Interactive Brokers Group, which considered buying part or all of Jon Corzine's MF Global Holdings as it began to collapse in October, said it has begun segregating customer funds from house funds “on a daily basis.”
Corzine famously told Congress "I simply do not know where the money is,’’ when asked about $1.2 billion of customer funds that went missing.
Interactive Brokers chairman and CEO Thomas Peterffy, who oversaw the purchase of 8 million shares in futures broker MF Global as its stock plunged, told analysts on an earnings call Thursday “I am pleased to report that we have received permission and today we are either the only broker or one of the first brokers who segregates customer funds on a daily basis.”
This, he said, “should give our customers additional comfort and allows us to demonstrate to the industry that the firms who are well-automated do not need the extra time over the weekend to figure out their segregation requirements.”
His comment came in a quarter of great “drama,’’ as he put it, for Interactive Brokers. Figures from Interactive Brokers’ quarterly results were “misrepresented” by a major news agency and contributed to withdrawals of customer funds.
“As a result in the November-December period for the first time in our history, we experienced net withdrawal of customer funds to the tune of some $300 million,’’ he told analysts.
He said MF Global was in great need of an integrated brokerage platform. But, in the end, Interactive Brokers lost $39 million for the year including $29 million in the fourth quarter on its purchases of MF Global stock.
We had a fairly hard time convincing some of our customers that other than cash and [foreign exchange] balances, we do not have positions in non-exchange traded assets. And other than that, with central clearinghouses, we do not carry open positions and therefore have no counterparty credit risk. Our proprietary Market Making business is conducted as a separate entity from our brokerage business. We do not commingle customer assets with proprietary operations and our brokerage company does not engage in proprietary trading.
He said customer equity is segregated in special bank or custody accounts.
Regulations require U.S. security brokers to perform a detailed reconciliation of customer funds and securities every Friday to make sure that sufficient funds are set aside for customers.
Interactive Brokers, he said, has now “ taken this further” and begun to calculate and segregate funds on a daily basis.
He said the company also protects customer funds by calculating collateral requirements on a real-time basis.
“We watch our money like a hawk and since we would have to lose our own money before our customers would lose theirs,’’ he said.
Tom Steinert-Threlkeld writes for Securities Technology Monitor.