Interactive Brokers’ market making segment feels impact of options business wind-down

Maria Nikolova

Interactive Brokers said the results for the second quarter of 2017 include approximately $22 million in one-time exit costs related to the halt of the company options market making business.

Electronic trading expert Interactive Brokers Group, Inc. (NASDAQ:IBKR) has earlier today posted its financial results for the second quarter of 2017. As expected, the market making segment felt the impact of the broker decision to halt its options market making activities worldwide.

According to the report for the three-month period to June 30, 2017, the Market Making segment’s results were affected by approximately $22 million in one-time exit costs related to the wind-down of Interactive Brokers’ options market making business, primarily consisting of the write-down of exchange trading rights. The cost size is close to that forecast in Interactive Brokers’ earnings report for the first quarter of 2017.

In the second quarter of 2017, the Market Making segment a loss of $24 million, due to the halt of the options market making and the lower volatility leading to weaker trading volumes.

Back in March, when the company made the strategic decision to wind down its options market making activities, Thomas Peterffy, Chairman and CEO, explained 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 May this year, Two Sigma Securities, LLC (TSS), the market-making affiliate of Two Sigma Investments, LP said that it had reached an agreement to acquire the US options-market-making business of Timber Hill, a subsidiary of Interactive Brokers.

On the brighter side, the Electronic brokerage segment of Interactive Brokers delivered solid performance in the second quarter of 2017, as income before income taxes increased 4% from the equivalent period last year, to $198 million in the quarter ended June 30, 2017. Net revenues rose 8% from the year-ago period to $334 million on the back of higher net interest income and commissions revenue.

Customer accounts were 20% higher to 428,000 and customer equity increased 42% from the year-ago quarter to $104.8 billion. Total DARTs for cleared and execution-only customers grew 3% to 669,000 from the corresponding quarter in 2016. Cleared DARTs were 621,000, up 4% from the same period in 2016.

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