Wind-down of options market making operations weighs on Interactive Brokers’ trading gains in Q3’2017

Maria Nikolova

Trading gains in the quarter to September 30, 2017, dropped 71% from the equivalent period a year earlier, due to lower market making trading volumes as the broker completed the wind down of its US options market making business.

Electronic trading firm Interactive Brokers Group, Inc. (NASDAQ:IBKR) has earlier today reported its key financial and operating metrics for the quarter to September 30, 2017, with the wind-down of its US options market making business having an apparent impact on the results.

Trading gains amounted to $11 million in the third quarter of 2017, the company announced. The number is down 71% from the $38 million registered in the year-ago quarter. The drop was attributed to lower market making trading volumes as Interactive Brokers finalized the wind-down of its US options market making business.

As FinanceFeeds reported earlier this month, 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 Interactive Brokers.

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 deal was first 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”.

Let’s note that, as per the numbers published today, Interactive Brokers’ market-making segment saw some positive developments too in the third quarter of 2017, as income before income taxes increased to $11 million in the quarter ended September 30, 2017, due to lower operating costs, as the company completed the divestment of the US options market-making business. Also, the results for the quarter include a $10 million net recovery of exit costs.

Across all segments, the results for the quarter were positively affected by a strong growth in net interest income, which increased $46 million, or 34%, and higher commissions, which increased $19 million, or 13% from corresponding quarter in 2016.

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