Interactive Brokers Group Inc. (IBKR - Free Report) closed the deal to divest its U.S. options market-making business of Timber Hill to Two Sigma Securities, LLC (“TSS”). Two Sigma is the market-making affiliate of Two Sigma Investments, LP.
The financial details of the deal, announced in May, were not disclosed.
Following the completion, TSS assumed roughly 1,300 exchange specialist assignments previously operated by Timber Hill. The Timber Hill team, joining TSS, is spread across Chicago, New York City and Connecticut.
What Next for Interactive Brokers?
In March, Interactive Brokers had announced its intention to discontinue options market-making activities globally, which were conducted through Timber Hill. Fall in the Market Making segment’s profitability was the main reason for this decision.
The segment had been reporting disappointing results for the past several years. While the initiative is expected to lead to one-time expenses, overall, this is expected to support Interactive Brokers’ financials going forward.
Interactive Brokers is not the only one to step away from options market-making operations. Several other global companies including UBS Group AG (UBS - Free Report) , Credit Suisse Group AG (CS - Free Report) and JPMorgan Chase & Co. (JPM - Free Report) have exited this business in the recent past.
As retail orders are now generally purchased by large-order internalizers, providing liquidity to such professional handlers of short-term instruments is less profitable. Hence, Interactive Brokers is making efforts to shift focus and strengthen its Electronic Brokerage segment. For the first half of 2017, more than 85% of Interactive Brokers’ net revenues came from this segment.
Since the announcement of the deal in May, the company’s shares have gained 29.7%, considerably outperforming the industry’s growth of 9.6%. This reflects investors’ optimism about Interactive Brokers’ efforts to enhance profitability.
Also, over the last 60 days, the stock’s Zacks Consensus Estimate for the current year has risen 3.4%. Thus, the company currently 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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