An interview with Interactive Brokers' CEO Thomas Peterffy.
Courtesy of Forex Magnates.
4. Why did IB choose not to forgive those? What is the company's policy on this subject?We have never been in the practice of forgiving negative balances; it is not what our contract states. Most of our customers' losses on the Swiss Franc came from regulated futures contracts. The CME is a regulated exchange and the contract is straightforward. The problem is that the commodity exchanges wear two hats. As for-profit institutions they want more trading volume, and in order to get that they stipulate margin requirements that are often lower than they should be. On the other hand, as self-regulated entities, they are responsible for the safety of the system. In the end greed wins over safety.
In our case, as brokers, we must pay more than 50% of our commission on the average futures trade to the exchange as a per contract fee and still end up with 100% of uncollectable customer losses. Futures brokerage is not a riskless business.
The interview covers much more than the negative balances question and is well worth a read on full. Some insights from one of the smartest minds in this business.
