Interactive Brokers1 will begin to incorporate the following changes to their margin methodology2 calculations for HKFE and SEHK products3, effective Friday, September 18, 2020.
Methodology Update
- Risk Scenarios: The Risk Scenarios will be computed based upon Interactive Brokers’ intraday mark price of the underlying stock, instead of previous end-of-day data.
- Price Scans: Scanning ranges, which apply to stock or derivative products, will reflect the margin requirement percentage of the underlying stock. For example, if the underlying stock has a margin requirement of 40%, then the price scanning will also reflect 40%.
- Volatility Scanning Range: Interactive Brokers will introduce implied volatility scans (at all price levels) in which the volatility is increased/decreased by 15%, 75% for broad-based indexes, and 150% for all remaining classes. Additionally, Interactive Brokers will recognize a given stock-specific implied volatility surface to predict the rate of change for implied volatility under each price scenario. For example, a stock with a daily volatility of 5% is unlikely to see much increase in the implied volatility of its options if the stock drops 10% because it is within its normal range of moves. However, a 10% drop for a stock with a daily volatility of 0.5% will probably experience a ten-fold increase in implied volatility as the volatility increases to 5%. Additionally, Interactive Brokers will apply a stock-specific implied volatility surface to predict the rate of change for implied volatility under each price scenario.
How will these changes impact my portfolio?
The increase will be phased in over a series of daily increments beginning, after the New York close on September 17, 2020 and continuing through trade date September 24, 2020.
To evaluate the full impact of this change on your portfolio so that your account may remain margin compliant, please see this related article and, from the margin mode setting in Risk Navigator, select “Margin 20200924.”
Based on these new changes, accounts that are unable to carry the positions under these new margin requirements are subject to automated liquidations in order to bring the account into margin compliance.
1Euro Pacific Trader is offered by Euro Pacific Securities Inc. (“Euro Pacific Securities”), as an Introducing Broker to Interactive Brokers LLC. Interactive Brokers LLC is the custodian, technology provider, and clearing broker to all transactions executed through Euro Pacific Trader and thus the rates, conditions, and examples shown on this site may be subject to change and differ from what is displayed on Euro Pacific Trader. The rates, conditions, and examples on this site are provided on a best-efforts basis and should not be taken as final.
Euro Pacific Securities will not be held responsible for pricing and conditional discrepancies that may arise in the normal course of offering Euro Pacific Trader. Customers should always review and rely on the conditions that are shown directly on Euro Pacific Trader, and it is the responsibility of all customers to carefully review the conditions of every action before approving execution on Euro Pacific Trader.
Interactive Brokers LLC is a registered Broker-Dealer, Futures Commission Merchant and Forex Dealer Member, regulated by the U.S. Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA), and is a member of the Financial Industry Regulatory Authority (FINRA) and several other self-regulatory organizations. Interactive Brokers LLC does not endorse or recommend any introducing brokers, third-party financial advisors or hedge funds, including Euro Pacific Securities. Interactive Brokers LLC provides execution and clearing services to customers. None of the information contained herein constitutes a recommendation, offer, or solicitation of an offer by Interactive Brokers LLC to buy, sell or hold any security, financial product or instrument or to engage in any specific investment strategy. Interactive Brokers LLC makes no representation, and assumes no liability to the accuracy or completeness of the information provided on this website.
For more information regarding Interactive Brokers, please visit www.interactivebrokers.com.
2 Risk-based margin methodology calculates margin requirements by analyzing the potential worst-case loss a portfolio can suffer over a given period (typically one day). The methodology uses a series of hypothetical market scenarios that reflect changes to underlying price moves and, in the case of options, time decay and changes to implied volatility. However, the market scenarios are static and based upon the previous end-of-day data (Source: Interactive Brokers).
3 HKFE: Hong Kong Futures Exchange; SEHK: Hong Kong Stock Exchange.