Interactive Brokers Australia expands offering, launches margin lending-enabled accounts

The latest newsletter by online trading major Interactive Brokers features a rather interesting piece of information regarding the offering in Australia.

Syndey-based Interactive Brokers Australia Pty Ltd (IBKR Australia), which holds an Australian Financial Services License (No. 453554), has launched margin lending-enabled accounts for natural-person (i.e. individual) clients in Australia. This means all natural-person clients, including retail clients within the meaning of the Corporations Act (Cth) 2001, will be able to open a margin-enabled account with IBKR Australia, subject to IBKR Australia’s eligibility criteria.

In addition, IBKR Australia will also allow non-natural persons clients (i.e. corporate entities) that are retail clients to open margin-enabled accounts.

For all natural person clients (e.g. individuals), only cash or marketable securities may serve as collateral for the margin lending facility, and the collateral deposited must be unborrowed & otherwise free of any mortgage or lien or other encumbrance.

For all natural person clients, they may only withdraw funds from the margin facility for the limited purpose of repaying another margin lending facility which was used to acquire financial products.

However, if they are classified as retail they will be not permitted to withdraw from the margin facility if they are already borrowing funds via that facility, i.e. if they are already negative cash, or otherwise if the withdrawal would place their account into cash deficit.

All retail natural person clients must meet specific financial thresholds in order to be granted a margin account, specifically income must be greater than AUD $40,000 or Liquid net worth must be greater than AUD $100,000. In addition, IBKR Australia is obliged to collect and verify certain details regarding the client’s personal financial position before providing the client with a margin lending facility. However, if the client has a valid and recent Statement of Advice (“SOA”) from their registered financial advisor or financial planner which recommends that the client can be issued a margin lending facility, and that SOA is made available to IBKR Australia, this additional verification of the client’s personal financial position will not be required.

In addition retail natural person clients will not be granted a margin account if their occupation is either retired or unemployed or student.

For all retail clients (both natural person and non-natural person clients), margin loans will be capped at a specific amount (subject to change in IBKR Australia’s sole discretion). Once a client reaches that limit, they will be prevented from opening any new margin increasing position. Closing or margin-reducing trades will be allowed.

For the non-natural person clients that are not categorized as retail clients, IBKR Australia is permitted to utilize for financing purposes a portion of the loan value of the stock these customers hold with IBKR Australia. Put otherwise, IBKR Australia borrows money from a third party (such as a bank or broker-dealer), using the customer’s margin stock as collateral, and it lends those funds to the customer to finance the customer’s margin purchases.

The launch of margin lending-enabled accounts is interesting given Interactive Brokers’ disciplinary history in Australia. In August 2013, Interactive Brokers LLC (IB) stopped providing new margin loans to its Australian clients after ASIC raised concerns that IB’s licence authorisation did not allow it to provide margin lending facilities.

FinanceFeeds research shows that the AFS license of IBKR Australia authorises the broker to carry on a financial services business to provide general financial product advice for (inter alia) standard margin lending facility and deal in a financial product by issuing, applying for, acquiring, varying or disposing of a financial product in respect of standard margin lending facility.