Frequently Asked Questions - Conversion to IBUK as a Carrying Broker

 

General

 
Q: What is changing?

A: IB will be expanding the range of client activities cleared and carried by IB UK to include certain activities currently handled by IB LLC. Currently, IB UK clears all client activity through IB LLC with the exception of physical commodities (i.e., gold and silver) and those CFDs which are not exchange listed. To differentiate the IB UK activity cleared as IB UK from that which is introduced to IB LLC, an internal bookkeeping account known as IBUKL has been created to house IB UK activity. This IBUKL account will be used to clear and carry a broader range of product types including stocks, ETFs, options, futures, futures options and Forex.

 
Q: Why are we doing this? 

A: IB’s client base, historically a mixture of both U.S. and non-U.S. accounts, is becoming increasingly more international in number. While a substantial portion of the activities of this non-U.S. clientele is currently cleared, carried and custodied by the U.S. broker dealer, IB LLC (excluding CFDs, physical metals and all activity conducted through IB India and IB Japan accounts), there are significant benefits to transferring certain activities to IBUKL where the regulatory structure is more closely aligned with that of the client’s domicile.

These benefits include the consolidation of client’s non-U.S. commodities and securities positions into a single segment, the opportunity for more favorable margin treatment through position offsets and risk based methodologies, the ability to reduce borrowing costs/increase credit interest by consolidating cash balances currently maintained in separate segments and minimizing exposure to U.S. tax reporting.
 
 
Q: What is the difference between IB UK and IBUKL? 

A: Interactive Brokers (UK) Limited (“IB UK”) is a broker authorized by the Financial Conduct Authority (FCA) to operate within the UK. IBUKL, in contrast, is not a legal entity but rather an internal bookkeeping or labeling convention used to designate a subset of customer business which is transacted through IB UK. Currently, that activity consists solely of OTC products which IB UK clears and is the counterparty to, including non-exchange listed CFDs and physical commodities (i.e., gold and silver).

 

Q: What is the product introduction plan?

A: Initially, we will begin by adding non-U.S. stock index products (i.e., futures and options having the same cash underlying as their deliverable) to the existing IBUKL product offering. This includes indices such as FTSE, CAC, Hang Seng, Nikkei & DAX, among others. A new permission titled “International Equity Indexes” will be created for these products and it will be made available to new clients as well as qualifying existing clients.  Qualifying existing clients include non-US accounts having option permissions and a position or position activity over prior 12 months. These existing clients will be auto-subscribed to this permission.

Once the non-U.S. stock index products have been rolled out, we will expand eligible products in the following order: forex, additional futures and then non-U.S. stocks.

 

Q: Will clients assigned an IBUKL account also have an IB LLC account?
A: Possibly, and in most cases, likely. In the case of a client only trading the product set currently eligible for clearing and carrying in the IBUKL account, there will theoretically be no need for them to maintain a IB LLC account.  Clients who have other positions will retain or need to open an IBLLC account.

 

Q: Will the IBUKL account maintain multiple segments like the IB LLC account?

A: No. The multiple segments which exist in the IB LLC account reflect the bifurcated regulatory structure in the U.S. whereby oversight of securities products is administered by the Securities and Exchange Commission (SEC) and commodity products by the Commodities Futures Trading Commission (CFTC).  With the exception of the single stock future, which is jointly regulated, neither the CFTC nor SEC rules provide for clearing or margining a product which they regulate in an account where the other regulator holds jurisdiction. These includes the customer protection rules which, while similar in intent, differ in their application, and are designed to segregate assets in an amount necessary to satisfy solely those claims associated with either the securities segment or commodities segment, as applicable.

As the FCA, the primary regulator of IB UK, oversees both securities and commodities products, all IBUKL eligible positions will be housed within a single segment.


Q: What margin methodology will be used for positions maintained in the IBUKL account?
A:
Positions will not be subject to U.S. Reg. T margin requirements, but rather a risk-based (VAR) methodology. Initially, as new products are migrated to the IBUKL account, the native exchange/clearing methodology (typically SPAN) will be employed and the account requirement will be an aggregate of multiple methodologies. Moving forward, IB will use a common methodology for the entire account, with this methodology based upon IB's current proprietary portfolio margining model.

 
Q: What additional disclosures or agreements are required? Where may I view these?
 
A: A new customer agreement for IBUK clients holding products carried by IBUK is available on the IB website under Products & Services > Forms & Disclosures
 
 
Q: Can I sweep funds between the accounts?
 
A: As IBLLC and IBUK are separate legal entities, excess funds will not be eligible to be automatically moved between the two accounts with the exception of the need to meet a margin requirement. Under such circumstances, IB will automatically move the funds necessary to meet the margin requirement between the IBLLC and IBUK accounts. The Excess Funds Sweep selection available to customers through Account Management will continue to be available; however this will impact only IBLLC accounts.
 

 

Q: How will interest calculations be handled both during the conversion and after the conversion?
 
A: Customers holding cash balances with IBLLC will continue to have interest calculations made based on the settled cash balances held in the security and commodity accounts separately. Customers holding cash balances with IBUK will have 1 cash balance on which credit or debit interest will be calculated.
 
 

Customer Protection

 
Q: What type of protection is available to me in an IBUK account?
 
A: IBUK is a participant in the Financial Services Compensation scheme "FSCS".  Compensation levels are subject to change and for current details, refer to the FSCS website at www.fscs.org.uk/
 
 
Q: Where can I obtain additional information regarding customer protection?
 
A: You may refer to KB2012 for additional information regarding customer protection
 
 
Q: Does IBUK offer additional protection above the industry standard?
 
A: IBUK does not offer additional protection above the FSCS.
 
 
Q: Does Lloyds insurance also apply to IBUK accounts?
 
A: No, certain underwriters at Lloyds of London provide excess SIPC policy coverage; however this is not available for products held under the IBUK carry broker.

 
Q: Why should I change my account if the customer protection in case of default is less advantageous to me?
 
A: There are several benefits for holding assets under IBUK. These benefits include the consolidation of client’s non-U.S. commodities and securities positions into a single segment, the opportunity for more favorable margin treatment through position offsets and risk based methodologies, the ability to reduce borrowing costs/increase credit interest by consolidating cash balances currently maintained in separate segments and minimizing exposure to U.S. tax reporting.
 
 
Q: Can I elect to remain a customer of IBLLC in order to take advantage of SIPC protection?
 
A: At this time, IB intends to convert certain product sets to IBUK and as such all customers holding the intended product set will be migrated to IBUK. While it may be possible in the long term to maintain such products in an IBLLC account, this will not currently be possible.
 
 
Q: Can IBUK fail and IBLLC not?

A: While possible, we believe this scenario to be improbable.  As background, IB LLC and IB UK are both wholly-owned subsidiaries of the same parent, Interactive Brokers Group LLC. The separate entities exist largely for regulatory purposes and while we believe it highly unlikely for either to fail, it would be even more so for the parent company to allow only one to do so. Moreover, since approximately 85% of IB is owned by management and employees, there exists a pecuniary incentive by the owners to preserve their investment and protect both entities from failure.