Interactive Brokers reports no change in loss due to margin loans “incident”

Maria Nikolova

For the nine months ended September 30, 2019, the brokerage has recognized a net aggregate loss of approximately $42 million due to the “incident”.

Online trading major Interactive Brokers Group, Inc. (NASDAQ:IBKR) has earlier today published its 10-Q report for the third quarter of 2019, with the SEC filing revealing no change in the company’s estimates of the loss of a margin loans “incident” that occurred earlier this year.

As FinanceFeeds has reported, over an extended period in 2018, a small number of the the brokerage customers had taken relatively large positions in a security listed on a major US exchange. Interactive Brokers extended margin loans against the security at a conservatively high collateral requirement.

In December 2018, within a very short timeframe, this security lost a substantial amount of its value. During the quarter ended March 31, 2019, subsequent price declines in the stock have caused these accounts to fall into deficits.

For the nine months ended September 30, 2019, the company has recognized a net aggregate loss of approximately $42 million, due to this incident. The maximum aggregate loss, which would occur if the security’s price fell to zero and none of the debts were collected, would be approximately $51 million. This marks no change from the preceding estimates.

Interactive Brokers is currently evaluating pursuing the collection of the debts, although debt collection efforts are inherently difficult and uncertain. The ultimate effect of this incident on the company’s results will depend upon market conditions and the outcome of Interactive Brokers’s debt collection efforts.

Interactive Brokers extends margin loans to customers on a demand basis – these are not committed facilities. Factors considered in the acceptance or rejection of margin loans are the amount of the loan, the degree of leverage being employed in the customer account and an overall evaluation of the customer’s portfolio to ensure proper diversification or, in the case of concentrated positions, appropriate liquidity of the underlying collateral. Additionally, transactions relating to concentrated or restricted positions are limited or prohibited by raising the level of required margin collateral (to 100% in the extreme case).

Under margin lending agreements, the brokerage may request additional margin collateral from customers and may sell securities that have not been paid for or purchase securities sold but not delivered from customers, if necessary. As of September 30, 2019 and December 31, 2018, approximately $26.0 billion and $27.0 billion, respectively, of customer margin loans were outstanding.

Read this next

Inside View

Crypto Liquidity Providers: No Transaction, No Party!

One of the most integral parts of trading cryptocurrencies is ensuring seamless transactions; however, this is not always easy when you first start using cryptocurrency exchanges.

Digital Assets

Niftables launches white label NFT platform for content creators and brands

Niftables is the go-to platform for brands and creators looking to realize their NFT vision — whether they’re an individual or the biggest entertainment company in the world.

Retail FX

ACY Securities sponsors Table Tennis NSW as CFD broker bets in Australia’s youngest

ACY Securities has partnered with Table Tennis New South Wales (TTNSW) for a two-year sponsorship agreement intended to highlight the Chatswood-based multi-asset CFD broker’s brand in Australia, with a focus on the southeastern state.

Executive Moves

Peter Hetherington appointed CEO of Capital.com, Currency.com, and Shares.com

With his extensive experience driving strategy and growth for leading wealth and brokerage firms in highly regulated markets, Peter is the ideal CEO to lead the Group on its next chapter of growth and success.”

Digital Assets

Crypto platform Elwood raises $70m from Goldman Sachs, Dawn, Barclays, BlockFi, Flow, Galaxy, more

Elwood Technologies has closed a $70 million Series A funding round co-led by Europe’s largest B2B investor Dawn Capital and global investment bank, Goldman Sachs.

Industry News

Wilshire to launch Climate Change 1.5℃ Target Index with Nikkei and Hang Seng

Wilshire has announced a collective launch with Nikkei and Hang Seng to bring to market the first in a series of indexes empowering investors to transition their investments towards a low-carbon and climate resilient economy.

Industry News

Anne Boden’s Starling Bank bets big on UEFA Women’s EURO 2022 tournament

Starling Bank has launched a campaign ahead of the UEFA Women’s EURO 2022 tournament as part of its national sponsorship, the biggest ever for the bank.

Industry News

Older adults flock to financial apps as Revolut reports 215% more UK users aged 55-74 since pandemic

Data has also shown that older adults are back to travelling as the 55-64 UK age group has seen a tenfold increase in the amount spent in foreign countries over the past two years, and the 64-75 age group isn’t far behind with an 840% increase.

Industry News

Ripple replies to SEC’s last attempt and “shoves it down their throats pretty hard”

“The SEC really messed that up. How can Hinman receive legal advice from SEC lawyers for a personal opinion?”, attorney Hogan commented.

<