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Calculations

Interest Rates

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Calculations

Interactive Brokers (IBKR) follows the steps listed in the Calculations section below to calculate the daily interest payable or receivable on cash balances. Interactive Brokers will combine, where possible, the balances held across multiple account segments of the integrated account. However, balances across multiple Interactive Brokers accounts will not be consolidated. In the event you hold an account with Interactive Brokers Canada or Interactive Brokers Securities Japan, the calculation will be EndingSettledCash – ShortStockCollateralValue only, as there is only one account segment.



Step 1

At the end of every day, IBKR will obtain the following balances in each currency:

  • Ending Settled Cash balance in the securities account segment
  • Ending Settled Cash balance in the commodities account segment
  • Collateral balance for settled short stock positions
  • Ending Settled Cash balance in the IBUKL segment
  • Commodity risk margin requirement
  • AdjustmentForSecuritiesDeficit

The cash balances are reported on the Daily Statement under Ending Settled Cash. The commodity risk margin requirement is the Maintenance Margin Requirement as reported on the daily Margin Report minus the total commodity option value. The AdjustmentForSecuritiesDeficit is calculated as follows:

Minimum(-Minimum(EndingSettledCash_Securities + EndingSettledCash_IBUKL,0), EndingSettledCash_Commodities – CommodityRiskMargin)

The purpose of the AdjustmentForSecuritiesDeficit is to determine the value of the excess commodities funds which will be used to offset negative balances in the securities and IBUKL segments.

The collateral balance per short stock is calculated by multiplying the prior day's closing price by an adjustment factor based on the currency, rounding this value up, then multiplying by the number of shares.

For example, the collateral balance on a USD-denominated security would be:

Collateral Balance = (stock A prior day closing price x 102%, rounded up to the nearest 1.00) x (number of shares stock A) + (stock B prior day closing price x 102%, rounded up) x (number of shares stock B)


The adjustments utilized by IBKR are as follows:

USD-denominated stock – multiply by 102%, round up to nearest 1.00
CAD-denominated stock – multiply by 102%, round up to nearest 1.00
EUR-denominated stock – multiply by 105%, round up to nearest 0.01
CHF-denominated stock – multiply by 105%, round up to nearest 0.01
GBP-denominated stock – multiply by 105%, round up to nearest 0.01
SEK-denominated stock – multiply by 105%, round up to nearest 0.01
AUD-denominated stock – multiply by 105%, round up to nearest 0.01
HKD-denominated stock – multiply by 105%, round up to nearest 0.01

Step 2

IBKR will obtain the USD-equivalent Net Asset Value in the account, consolidating the equity across the IBLLC and IBUKL accounts where possible. The Net Asset Value (NAV) is reflected in the daily account statement under the same name.

For the purposes of crediting interest on either long settled cash balances or short stock collateral values, accounts with a Net Asset Value (NAV) of USD 100,000 (or equivalent) or more are paid interest at the full rate for which they are eligible. Accounts with NAV of less than USD 100,000 (or equivalent) receive interest at rates proportional to the size of the account. For example, an account with a NAV of USD 50,000 earns credit interest at a rate equal to one-half the rate paid by IBKR to accounts with a NAV of USD 100,000 or more.

For example, if an account holds

  • Settled Long Cash 370,000 EUR
  • Settled Short Cash (370,000) USD

Calculate the USD-equivalent of the EUR balance = 370,000 x 1.2 = 444,000

Calculate the USD NAV = 444,000 – 370,000 = 74,000

As the account would have NAV less than USD 100,000, a proportionate amount of interest would be paid on the long EUR cash balance. Interest would be debited on the short USD cash balance.


Step 3

IBKR calculates an Adjusted Cash Balance for the Securities and IBUKL segments as well an Adjusted Cash Balance for the Commodity segment. This is done using the following formula:

AdjustedCashSecurities+IBUKL= EndingSettledCash_Securities + AdjustmentForSecuritiesDeficit + EndingSettledCash_IBUKL – ShortStockCollateralValue

AdjustedCashCommodities = EndingSettledCash_Commodities – CommodityRiskMargin - AdjustmentForSecuritiesDeficit


Step 4

IBKR will then determine how much of the AdjustedCashSecurities+IBUKL balance should be applied to each rate tier (see tier tables). Finally, we calculate the interest using the applicable rates (also from the tier tables): 3

No interest will be paid on excess funds in the commodities segment (AdjustmentCashCommodities). In the event negative interest rates apply, interest will be charged on long balances in the commodities segment.


The numberOfDaysInYear are based on industry standards for money market activity.

  • 365: AUD, CAD, CNH/CNY, GBP, HKD, KRW, ILS, INR, NZD, RUB, SGD
  • 360: USD, EUR, CHF, CZK, JPY, SEK, NOK, DKK, HUF, MXN
  • 365: USD cash balances held in Bank Deposit Sweep Program.

Interest = ( Balance tier1 * Rate tier1 / numberOfDaysInYear )
( Balance tier2 * Rate tier2 / numberOfDaysInYear )
( Balance tier3 * Rate tier3 / numberOfDaysInYear )


8/2/2019 BM 2.14
Balance BM - 0.5% Rate Basis 1 Day interest
Cash at IBKR 246,500.00 1.64 360 11.23
Sweep Balance 246,500.00 1.64 365 11.08

Accruals will be posted to the applicable account segment as follows:

If the adjusted cash balances of the security, commodity and IBUKL segments are the same sign (i.e. all positive or all negative), the interest will be paid to the securities and IBUKL segments on pro-rata basis while no interest will accrue on the commodity balance. If the cash balances of the security and IBUKL segments are of opposite sign the interest of the Integrated Investment account will accrue to the segment with the higher balance.

The results of the above calculations are booked to a special "Accrued Cash" sub-account, one for each currency. Accrued Cash has the following features and functions:

  • FUNDS FOR TRADING: accrued cash is applied to trading balances, both positively and negatively.
  • WITHDRAWALS: accrued cash does not affect Settled Cash balances and therefore cannot be withdrawn. Positive accrued cash balances do not increase the available funds for withdrawal. However, negative accrued cash will reduce the funds available for withdrawal. This avoids the problem of having closed accounts with negative balances.
  • PATTERN DAY TRADING: accrued cash does not count toward Pattern Day Trading minimum balance requirements.

Each day, the new calculations for accrued interest are added to the cumulative accrued cash balances from the previous day.

Statements: Whenever the balance of accrued cash exceeds USD 1.00 (or equivalent), we will show the accrual on the Daily Statement. Accruals smaller than USD 1.00 are recorded in the IBKR systems but are not reported on the statements.

At the end of the month, or within the first few days of the following month, IBKR follows these steps:

  1. IBKR recalculates all the interest amounts using the calculations above. The new calculation is usually identical to the original cash accruals but may vary by small amounts due to corrections in settled balances or rates.
  2. IBKR determines the cumulative accrued cash for the previous month as the sum of the individual days.
  3. IBKR reverses this amount in the Accrued Cash sub-account at the beginning of the following month. For example, if the accrued cash balance for July was positive, we apply a debit charge to accrued cash in early August.
  4. Simultaneously, we book the final interest calculation from Step 1 above to the regular cash account. In effect, Steps 3 and 4 above convert "pending cash" to "actual cash."
  5. These transactions 2 are reported on the Monthly Statement.

Trade Date versus Settlement Date (or Value Date)

In most large financial transactions, there is a time delay between the date on which the transaction is agreed to, and the date on which it settles, i.e., when the actual payment occurs. In the case of stocks (for example US stocks) there is a two-business day settlement period. If the trade is executed on a Monday, under normal settlement conditions the actual transfer of money occurs on Wednesday. If the trade occurs on Thursday, two-business days later crosses the weekend so normal settlement is the following Monday. Exchange and banking holidays the fall within the settlement period will push back the settlement date.


Why is the Settlement Date Important?

Only settled money is considered for interest rate purposes. When one buys stock, one retains the rights to interest on the money until settlement date. Similarly, sellers only start to receive interest beginning on settlement date.

Settlement Dating is generally a minor consideration for stock, option, and future traders. However, due to the large amounts of capital involved, understanding the concept of Settlement Dating is critical to FOREX and fixed income (bond or money market) traders.

Disclosures

  1. The new accrued cash shown after the above postings may not be zero. The residual balances reflect the continuing accruals for the first days of the current month. For example, if IBKR processes the final interest calculation on August 6, Accrued Cash will still show the activity from August 1 through August 6.
  2. Interest will not accrue or be paid to the commodity segment of the account. Both credit and debit interest will accrue and pay to/from the securities and IBUKL segments.
  3. The calculated interest per tier will be rounded to the nearest 0.01 (or 1 for JPY). Therefore, a calculated interest of USD 0.0051 will be rounded to 0.01.