Two Sigma Securities completes acquisition of Interactive Brokers’ US options market-making business

Maria Nikolova

In completing the acquisition, Two Sigma Securities assumes about 1,300 exchange specialist assignments previously operated by Timber Hill, an affiliate of Interactive Brokers.

Two Sigma Securities, LLC (TSS), the market-marking affiliate of Two Sigma Investments, LP, has completed the acquisition of the United States options market-making business of electronic trading firm Interactive Brokers Group, Inc. (NASDAQ:IBKR). The announcement was made earlier today by TSS.

The US options market-making business of Interactive Brokers used to be conducted by its Timber Hill affiliate. Upon completing the acquisition, TSS assumes about 1,300 exchange specialist assignments previously operated by Timber Hill. TSS intends to offer its broker-dealer clients access to listed options across all US exchanges, on top of its existing offering of more than 8,000 US exchange-listed equities in 2018.

The team joining TSS from Timber Hill will be located in Chicago and Connecticut, with additional trading personnel working alongside and helping to augment the TSS team in New York City.

The deal was initially announced in May this year, a couple of months after Interactive Brokers made public its plans to halt its options market-making operations. 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”.

Interactive Brokers’ market making segment has felt the impact of the options business wind-down. The report for the three-month period to June 30, 2017 shows the Market Making segment’s results were affected by approximately $22 million in one-time exit costs related to the termination 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 incurred a loss of $24 million, due to the halt of the options market making and the lower volatility leading to weaker trading volumes.

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