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Interactive Brokers (IBKR) to Buy Retail Unit of Folio Investment

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With an aim to further strengthen its position in online brokerage space, Interactive Brokers Group (IBKR - Free Report) has inked a deal to acquire Folio Investments Inc.’s “self-directed” retail brokerage division. The terms of the deal, expected to close in January, were not revealed.

Folio Investments is a subsidiary of Folio Financial, Inc., which was acquired by Goldman Sachs (GS - Free Report) in September 2020. The clearing and custodian services division of Folio Investments is not included in the current deal and remain part of Goldman’s operations.

Deal Benefits

The transaction will lead to the addition of nearly 70,000 current Folio Investments’ “self-directed” clients to Interactive Brokers. At the end of November, Interactive Brokers had 1.04 million client accounts, up 52% year over year.

Additionally, approximately $3 billion in client equity will get added to Interactive Brokers’ client equity balance, which was $268.7 billion at November end. In fact, the same witnessed a jump of 61% from the prior-year level.

Interactive Brokers CEO Milan Galik said, “With the transition to our firm, Folio Investments’ former clients now will be able to invest in stocks, options, futures, currencies, bonds and funds worldwide from a single, integrated account.”

Folio Investments clients till now only had access to the U.S.-listed stocks and “commission-free trading at scheduled times.”  But following the completion of the deal, the clients will be able to trade in a wide range of securities including stocks, ETFs and other asset classes for unlimited commission-free trading and/or at low commissions. Further, the clients will have the option to select IBKR Lite or IBKR Pro plan service plans per their needs.

Our Take

Consolidation has been going on in the online brokerage space for quite some time now. With Charles Schwab’s (SCHW - Free Report) acquisition of TD Ameritrade and Morgan Stanley’s (MS - Free Report) buyout of E*Trade Financial, the industry is undergoing major upheavals.

So, in order to maintain/boost its market share and benefit from extreme volatility in the markets, Interactive Brokers’ latest acquisition is a step in the right direction. Also, the company’s main focus on developing proprietary software to automate broker-dealer functions is expected to continue resulting in rise in its market share.

Shares of Interactive Brokers have rallied 22.3% over the past six months, outperforming the industry’s growth of 21%.

Currently, Interactive Brokers carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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