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  #288 (permalink)

Mercer Island WA
Trading Experience: Advanced
Platform: Ninjatrader/Strategy Desk
Broker/Data: Various
Favorite Futures: TF/NQ/ES/Stocks
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Posts: 561 since May 2010
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Jfairtrade View Post

I suggest that you Also look at your own broker Interactive Broker: Finextra: CFTC fines Interactive Brokers $700k for reporting violations

Interactive Brokers could also be perceived as a high risk broker which is another reason existing NinjaTrader license holders should welcome the opportunity to spread risk to a new brokerage.

Traders using IB face similar risks as MF Global clients i.e. their broker has the ability to re-hypothecate (broker uses customer-pledged collateral) to back their own trades and borrowings. This is perfectly legal under US Federal Reserve Board Regulation T and SEC Rule 15c3-3, whereby a prime broker may re-hypothecate an amount up to 140% of the customer’s liability to the broker.

The problem was MF Global found a loophole in the UK where there is no mandated limit on re-hypothecation. So they re-hypothecated customer collateral many times over to place a heavily leveraged $6 billion sovereign debt bet which turned into a massive loser and put them under.

I'm not suggesting that IB is being reckless like MF Global but my understanding is the UK loophole still exists and who knows what "new and improved" synthetic off balance sheet instrument wall street will invent next to leverage returns at the same time staying ahead of the regulators.

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