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Interactive Brokers to Stop Options Market-Making Activities
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Interactive Brokers Group, Inc. (IBKR - Free Report) , one of the largest market makers and multi-asset retail brokers, has decided to discontinue its options market-making activities globally. The company had been conducting such activities through its Timber Hill companies.
The options market making activities are expected to phase out gradually in the coming months. However, the company plans to continue trading of certain stocks and related instruments.
Being one of the first companies to start automated options market-making activities in the mid 80s, Interactive Brokers derives most of its profits from the difference between buying and selling prices of securities.
In order to provide liquidity for the trading of financial instruments, the company generally needs to hold large volumes of securities as inventory. Moreover, as it incurs significant expenses in the form of dividend payout from this inventory, besides making payments in lieu of dividends on short positions in securities, any erroneous projection of future dividends often leads to huge trading losses.
The reason for this move is that retail orders are now generally purchased by large-order internalizers, and providing liquidity to such professional handlers of short-term instruments is not profitable. Also, market making as a business has not been generating good profits for the company in the last few years.
Therefore, the company now plans to shift focus on building its electronic brokerage platform.
Thomas Peterffy, Chairman and CEO of the company, said, “We must focus on continuing to build our brokerage platform to empower our customers with first rate execution and account management capabilities at very low cost. This remains our mission, to which we must devote our full attention. In retrospect, 40 years of market making gave us the financial resources and the unique expertise to develop our superior brokerage platform for cost and execution sensitive, professional investors and traders, and to give them the edge to successfully compete in the marketplace.”
Moreover, in order to efficiently deploy its resources, management plans to conduct a comprehensive review of all its facilities and staffing in the near future.
Over the last two years, shares of the company have returned 10.7%, underperforming the 21.4% gain for the Zacks categorized Investment Brokers industry.
Currently, Interactive Brokers carries a Zacks Rank #5 (Strong Sell).
Some better-ranked stocks in the same space are Evercore Partners Inc. (EVR - Free Report) , LPL Financial Holdings Inc. (LPLA - Free Report) and The Goldman Sachs Group, Inc. (GS - Free Report) .
Evercore Partners has witnessed an upward earnings estimate revision of 9.7% for the current year, in the last 60 days. Its share price has increased 56.5% in the last six months. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
LPL Financial also sports a Zacks Rank #1. For the current year, in the last 60 days, its Zacks Consensus Estimate was revised 9.8% upward. Its share price increased 32.8% in the last six months.
Goldman Sachs carries a Zacks Rank #2 (Buy). It has witnessed an upward earnings estimate revision of 2.9% for the current year, in the past 60 days. Its share price increased 48.5% in the last six months.
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Interactive Brokers to Stop Options Market-Making Activities
Interactive Brokers Group, Inc. (IBKR - Free Report) , one of the largest market makers and multi-asset retail brokers, has decided to discontinue its options market-making activities globally. The company had been conducting such activities through its Timber Hill companies.
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The options market making activities are expected to phase out gradually in the coming months. However, the company plans to continue trading of certain stocks and related instruments.
Being one of the first companies to start automated options market-making activities in the mid 80s, Interactive Brokers derives most of its profits from the difference between buying and selling prices of securities.
In order to provide liquidity for the trading of financial instruments, the company generally needs to hold large volumes of securities as inventory. Moreover, as it incurs significant expenses in the form of dividend payout from this inventory, besides making payments in lieu of dividends on short positions in securities, any erroneous projection of future dividends often leads to huge trading losses.
The reason for this move is that retail orders are now generally purchased by large-order internalizers, and providing liquidity to such professional handlers of short-term instruments is not profitable. Also, market making as a business has not been generating good profits for the company in the last few years.
Therefore, the company now plans to shift focus on building its electronic brokerage platform.
Thomas Peterffy, Chairman and CEO of the company, said, “We must focus on continuing to build our brokerage platform to empower our customers with first rate execution and account management capabilities at very low cost. This remains our mission, to which we must devote our full attention. In retrospect, 40 years of market making gave us the financial resources and the unique expertise to develop our superior brokerage platform for cost and execution sensitive, professional investors and traders, and to give them the edge to successfully compete in the marketplace.”
Moreover, in order to efficiently deploy its resources, management plans to conduct a comprehensive review of all its facilities and staffing in the near future.
Over the last two years, shares of the company have returned 10.7%, underperforming the 21.4% gain for the Zacks categorized Investment Brokers industry.
Currently, Interactive Brokers carries a Zacks Rank #5 (Strong Sell).
Some better-ranked stocks in the same space are Evercore Partners Inc. (EVR - Free Report) , LPL Financial Holdings Inc. (LPLA - Free Report) and The Goldman Sachs Group, Inc. (GS - Free Report) .
Evercore Partners has witnessed an upward earnings estimate revision of 9.7% for the current year, in the last 60 days. Its share price has increased 56.5% in the last six months. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
LPL Financial also sports a Zacks Rank #1. For the current year, in the last 60 days, its Zacks Consensus Estimate was revised 9.8% upward. Its share price increased 32.8% in the last six months.
Goldman Sachs carries a Zacks Rank #2 (Buy). It has witnessed an upward earnings estimate revision of 2.9% for the current year, in the past 60 days. Its share price increased 48.5% in the last six months.
8 Stocks with Huge Profit Potential
Just released: Driverless Cars: Your Roadmap to Mega-Profits Today. In this latest Special Report, Zacks’ Aggressive Growth Strategist Brian Bolan explores a full-blown technological breakthrough in the making – autonomous cars. He also spotlights 8 stocks with tremendous gain potential to feed off this phenomenon. Click to see the stocks right now >>