Looks like IB had clients speculating highly leveraged oil futures who didn’t really understand them. When the contracts hit 0 IB tried to close all their positions selling into a market with no bids (they held 15% of OI in the contracts in question) which seems to be part of why the front contract closed negative. I read one guy in CH who managed to turn a 3k long position into a -184k loss. Ouch. Welcome to the world of leverage.
Play stupid games, win stupid prizes.
I’m just worried that people speculating in highly leveraged products they don’t understand leaves the brokerages (in particular IB who facilitates it) highly exposed. IB has now had to settle with the exchanges on behalf of the clients. IB will now essentially be on the hook for a lot of these losses if they cannot recover them from the speculators who incurred them.
Deeply concerning for me as I have a lot of investments held with IB! I know they should be segregated in client accounts, but when it all hits the fan… will they really remain segregated?
Interactive Brokers Issues Statement on Crude Oil Contracts and Margin Loss
GREENWICH, CT, April 21, 2020 – Interactive Brokers Group, Inc. (Nasdaq: IBKR) today noted that, as has been widely reported, the energy markets yesterday exhibited extraordinary price activity in the New York Mercantile Exchange (NYMEX) West Texas Intermediate Crude Oil contract. The price of the May 2020 contract dropped to an unprecedented negative price of $37.63. This price was the basis for determining the settlement price for cash-settled contracts traded on the CME Globex and also on a separate, expiring cash-settled futures contract listed on the Intercontinental Exchange Europe (“ICE Europe”).
Several Interactive Brokers LLC (“IBLLC”) customers held long positions in these CME and ICE Europe contracts, and as a result they incurred losses in excess of the equity in their accounts. IBLLC has fulfilled the firm’s required variation margin settlements with the respective clearinghouses on behalf of its customers. As a result, the Company has recognized an aggregate provisionary loss of approximately $88 million.
The Company does not believe that any anticipated losses will have a material effect on its financial condition.
About Interactive Brokers Group, Inc.:
Interactive Brokers Group affiliates provide automated trade execution and custody of securities, commodities and foreign exchange around the clock on over 135 markets in numerous countries and currencies, from a single IBKR Integrated Investment Account to clients worldwide. We service individual investors, hedge funds, proprietary trading groups, financial advisors and introducing brokers. Our four decades of focus on technology and automation has enabled us to equip our clients with a uniquely sophisticated platform to manage their investment portfolios. We strive to provide our clients with advantageous execution prices and trading, risk and portfolio management tools, research facilities and investment products, all at low or no cost, positioning them to achieve superior returns on investments. Barron’s ranked Interactive Brokers #1 with 5 out of 5 stars in its February 24, 2020, Best Online Broker Review.
For Interactive Brokers Group, Inc. Investors: Nancy Stuebe, 203-618-4070 or Media: Kalen Holliday, 203-913-1369.