Cash Sweeps
Background
Underlying the IB Universal account are two separate sub-accounts or segments, one for the securities positions and balances which are subject to the customer protection rules of the SEC and another for the commodities positions and balances which are subject to the customer protection rules of the CFTC. This Universal account structure is designed to minimize the administrative overhead that customers would otherwise be exposed to were they to maintain two distinct accounts (e.g., transferring of cash between accounts, login and order submission through separate accounts, multiple statements, etc.) while preserving the separation required by regulation.
These regulations further require that all securities transactions be effected and margined in the securities segment of the Universal account and commodities transactions in the commodities segment.1 While the regulations allow for the custody of fully-paid securities positions in the commodities segment as margin collateral, IB does not do so, thereby limiting their hypothecation to the more restrictive rules of the SEC. Given the regulations and policies which direct the decision to hold positions in one segment vs. the other, cash remains the only asset eligible to be transferred between the two and for which customer discretion is provided.
Outlined below is a discussion as to the cash sweep options offered, the process for selecting an option as well as selection considerations.
Cash Sweep Options
Customers are provided with 3 sweep options, descriptions for which are provided below:
1. Do not sweep excess funds – under this election, excess cash does not move from one segment to another unless necessary to:
a. Eliminate/reduce a margin deficiency in the other segment;
b. Minimize a cash debit balance and therefore interest charges in a given segment. Note that this is the default option and sole option for account holders having only one of securities or commodities trading permissions.
2. Sweep excess funds into my IB securities account – here, cash balances are only held in the commodities segment to the extent necessary to satisfy the current commodities margin requirement. Any cash in excess of the margin requirement, generated as a result of either an increase in cash (e.g., favorable variation and/or transaction related) or decrease in the margin requirement (e.g., changes in the SPAN risk arrays and/or transaction related) will be automatically transferred from the commodities segment to the securities segment. Note that the account holder must have permissions to trade securities in order to select this option.
3. Sweep excess funds into my IB commodities account – here, cash balances are only held in the securities segment to the extent that they, along with any other securities positions having loan value, are needed to satisfy the current securities margin requirement. Note that the account holder must have permissions to trade commodities in order to select this option.
Other items of note:
- As the Universal account allows for cash balances to be held in a variety of denominations, a hierarchy exists for the purpose of determining which particular currency to transfer first when long balances in multiple currencies exist. In these situations the procedure is to first transfer balances denominated in the Base Currency, then USD and then the remaining long currency balances in order of highest to lowest.
- To minimize the likelihood of one segment incurring a margin deficiency following the sweep of excess cash to the other, the full excess will not be transferred and a buffer equal to 5% of the maintenance margin requirement will be retained. Similarly, to minimize the operational overhead of transferring nominal balances, balances will only be transferred if, after giving effect to the 5% margin cushion, the excess, if any, is not less than 1% of account equity or $200.
- When performing the pre-trade credit check to determine whether an account maintains sufficient equity to support a new order, excess cash maintained in one segment will be considered for trades conducted in the other (although a sweep will not occur until the trade has executed and only if it then remains necessary for margin compliance). Accounts which are designated as a Pattern Day Trader and which are subject pre-trade credit check that takes into account the prior as well as current day's equity should pay particular attention to the Selection Considerations section below.
Selecting a Sweep Option
If your Account Management version contains a series of menu options on the left-hand side, select the Account Administration and then Excess Funds Sweep menu options. If your version has menu options across the top, select the Manage Account/Settings and then the Configure Account/Excess Funds Sweep menu options. Regardless of your version, you will be presented with a screen which appears as follows:
You may then select the radio button alongside the option of your choice and select the Continue button. Your choice will take effect as of the next business day and will remain in effect until a different option has been selected. Note that subject to the trading permission settings noted above, there is no restriction upon when or how often you may change your sweep method.
Selection Considerations
While the decision to elect one segment vs. the other for the purposes of maintaining excess cash may involve subjective decisions and preferences unique to each customer (e.g. customer maintains assets which are significant and concentrated in one segment vs. the other), outlined below are several factors warranting consideration:
1. Pattern Day Trading Equity - The securities buying power of accounts designated by regulation as Pattern Day Traders (i.e., 4 or more day trades within a 5 business day period) is limited by the lesser of the current or prior day’s closing equity in the securities segment. As such, an election to sweep excess funds to the commodities segment will prevent the inclusion of such funds in this calculation, thereby potentially limiting the capacity to enter new orders. To maximize the use of equity for purposes of entering securities orders, one would need to elect to sweep excess fund to the securities segment. Note that an election to the securities segment will not impair the ability to enter commodities orders as the pattern day trading rules do not apply to such accounts.
2. Insurance – SIPC protection is afforded to assets in the securities segment and there is no commensurate insurance scheme in place for the commodities segment. That being said, balances in excess of the SIPC $250,000 cash sub-limit ($900,000 Lloyd’s cash sub-limit, where applicable) are not afforded coverage. Customers of IB Canada and IB UK are also subject coverage rules as specified by CIPF and the FSCS, respectively.
3. Interest Income – all other things being equal, customers are likely to receive the most optimal interest income on long cash balances that have not been partitioned between the securities and commodities segments as they are not aggregated for interest credit purposes (since they are subject to distinct segregation pools and reinvestment rules). This, along with the fact that credits require maintenance of a minimum cash balance and that higher balances are afforded preferential rates are factors to be considered when making a sweep election.2
Other Relevant Knowledge Base Articles:
A Comparison of U.S. Segregation Models
A Comparison of U.S. Segregation Models
Footnotes:
1As OneChicago single stock futures are a hybrid product jointly regulated by the SEC and CFTC, they can be purchased and sold in either account type. IB, however, conducts such transactions in the securities segment of the Universal account as this is necessary to provide margin relief between the single stock future and any qualifying stock or option position.
2Consider, for example, an account which maintains a long USD balance of $9,000 in each of the securities and commodities segments. Depending upon the benchmark Fed Funds Effective rate, the account would be eligible to earn interest on $8,000 ($18,000 - $10,000) if the two balances were held in a single segment, but since balances below $10,000 in either of the two segments are not eligible for interest, could not earn anything without electing a sweep option. Similarly, one would be eligible to earn interest at a higher tier if as a result of a sweep election the account holder was then able to achieve a long USD cash balance above $100,000 in a given segment. For additional information regarding interest calculations including a link to current benchmark interest rates, refer to KB39.
Depositing Canadian Dollars via Bill Payment
First you will want to set up IBKR as a payee through your bank. To do this, you will need your account number at IBKR and indicate the name of our institution, “Interactive Brokers Inc.”. Depending upon your particular financial institution and whether IBKR is recognized as one of their program participants, your institution will likely indicate an expected delivery date of 1-2 business days for transfers. Once funds are sent via bill payment, please ensure that a bill payment notification is also submitted through Client Portal. For more details on how to submit a deposit notification, please see our Users' Guide.
Please note, Canadian bill payment is only offered for clients of IB Canada.
Find more information on Canadian Bill Payment on the IBKR website.
Cost Basis Reporting
1099 Reporting
Statement and Year End Reporting for US persons and entities comprises the following:
1. Cost Basis: While the required reporting schedule was staggered, the primary cost basis that will be reported to the IRS includes equities bought and sold after December 31, 2010. This includes the adjusted cost basis resulting from wash sales and corporate actions.
The future phase-in period for broker reporting includes the assets sold on or after the following dates:
--- Mutual Funds and ETFS - 1/1/2012
--- Simple debt instruments (i.e. treasuries, fixed-rate bonds & municipal bonds) and options, - 1/1/2014
--- Other debt instruments - 1/1/2016
2. Tax Basis Method: Brokers are required to use the method first in, first out (FIFO), unless given other instructions by an investor. Changes to your tax basis method may be submitted through the Tax Optimizer. The Tax Optimizer is launched from within Account Management and is available for stock, option, bond, warrant and single-stock future trades.
IB offers multiple tax basis methods, including three basic options:
● First In, First Out (FIFO) - This is the default option. FIFO assumes that the oldest security in inventory is matched to the most recently sold security.
● Last In, First Out (LIFO) - LIFO assumes that the newest security acquired is sold first.
● Specific Lot - Lets you see all of your tax lots and closing trades, then manually match lots to trades. Specific Lot is not available as the Account Default Match Method.
Tax Optimizer also lets you select the following additional derivatives of the specific identification method.
● Highest Cost (HC), Maximize Long-Term Gain (MLTG), Maximize Long-Term Loss (MLTG), Maximize Short-Term Gain (MSTG), and Maximize Short-Term Loss(MSTL).
For complete instructions on using the Tax Optimizer and details on the lot-matching algorithms for each method, see the Tax Optimizer Users Guide.
Note: Changing your tax basis is effective immediately. The basis selected will be applied to all subsequent trades on the account statements and tax reports. Updates will not affect previously closed trades nor the TWS profit and loss data displayed.
3. Gain & Loss Categories: An additional requirement to the cost basis reporting is the capital gain or loss category. The gain or loss category of equities is determined by the length of time in which the security was held, known as the "holding period."
● Short-Term - Holding periods of one year or less are categorized as "short-term."
● Long-Term - Holding periods over one year are categorized as "long-term."
Year End Reports
The following statements and reports display cost basis information that will be reported on Form 1099-B for eligible accounts.
- Monthly Account Statements
- Annual Account Statements
- Worksheet for Form 8949
For a complete review of the tax information and year end reporting available, click here.
Note: Unlike the Account Statements, the Gain & Loss Worksheet for Form 8949 may consolidate sell trades. The cost basis will be adjusted, as required for 1099-B reporting.
Asset Transfers
U.S. legislation from 2008 included new guidelines for tax reporting by U.S. financial institutions. Effective January 2011, U.S. Brokers are required to report cost basis on sold assets, whether or not a gain/loss is short-term (held one year or less) or long-term (held more than one year). U.S. brokerage firms, Interactive Brokers LLC (IB) included, implemented changes to comply with the legislation.
For more information on cost basis with asset transfers, see Cost Basis & Asset Transfers.
Disclaimer: IB does not provide tax advice. These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any international, federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor. We recommend that you consult a qualified tax adviser or refer to the U.S. Internal Revenue Service.
ACATS Transfer Guide (US brokerage account transfers)
ACATS Transfer Guide
Introduction
Understanding the basic facts about transferring accounts between US brokerage firms can be help to avoid delays. Through this article and other Knowledge Database resources, Interactive Brokers seeks to assist with your incoming and outgoing ACATS requests.
US brokerage firms utilize a standardized system to transfer customer accounts from one firm to another. Known as the Automated Customer Account Transfer Service or ACATS, the process allows assets to move seamlessly between brokerage firms in a unified time frame. ACATS transfers are facilitated by a third party, the National Securities Clearing Corporation (NSCC), to assist participating members with timely asset transfers.
ACATS Transfer Benefits
The majority of assets may be transferred between US brokerage firms and some banks through ACATS. This standardized system includes stocks, US corporate bonds, listed options, unit investment trusts, mutual funds, and cash. Information on assets eligible for transfer is provided at "Assets Eligible..." Though impacted by multiple factors and time constraints, the accepted or rejected transfers finalize within 10 business days in most cases.
Navigating The Process
4 simple steps of the ACATS process will help you understand the flow and minimize delays. Familiarizing yourself with the transfer process helps to ensure a successful transition.
1. Incoming or Outgoing
Incoming ACATS Transfers
The financial institution that is receiving your assets and account transfer is known as the "receiving firm." Investors always work with and through the "receiving firm" to move full or partial account assets into a new broker.
Contact the "receiving firm" (Interactive Brokers) to review the firm's trading policies and requirements. You should verify that your assets are eligible for trading at the "receiving firm" before initiating the transfer request. Not all ACATS transferable assets are acceptable for trading at every brokerage firm.
Outgoing ACATS Transfers
All outgoing ACATS transfers, full or partial, must be approved by the "delivering firm." Investors, however, should work with and through the "receiving firm" in order to begin the the transfer process or to status the progress of the request.
2. Initiating Your Transfer
Investors must always begin the ACATS transfer with the "receiving firm." An ACATS transfer form or Transfer Initiation Form (TIF) must be submitted. The "receiving firm" takes your reqeust and communicates with the "delivering firm" via ACATS. The process begins with this request for transfer of the account.
For your Interactive Brokers Account, the transfer is usually submitted online. Video instruction on submitting the transfer is provided at "How to deposit funds via a full ACATS/ATON Transfer." or through Step-by-step instructions.
Note: Outgoing account transfers from your IB account should be directed to the other broker. Your request will be submitted to IB from the other broker through the ACATS electronically.
3. What to Expect
Your Account
Brokers ensure the safety and security of transfer requests by only authorizing requests between open accounts that meet the following criteria:
- Same Account Title
- Same Tax ID Number
- Same Account Type
Transfer Approval
Ultimately responsible for validating the transfer, the "delivering firm" may accept information from the "receiving firm" correcting data originally entered. Approved or validated requests result in the delivery of positions to the "receiving firm" for their acceptance. Assets may not be accepted by the "receiving firm" for the following:
- Non-marginable or Margin (credit) violation
- Not Tradable
- DTC Chill
Note: The most common reasons for ACATS rejections are outlined by clicking here.
Processing Time-frame
The processing time for each transfer request is fixed. In general, approved transfers complete within 4 to 8 business days. Almost all transfers complete within 10 business days. Each firm is required to perform certain steps at specific intervals in the process. Feel free to review the Full ACATS transfer process flow.
Fees
While Interactive Brokers does not charge a fee to transfer your account via ACATS, some brokers do apply a fee for full and partial transfers. Prior to initiating your transfer, you should contact the "delivering firm" to verify any charge.
4. Who To Contact For Help
Interactive Brokers Customer Service stands poised to assist with your incoming ACATS transfer reqeust. Click here for Customer Service contact resources.
Note: Outgoing or ACATS transfers sending accounts to another broker should be directed to the "receiving firm." Their Account Transfer Group will work with Interactive Brokers directly to complete your outgoing request.
Am I required to fund my account prior to application approval?
While applicants are required to provide IBKR with notification as to the amount they intend to fund their account with and the manner in which they fund the account in order to have the application considered for approval, there is no requirement that the funding actually take place prior to approval.
Applicants may nevertheless elect to remit funds via wire, check or electronic funds transfer (e.g., ACH, EFT) prior to receiving confirmation of account approval in an effort to accelerate commencement of any credit hold period. It should be noted, however, that deposits received prior to account approval are held in suspense and are not credited to the account nor eligible to accrue interest until the application has been approved. In the case where the applicant has authorized IBKR to fund the account via asset transfer (e.g., ACATS, ATON) from another broker, IBKR will not initiate the transfer until the application has been approved.
How to Deposit Funds Via a Full ACATS/ATON Transfer
How to deposit funds to your Interactive Brokers account via a full ACATS/ATON Transfer
For information on how to initiate a partial ACATS/ATON transfer/ please click here
For Interactive Brokers tradeable products please visit the Contract Search Engine
For a detailed description of the Full ACATS/ATON process flow please click here
For a list of the most common causes for ACATS/ATON rejects, please click here
How to Deposit Funds Via a Check
How to deposit funds to your Interactive Brokers account via a Check
How to Deposit Funds Via an ACH Initiated by Interactive Brokers
How to transfer funds from your bank account to your Interactive Brokers account via an ACH deposit initiated by IB
Enter KB567 into the search engine for additional information regarding ACH deposits
How to Transfer Funds Via an ACH Initiated by Your Bank
How to transfer funds between your bank account and your Interactive Brokers account via an ACH initiated at your bank.
Enter KB567 into the search engine for additional information regarding ACH deposits.
How to Deposit Funds Via a Wire Transfer
How to deposit funds via a wire transfer
Enter KB834 in the Knowledge Base search engine for additional information on how to deposit funds via a bank wire transfer
