What is a Broker's Call
A broker's call is the interest rate charged by banks on loans made to broker-dealers, who use these loan proceeds to make margin loans to their clients. These broker's call loans are payable by the broker-dealer on call (i.e., immediately) upon request from the lending institution. The broker's call rate forms the basis on which margin loans are priced.
Broker's call is often also called the call loan rate.
BREAKING DOWN Broker's Call
The broker's call rate may fluctuate on a daily basis since it depends on a number of factors such as market interest rates, funds' supply and demand and economic conditions. It is published daily in publications such as The Wall Street Journal and Investor's Business Daily.
The rate paid on these loans is usually based on a benchmark such as LIBOR plus a broker's internal margin, which typically ranges from about 0.75 – 3.5%. The margin, or spread, is determined by credit quality, the yield curve and the supply and demand for money.
Since the late 2000s financial crisis resulting in near bank runs causing dislocation in overnight borrowing rates (i.e., the effective achievable deposit rates for spare cash), the Futures Commission Merchants have moved away from LIBOR as their preferred reference rate. Instead, they've taken to pricing relative to each exchange's specific margin deposit rate (i.e., on Intercontinental Exchange (ICE) this is the deposit rate 'IDR').
Difference Between a Broker's Call and a Margin Call
Keep in mind that a broker's call is different from a margin call. A margin call is a broker's demand on an investor using margin to deposit additional money or securities so that the margin account is brought up to the minimum maintenance margin. Margin calls occur when the account value depresses to a value calculated by the broker's particular formula. A broker's call is something of a margin call on the funds brokers borrow to issue margin, although the terms and characteristics of each are entirely separate.