Interactive Brokers May Shed Reliance on Market Maker
By Edgar Ortega
July 21 (Bloomberg) -- Interactive Brokers Group Inc. will decrease reliance on gains from trading derivatives for its own account and in five years may generate most of its revenue from handling customer orders, Chairman Thomas Peterffy said.
Peterffy, 63, said in a telephone interview that the Greenwich, Connecticut-based company wants to cater to investors seeking low commissions and direct electronic access to exchanges from Hong Kong and Chicago. The Hungarian immigrant started making markets in options on the American Stock Exchange in 1977 and began handling investor orders in 1993.
``In the long term, say over five years, we can grow the brokerage business around 50 percent a year and market making will grow probably around 15 percent,'' Peterffy said. ``What drives us as to where we go next, and what we develop next, is basically always the brokerage business.''
Interactive Brokers will probably report this week that second-quarter profit rose to 50 cents a share from 33 cents a year earlier, according to the average estimate of three analysts surveyed by Bloomberg. Net revenue will increase to $431 million from $294 million, the survey showed.
Timber Hill, a 26-year-old division that makes markets in stocks and derivatives across more than 25 countries, accounted for 76 percent of first-quarter revenue. That share may decline to about 50 percent as soon as 2010 and fall further as the company's brokerage unit expands internationally, Peterffy said.
Difficult to Achieve
Peterffy's goal may be difficult to achieve as record derivatives trading fuels growth at Timber Hill, said Ed Ditmire, an analyst at Fox-Pitt Kelton Cochran Caronia Waller in New York. During the first half, average daily options volume in the U.S. was 37 percent higher than last year, according to Chicago-based Options Clearing Corp.
``A lot of people want more balance in the business and the brokerage business is more basic and easier to predict,'' Ditmire said in an interview. ``But it doesn't look that realistic. The proportion of business from the broker hasn't increased that dramatically and that's mostly because the bigger unit refuses to slow down.''
Ditmire, who has an ``outperform'' rating on the stock, expects the brokerage to generate 28 percent of revenue in the second quarter. That figure will keep steady through 2010, Ditmire wrote in a July 9 report to clients.
Interactive Brokers has lost 0.3 percent this year, compared with a 28 percent drop in the American Stock Exchange Broker/Dealer Index that tracks 11 companies. The stock today fell $1.51, or 4.5 percent, to $32.21 at 4:10 p.m. on the Nasdaq Stock Market.
High-Frequency Traders
Interactive Brokers had 99,000 accounts at the end of the first quarter, compared with 6.48 million at rival TD Ameritrade Holding Corp. The company has added an average of 4,400 accounts a quarter since 2007, drawing high-frequency traders and hedge funds primarily from outside of the U.S.
Timber Hill started trading in India last month, and plans to begin signing up brokerage customers there this year. ``We expect to develop a very substantial customer base among the growing Indian middle class,'' Peterffy said.
The brokerage has more room to grow than Timber Hill, which already handles about 15 percent of options contracts traded globally, Peterffy said. The brokerage also gives him an entry into areas where he says he'd rather not expand Timber Hill, such as making markets in oil futures and commodity derivatives.
``We are very cautious,'' Peterffy said. ``Our long-term objective is to become the lowest-cost global broker around the world. If you want to do something really well you have to focus on that.'' |
