Interactive Brokers expects $25m in one-time restructuring costs due to halt of options market making activities

Maria Nikolova

The rate of continuing losses at the market making segment markedly slowed after the company started winding down its options market making activities.

Electronic trading firm Interactive Brokers Group, Inc. (NASDAQ:IBKR) has earlier today posted its earnings report for the first quarter of 2017, with the results of the market making segment heavily affected by the company’s decision to wind down its options market making activities globally and the low volatility during the three-month period.

As reported by FinanceFeeds, on March 8th this year, Interactive Brokers announced its intention to close its options market making business across the globe.

Thomas Peterffy, Chairman and CEO, explained back then that “Today retail order-flow is purchased by large order internalizers and joining them would represent a conflict we do not wish to have. On the other hand, providing liquidity to sophisticated, professional synthesizers of short-term fundamental, technical and big data is not a profitable activity”.

In today’s earnings release, Interactive Brokers said it expected to phase out these operations significantly over the coming months. The company forecast it will incur approximately $25 million in one-time restructuring costs, with a substantial portion of them set to be defrayed by continuing certain market making activities until the restructuring is complete. As a result of closing its options market making operations, the company expects that around $39 million in annual net expenses will be absorbed by the electronic brokerage segment.

The decision to wind down options market making had an impact on the income of the Market making segment. The segment registered a pre-tax loss of $22 million in the first three months of 2017, with the company blaming lower trading volumes and decreases in volatility and in the actual-to-implied volatility ratio for the result.

Interactive Brokers said that for the year to date through the company’s announcement on March 8, 2017, the market making segment had posted net losses, and the segment was not forecast to return to meaningful profitability. The rate of continuing losses, however, slowed down markedly after Interactive Brokers started taking action to halt its options market making activities. Pretax profit (loss) margin was (275)% for the quarter to March 31, 2017, compared to a 34% profit margin in the equivalent period in 2016.

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