Interactive Brokers Custody Account Overview. March 3, 2011 Domka, Lukasczik and Sussman

Transcription

1 Interactive Brokers Custody Account Overview March 3, 2011 Domka, Lukasczik and Sussman

2 Why would an IB Custody Account be used instead of the other IB account types? This account type would be used by a Mutual fund or Pension/Profit sharing program that is not allowed to deposit margin collateral directly with a broker dealer due to industry regulations.

3 Who is the Custodial account for? A Regulated Investment Company under the 1940 Act; a pension or profit sharing plan governed by ERISA; a trust whose terms specify that the assets must be held at a bank; or a customer who is prohibited by federal, state or foreign law, or some other regulation, from depositing margin collateral directly with a broker-dealer.

4 How is a new account set up? The Collateral Account holds the assets, which are deposited at an IB account at a Custody Bank for the benefit of the customer (i.e. the fund). We ll call this bank account the Custodial Bank Account for the rest of this discussion. The standard IB cleared account opening process is completed along with the current version of the IB Custodial Account Agreement. A copy is available on the sales web site or by contacting salessupport@interactivebrokers.com. Please, note that mutual funds applications are completed and signed off by the funds administrators so it is best to deliver a complete set of documents for the administrator to complete. Once the fund signs off on the custodial agreement the custodial bank will need to sign off and return it to IB for a final signature and then complete originals will be returned to the signing parties. Then IB will open the Custodial Bank Account for the benefit of the customer. The customer, IB and the Custodial Bank will enter into a tri-party agreement, which allows IB to gain access to the account at the Custodial Bank. Continued

5 How is a new account set up? II Remember, that IB needs to have a separate Custodial Account for every beneficiary (typically a fund). If IB is already dealing with the Custodial Bank, the account opening process will only take a few days. However, if IB had not been dealing with the Custodial Bank of your candidate, IB has to work out the technical means of receiving daily account updates from the Custody Bank. This can take weeks, depending on the technology or operational process utilized. You can help this process along by providing IB s back office with the technical / operational contact at the Custody Bank. Once the client s account is opened and approved at IB, and IB has set up the relationship with the Custody Bank, the client will deposit collateral into the Custodial Bank Account acceptable to IB.(cash is not acceptable) Once the collateral is deposited, IB will confirm and load the list of assets to the customer Custody Account at IB. This will then allow the client to trade in the trading account up to the same amount as if the collateral was deposited directly with IB.

6 Operational overview of Custody Account structure at IB? IB implements Custody Accounts by bundling one or more tradingaccounts with a Collateral Account in an Aggregate Margin Family. Both the trading account and the Collateral Account are cleared IB accounts. We recommend that the accounts be opened with the margin type of Portfolio Margin. When the customer logs in to the IB Trader Workstation or Account Management, he will typically see three accounts, like this: U123 The master account U234 The Collateral Account, which represents assets deposited at the Custodial Bank Account. U235 The trading account (When we talk about an IB Custody Account, we mean the bundle of the above accounts.)

7 Customer Service/Operation Day to day client servicing will be performed by the PrimeServe team.

8 How is the IB Collateral account updated? IB will inspect the asset list in the Custodial Bank account and update its records by reflecting the same assets in the IB Collateral account. For some of the banks this will be a manual procedure by IB s back office, but for most of the banks this procedure will be automated via a daily transmission from the Custodial Bank.

9 How is the margin computed for the purposes of authorizing orders? Margin is computed for the net sum of assets in the trading and custody accounts, then it is compared to the net sum of assets in the trading and collateral accounts. For the purpose of credit vetting a new order, IB handles the Aggregate Margin Family as one account.

10 How does liquidation work? IB will not liquidate automatically. Once a margin deficit exists, IB will not allow further margin increasing orders. IB will send daily margin calls as well as make an attempt to contact the customer in order to remedy the situation. If such attempts fail, IB will commence liquidation of positions at IB s discretion. The schedule of liquidation will depend on the amount of deficit and the remaining equity in the IB Custody Account.

11 How is interest charged? There will be no interest charge (or credit) in the IB Custody Account. The trading accounts will get an interest charge or credit based on their daily cash balance, like any other cleared account. In addition, the trading account will get an interest charge for the amount of margin it needs in order to hold its overnight positions. The interest schedule for the margin interest charge is identical to IB s debit interest schedule. Interest is accrued daily and posted to the cash balance at the end of the month.

12 How is trade commission charged? Trade commission is charged to the cash balance at trade time, same as for any other cleared account. The customer has the option to deposit funds to cover the charge or carry the debt balance with IB in the trading account.

13 How do daily / monthly statements work? Daily and monthly statements work identically to cleared accounts. IB presents a daily balance sheet with all balances and transactions. Customers have the option to view their statements on line, get an html or use the flex tool to customize the downloads.

14 Sales Notes Qualify the funds! The Custodial account type should only be used, if the Fund is not permitted to hold collateral with IB. The custodial administrators are the gate keepers to many funds so keep them happy when building the relationship. Also positive referrals from the fund traders are another source. 40X funds are your best sales targets (these are funds that use leverage) and there are new ones popping up each day. These are normally larger traders and be sure in your start up training to introduce them to the IB Block desk.