day period of the security on its listing exchange is either at least 100,000 shares or $500,000 (excluding shares purchased by the computing broker);
4. The aggregate unrestricted market capitalization in shares of the security exceed $500 million over each of the preceding 10 business days.
Note: if a security previously meeting the above conditions no longer does so, the broker is provided with a 5 business day window after which time the security will no longer be deemed readily marketable and must be treated as non-marginable.
Foreign equity securities which do not meet the above conditions, will be treated as non-marginable and will therefore have no loan value. Note that for purposes of this no-action letter foreign equity securities do not include options.
Excess Margin Securities
The term "excess margin securities" refers to margin securities carried for the account of a customer having a market value in excess of 140 percent of the total debit balance in the customer's account. These securities are in excess of the securities held in a customer's margin account that are pledged by the customer as collateral for the margin loan and can be used to support the purchase of additional securities on margin
Example:
A customer whose account equity consists solely of a cash balance of USD 10,000 on Day 1 purchases 400 shares of stock ABC at USD 50 per share on Day 2.
| Account Balance | Day 1 | Day 2 |
| Cash | $10,000 | ($10,000) |
| Stock | $0 | $20,000 |
| Total | $10,000 | $10,000 |
On Day 2, the customer's excess margin securities total USD 6,000. This is calculated by subtracting 140% of the margin debit or loan balance from the market value of the stock position ($6,000 = $20,000 - {1.4 * $10,000}).
The term is relevant from a regulatory perspective as the SEC requires that U.S. broker dealers segregate and maintain in a good control location (e.g., DTC or bank) all customer securities which are deemed excess margin securities. Such securities cannot be pledged or loaned to finance the activities of the firm or other customers without specific written permission from the customer. The portion of the securities classified as margin securities ($20,000 - $6,000 or $14,000 in this example) are subject to a lien and may be pledged or loaned by the broker to others to assist in financing the loan made to the customer.
Note that securities which were excess margin at the date of acquisition may later be reclassified as margin securities based upon the customer's subsequent trade and/or margin borrowing activity. For example, if the loan value of excess margin securities is subsequently used to acquire additional securities on margin, a portion of securities will then be reclassified as margin securities and subject to a lien. If the customer subsequently deposits cash or sells securities to reduce or eliminate the margin loan, the securities will be reclassified as excess margin or fully paid and are required to be segregated.
See also "fully paid securities".
Fully Paid Securities
The term "fully paid securities" refers to securities held in a customer's margin or cash account that have been completely paid for and are not being pledged as collateral to support the purchase of other securities on margin. The term is relevant from a regulatory perspective as the SEC requires that U.S. broker dealers segregate and maintain in a good control location (e.g., DTC or bank) all customer securities which are fully paid. Such securities cannot be pledged or loaned to finance the activities of the firm or other customers.
Note that securities which were fully paid at the date of acquisition may later be reclassified as margin or excess margin securities based upon the customer's subsequent trade and/or borrowing activity. For example, if the loan value of fully paid securities is subsequently used to acquire additional securities on credit, a portion of securities will then be classified as margin securities and subject to a lien and potential pledge or hypothecation by the broker.
See also "excess margin securities".
Comparison of U.S. Segregation Models
INTRODUCTION
The regulation of securities and commodities products and brokers1 in the U.S. is administered by two distinct federal agencies, the Securities and Exchange Commission (SEC) for securities including stocks, ETFs, bonds, options and mutual funds and the Commodities Futures Trading Commission (CFTC) for commodities including futures and options on futures.2 While both agencies seek to safeguard customer assets by restricting their use and “segregating” them from assets of the broker, the regulations and manner in which they accomplish this differs. The following article provides a basic overview of two segregation models and additional considerations relating to IB accounts.
OVERVIEW
Differences between the CFTC and SEC segregation models originate largely from the products themselves, whose characteristics are fundamentally unique. Commodity products, by nature, do not involve an extension of credit by the broker to the customer as a futures contract is not an asset but rather a contingent liability which is marked-to-market and a long futures option, while an asset, must be paid for in-full. Consequently, non-option assets in a commodities account are generally comprised of funds deposited as margin to secure performance on the contracts therein. Since the broker may not use the funds of one customer to margin or guarantee the transactions of another, the commodities segregation requirement (CFTC Rules 1.20 – 1.30) is equal to the gross assets of all customers and the broker needs to add its own funds to segregation to cover customers whose net equity is in deficit.
A securities margin account, in contrast, can facilitate the extension of credit for the purpose of long securities (e.g., stocks, bonds) purchases or short securities sales on a secured basis. The segregation or reserve requirement rules recognize this through special provisions for the protection of each of the cash and securities components, further distinguishing fully-paid securities from those whose purchase the broker has financed and maintains a lien upon. Here, the broker must deposit into a separate bank account the net amount of customer cash balances3, in accordance with a formula set forth in SEC Rule 15c3-3. In addition, the broker must identify and segregate in a good control location (e.g., depository, bank) customer securities which meet the definition of “fully paid” or “excess margin”.
The table below provides a comparison of the main principals of each model.
| COMPARISON OF CFTC & SEC SEGREGATION MODELS | ||
| PRINCIPAL | CFTC | SEC |
|
Separation of Customer Balances
|
Commodity customer balances must be maintained separate from firm assets and cannot be used to finance proprietary business activities or to satisfy firm debts.
Funds used for trading on non-US commodity exchanges must be kept separate from those used for trading on U.S. exchanges (even for the same customer). Commodity customer balances must also be maintained separate from securities customer balances (even for the same customer). |
Securities customer balances must be maintained separate from firm assets and cannot be used to finance proprietary business activities or to satisfy firm debts. Securities customer balances must also be maintained separate from commodity customer balances (even for the same customer).
|
|
Priority in the Event of Broker Default
|
Commodity customers maintain priority and equal claim over assets in each of their respective U.S. segregated and non-U.S. secured pools.
No claim on assets in a commodity pool in which one is not a participant and no claim on securities customer assets. If commodity segregated assets are insufficient to meet claims and broker is insolvent, customers share equally in shortfall and become general creditors for residual claims. |
Securities customers maintain priority and equal claim over assets.4
No claim on commodity segregated assets. If securities segregated assets are insufficient to meet claims, broker is insolvent and claims exceed SPIC coverage, customers share equally in shortfall and become general creditors for residual claims.
|
| Segregation Style |
Gross – the broker may not use the funds of one customer to margin or guarantee the transactions of another and must segregate assets in an amount at least equal to the sum of all customer credit balances. |
Net – broker may use customer cash credit balances to finance, on a secured basis, margin loans to other customers and may lend or pledge a portion of customer securities purchased on margin to other customers selling short.
|
| Investment of Cash Balances |
Broker is allowed to reinvest commodity customer’s cash balances and retain an interest in the income generated. Permissible investments include: U.S. government securities, municipal securities, government sponsored enterprise securities, bank CDs, corporate obligations (commercial paper, notes and bonds) fully guaranteed as to principal and interest by the U.S. under the Temporary Liquidity Guarantee Program and money market mutual funds. Securities which are the subject of reinvestment must be maintained in a segregated account. |
Broker is allowed to reinvest securities customer’s cash balances and retain an interest in the income generated. Permissible investments limited to “qualified securities” defined as securities which are guaranteed as to both interest and principal by the U.S. government. Securities which are the subject of reinvestment must be held in Special Reserve Bank Account (i.e., segregated). |
| Computation Frequency | Daily | Weekly |
| Insurance | None | Securities Investor Protection Corporation (SIPC) provides insurance of up to USD 500,000 with a cash sublimit of USD 250,000. |
ADDITIONAL CONSIDERATIONS
In addition to the safeguards afforded through segregation, IB employs a number of policies and practices which serve to enhance the safety and security of accounts beyond that outlined above. These include the following:
- IB computes its securities segregation or reserve requirement on a daily rather than weekly basis as allowed by regulation, thereby ensuring timely determination as to the amount required to be reserved and the deposit of funds necessary to satisfy the requirement.
- IB’s does not avail itself of the generally more permissive rules with respect to the investment of commodity customer cash balances. These balances are instead invested in a manner similar to that of securities cash balances (i.e., U.S. government securities) with the exception of an occasional investment in money market funds.
- All customer securities positions are held in the securities segment of the Universal Account as opposed to the commodities (commodities margin met with cash and/or futures options), thereby limiting their hypothecation to the more restrictive rules of the SEC.
- In addition to SIPC coverage, IB maintains an excess SIPC policy with Lloyd's of London which, in aggregate with SIPC, offers insurance totaling $30 million (with a cash sublimit of $900,000), subject to an aggregate firm limit of $150 million.
- IB offers account holders the ability to sweep cash balances in excess of that required for margin purposes in either the securities or commodities segment to the other segment. Details as to this feature may be found in KB1851.
- For additional information regarding IB strength and security, please review the following website page.
Other Relevant Knowledge Base Articles:
Information Regarding SIPC Coverage
Footnotes:
1The term broker as used in this article is intended to refer to an organization registered with both the SEC as a Broker-Dealer and the CFTC as a Futures Commission Merchant for the purpose of conducting customer transactions
2Single stock futures are a hybrid product jointly regulated by the SEC and CFTC and allowed to be carried in either account type.
3Including cash obtained through the use of customer securities such bank pledges or stock loans less cash required to finance customer transactions (e.g., stock borrows, customer fails to deliver of securities, or margin deposited for short option positions with OCC).
4Assets, or customer property, which securities customers share in proportion to their net equity claim, include cash, margin securities and fully-paid securities held in “street name”. IB does not hold securities in the customer’s name which are not considered bulk customer property.
Commodity Futures & Futures Options Position Limits
Regulators and exchanges typically impose limits on the number of commodity positions any customer may maintain with the intent of controlling excessive speculation, deterring market manipulation, ensuring sufficient market liquidity for bona fide hedgers and to prevent disruptions to the price discovery function of the underlying market. These limits are intended as strict caps, with no one account or group of related accounts allowed to aggregate or maintain a position in excess of the stated limit. Outlined below is an overview of the various limit types, calculation considerations, enforcement and links for finding additional information.
I. POSITION LIMIT TYPES
Position limits generally fall into one of the following 4 categories:
1. All Months Limit - apply to the account holder's positions summed across all delivery months for a given contract (e.g. positions in CBOT Oat futures contract for the Mar, May, Jul, Sep and Dec delivery months combined).
2. Single Month Limit - apply to the account holder's positions in any given futures delivery month (e.g. positions in CBOT Oat futures contract for any of the Mar, May, Jul, Sep and Dec delivery months). Note that in certain instances, the limit may vary by delivery month.
3. Spot Month Limit - apply to the account holder's positions in the contract month currently in delivery. For example, the March contract month for a product having delivery months of March, June, September and December, while considered a nearby month at the start of the year, does not become a spot month contract for position limit purposes until the date it actually enters delivery. Most spot month limits become effective at the close of trading on the day prior to the First Notice Date (e.g., if the First Notice Date for a Dec contract is the last trading date of the prior month, then the spot month limit would apply as of the close of business on Nov 29th). In other instances, the limit goes into effect or tightens during the last 3-10 days of trading.
4. Expiration Month Limit - expiration month limits apply to the account holder's positions in the contract currently in its last month of trading. Most expiration month limits become effective at the open of trading on the first business day of the last trading month. If the contract ceases trading before delivery begins, then the expiration month may precede the delivery month. (e.g., if the last trade date for a Dec contract is Nov 30th, then the expiration month limit would apply as Nov 1st). In other instances, the limit goes into effect or tightens during the last 3-10 days of trading.
II. CALCULATION CONSIDERATIONS
- Position limits are determined by aggregating option and futures contracts. In the case of option contracts, the position is converted to an equivalent futures position based upon the delta calculations provided by the exchange.
- Positions in contracts with non-standard notional values (e.g. mini-sized contracts) are normalized prior to aggregation.
- Most limits are applied on a net position basis (long - short) although certain are applied on a gross position basis (long + short). For purposes of determining the net or gross position, long calls and short puts are considered equivalent to long futures positions (subject to the delta adjustment) and short calls and long puts equivalent to short futures positions.
- Limits are imposed on both an intra-day and end of day basis.
III. ENFORCING LIMITS
IB acts to prevent account holders from entering into transactions which would result in a position limit violation. This process includes monitoring account activity, sending a series of notifications intended to allow the account holder to self-manage exposure and placing trading restrictions upon accounts approaching a limit. Examples of notifications which are sent via email, TWS bulletin and Message Center are as follows:
1. Information Level - sent when the position exceeds 50% of the limit. Intended to inform as to the existence of the position limit and its level.
2. Warning Level - sent when the position exceeds 70% of the limit. Intended to provide advance warning that account will be subject to trading restrictions should exposure increase to 90%.
3. Restriction Level - sent when the position exceeds 90% of the limit. Provides notice that account is restricted to closing transactions until exposure has been reduced to 85%.
IV. ADDITIONAL INFORMATION
For additional information, including various exchange rules position limit thresholds by contract and limit type, please refer to the following website links:
CFE ( Rule 412) - http://cfe.cboe.com/publish/CFERuleBook/CFERuleBook.pdf
CME (Rule 559) - http://www.cmegroup.com/rulebook/CME/index.html
CME (CBOT Rule 559) - http://www.cmegroup.com/rulebook/CBOT/index.html
CME (NYMEX Rule 559) - http://www.cmegroup.com/rulebook/NYMEX/index.html
ELX Futures (Rule IV-11) - http://www.elxfutures.com/PDFs/Rulebooks/ELX-FUTURES-RULEBOOK.aspx
ICE US / NYBOT (Rules 6.26 to 6.28) - https://www.theice.com/publicdocs/rulebooks/futures_us/6_Regulatory.pdf
NYSE LIFFE (Rule 420) - http://www.nyseliffeus.com/rulebook
OneChicago (Rule 414) - http://www.onechicago.com/wp-content/uploads/rules/OneChicago_Current_Rulebook.pdf
SEC Large Trader Reporting Rule
Overview:
The SEC has enacted a "large trader" reporting rule requiring both foreign and domestic persons or entities employing such persons, including investment advisers, to register with the SEC via Form 13H and obtain a Large Trader Identification Number (LTID) if you are a "Large Trader" as defined by the rule. Once obtained, you are required to provide the LTID to IB and indicate to which account(s) it is applicable.
Background:
In light of the rapid development in trading technology and strategies, the SEC has been conducting an in-depth review of the changes to the structure of the U.S. markets. Because of these changes, the SEC is exercising its authority under Section 13(h) of the Securities Exchange Act of 1934 to establish the Large Trader Reporting Rule.
Who Is a "Large Trader"?
"Large Trader" is defined as a person or entity who, directly or indirectly, through the exercise of "Investment Discretion," effects transactions in exchange-listed equities and options that equal or exceed 2 million shares or $20 million during any calendar day, or 20 million shares or $200 million over the course of any calendar month.
Investment Discretion is defined broadly to include all types of discretion involving decisions to buy or sell exchange-listed equities or options. Large Trader status applies to the adviser or agent having trading discretion over an account - not to the account or to the beneficial owner of the account if they are not the party exercising investment discretion.
The Large Trader Rule applies to any type of agent having Investment Discretion over an account, including broker-dealers, and requires each Large Trader to register if the defined trigger levels are met. Large Traders include regulated and unregulated entities as well as domestic and foreign persons. Individuals trading for their own account or for an LLC or other entity holding their own assets are also subject to the registration requirements of the Rule. Also note that for the purpose of determining the value of shares traded, each option contract is assumed to be equal to 100 shares of its underlying security (or other share equivalent, if adjusted by OCC).
Dollar Calculation for Options
Dollars traded = option contracts traded * option multiplier (typically 100) * the market price of the options.
Ex., If ABC has a multiplier of 100, a person who purchased 200 ABC call options for $400 each would have effected an aggregate transaction of $8 million (i.e., 200 * 400 * 100 = $8,000,000).
Requirements
The Rule contains the following requirements:
Filing a Form: A trader who engages in a substantial level of trading activity is required to analyze whether they meet the definition of Large Trader and, if they qualify, identify them self to the SEC by filing a Form 13H with the Commission. The rule provides guidance on certain types of transactions that are excluded for purposes of calculating trading levels.
Getting an Identification Number: After a large trader submits a Form 13H to the SEC, they will be assigned a Large Trader Identification Number (LTID). A large trader will be required to disclose to its broker-dealers its LTID and indicate to which accounts the LTID applies. This disclosure requirement applies not only to broker-dealers that carry the accounts (including prime brokers and clearing brokers) but also to executing brokers, such as Interactive Brokers.
Recordkeeping, Reporting, and Monitoring: The rule requires broker-dealers to maintain and report data when requested by the SEC. In addition, the rule requires broker-dealers to monitor whether their customers meet the threshold levels that define a Large Trader (based on transactions handled at the broker-dealer) in order to encourage compliance with the requirement for customers to identify themselves as Large Traders to the SEC.
Timing and Types of 13H Filings
Form 13H provides for six types of filings:
- Initial Filing: A person must "promptly" file an initial Form 13H after its transactions reach the identifying activity level. The SEC states that under normal circumstances, "promptly" means 10 days.
- Annual Filing: After its initial filing, Large Traders must file an annual Form 13H within 45 days after the end of each full calendar year.
- Amended Filing: In the event any of the information in its Form 13H becomes inaccurate for any reason, Large Traders must file an amended 13H following the end of the calendar quarter.
- Inactive/Reactivated Filing: A Large Trader that ceases to meet the identifying activity level during the previous full calendar year may file an inactive status Form 13H, which permits such trader to cease both filing a Form 13H and disclosing its Large Trader status. In the event such trader's transactions once again meet the identifying activity level, it must submit a reactivated status Form 13H.
- Termination Filing: A Large Trader that ceases operations or, in some cases, is acquired, may file a termination Form 13H terminating its Large Trader status.
Voluntary Filing & Confidentiality
A Trader can file Form 13H on a voluntary basis instead of when trading thresholds are met in order to avoid the requirement to monitor their own trading levels and to aggregate trading activity across accounts they manage or entities under common control. As a result, a trader can ensure full compliance with the Rule through voluntary filing.
Large Trader Form 13H filings are not accessible to the public. All registration information provided to the SEC by large traders is confidential and is also exempt from disclosure under the Freedom of Information Act.
For complete details regarding the Large Trader Rule, please see the SEC release at:
www.sec.gov/rules/final/2011/34-64976.pdf.
For responses to frequently asked questions concerning large trader reporting, including how to access the form, please refer to:
http://www.sec.gov/divisions/marketreg/large-trader-faqs.htm
Details on how to file Form 13H electronically through EDGAR can be reviewed at:
http://www.sec.gov/info/edgar.shtml
Securities Account Protection for Interactive Brokers India Customers
Customer accounts domiciled under Interactive Brokers India Pvt. Limited,(IBI) are awarded different account protection services than our IB-LLC and IB-UK clients. There are two major exchanges, the National Stock Exchange of India (NSE) and the Bombay Stock Exchange (BSE), each one has established their own guidelines for investor grievances against exchange members and/or sub –brokers.
National Stock Exchange of India (NSE)
The NSE has established an Investor Protection Fund with the objective of compensating investors in the event of defaulters' assets not being sufficient to meet the admitted claims of investors, promoting investor education, awareness and research. The Investor Protection Fund is administered by way of registered Trust created for the purpose. The Investor Protection Fund Trust is managed by Trustees comprising of Public representative, investor association representative, Board Members and Senior officials of the Exchange.
The Investor Protection Fund Trust, based on the recommendations of the Defaulters' Committee, compensates the investors to the extent of funds found insufficient in Defaulters' account to meet the admitted value of claim, subject to a maximum limit of Rs. 11 lakhs (1.1 million USD) per investor per defaulter/expelled member.
Bombay Stock Exchange (BSE)
Currently trading is not offered on the BSE by Interactive Brokers.
Equity & Index Option Position Limits
Overview:
Equity option exchanges define position limits for designated equity options classes. These limits define position quantity limitations in terms of the equivalent number of underlying shares (described below) which cannot be exceeded at any time on either the bullish or bearish side of the market. Account positions in excess of defined position limits may be subject to trade restriction or liquidation at any time without prior notification.
Background:
Position limits are defined on regulatory websites and may change periodically. Some contracts also have near-term limit requirements (near-term position limits are applied to the side of the market for those contracts that are in the closest expiring month issued). Traders are responsible for monitoring their positions as well as the defined limit quantities to ensure compliance. The following information defines how position limits are calculated;
Option position limits are determined as follows:
- Bullish market direction -- long call & short put positions are aggregated and quantified in terms of equivalent shares of stock.
- Bearish market direction -- long put & short call positions are aggregated and quantified in terms of equivalent shares of stock.
The following examples, using the 25,000 option contract limit, illustrate the operation of position limits:
- Customer A, who is long 25,000 XYZ calls, may at the same time be short 25,000 XYZ calls, since long and short positions in the same class of options (i.e., in calls only or in puts only) are on opposite sides of the market and are not aggregated
- Customer B, who is long 25,000 XYZ calls, may at the same time be long 25,000 XYZ puts. Rule 4.11 does not require the aggregation of long call and long put (or short call and short put) positions, since they are on opposite sides of the market.
- Customer C, who is long 20,000 XYZ calls, may not at the same time be short more than 5,000 XYZ puts, since the 25,000 contract limit applies to the aggregate position of long calls and short puts in options covering the same underlying security. Similarly, if Customer C is also short 20,000 XYZ calls, he may not at the same time have a long position of more than 5,000 XYZ puts, since the 25,000 contract limit applies separately to the aggregation of short call and long put positions in options covering the same underlying security.
Notifications and restrictions:
IB will send notifications to customers regarding the option position limits at the following times:
- When a client exceeds 85% of the allowed limit IB will send a notification indicating this threshold has been exceeded
- When a client exceeds 95% of the allowed limit IB will place the account in closing only. This state will be maintained until the account falls below 85% of the allowed limit. New orders placed that would increase the position will be rejected.
Notes:
Position limits are set on the long and short side of the market separately (and not netted out).
Traders can use an underlying stock position as a "hedge" if they are over the limit on the long or short side (index options are reviewed on a case by case basis for purposes of determining which securities constitute a hedge).
Position information is aggregated across related accounts and accounts under common control.
Definition of related accounts:
IB considers related accounts to be any account in which an individual may be viewed as having influence over trading decisions. This includes, but is not limited to, aggregating an advisor sub-account with the advisor's account (and accounts under common control), joint accounts with individual accounts for the joint parties and organization accounts (where an individual is listed as an officer or trader) with other accounts for that individual.
Position limit exceptions:
Regulations permit clients to exceed a position limit if the positions under common control are hedged positions as specified by the relevant exchange. In general the hedges permitted by the US regulators that are recognized in the IB system include outright stock position hedges, conversions, reverse conversions and box spreads. Currently collar and reverse collar strategies are not supported hedges in the IB system. For more detail about the permissible hedge exemptions refer to the rules of the self regulatory organization for the relevant product.
OCC posts position limits defined by the option exchanges. They can be found here.
http://www.optionsclearing.com/webapps/position-limits
