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2012

Top 50 Brokers of 2012

Interactive Brokers jumped three spots to number 14 in Futures Magazine’s annual list of the top 50 brokers. In Top 50 Brokers of 2012: The good, bad and ugly of a post-MF Global world, Futures Magazine’s Daniel P. Collins and Ginger Szala present comments from six leaders in the FCM community. The discussion touches on challenges facing the industry in the wake of crises at MF Global and Peregrine Financial Group, high-frequency trading, regulatory changes and the future of the industry.

To view Futures Magazine’s Top 50 Brokers of 2012 rank, please click here.



Father of Algorithmic Trading Seeks Speed Controls

Traders Magazine reporter, Gregory Bresiger, spoke with Interactive Brokers founder and computerized-trading pioneer, Thomas Peterffy, about his contributions to algorithmic trading, the history and evolution of the industry, and Peterffy’s proposed solutions to prevent damaging out-of-control algos. In a Q&A session with Traders Magazine, Peterffy calls on brokers, regulators and exchanges to implement various layers of protection, in addition to those that already exist, to insulate markets from costly disruptions without drying up liquidity in the process.

To read the full article, please click here.

To read the accompanying Q&A with Interactive Brokers founder, please click here.



Traders Burst Silos

One “here-to-stay reality,” writes Markets Media reporter, Terry Flanagan, CFA, in an article entitled Traders Burst Silos, “is the need to be involved in more asset classes, over a broader swathe of geography.” The article highlights the rise in demand for multi-asset trading over the past decade and points to the challenges inherent in providing streamlined trading platforms that are both functional and easy to use. Steve Sanders, SVP of product development at Interactive Brokers, describes the benefits of trading across asset classes, geographies and currencies using IB’s Universal Account. Sanders notes that substantial infrastructure was built into the Universal Account to accommodate the requirements of two separate U.S. regulatory agencies, while still providing end-users the ability to trade both securities and commodities in one seamless account from a single screen.

To read the full article, please click here.



Smallest Stock Trading Firms Hardest Hit as Commissions Collapse

Years of below average equity volume, shrinking commissions and the shift toward computerized trading are forcing change in the crowded brokerage space. Bloomberg reporter Zeke Faux notes that overcapacity in an industry with too few commission dollars to go around is forcing some small stock traders to shut their doors, while other firms merge to remain competitive. The trend toward computerized trading has left brokers who rely on more traditional and costly methods behind. Faux reports that Interactive Brokers “has benefited from the trend,” and IB’s Senior Vice President of Business Development Steve Sanders notes that IB is “gaining business as institutional clients pay more attention to costs.”

To read the full article from October 18, 2012, please click here.



High-Speed Trading No Longer Hurtling Forward

The challenges of “speed-focused” firms facing increasing technological costs and regulatory scrutiny amid declining volumes on stock markets around the world are among the issues discussed in an article by New York Times reporter, Nathaniel Popper. Timber Hill, the market-making unit of Interactive Brokers Group (IBG), is highlighted as one of few firms that release financial results publicly. IBG’s chairman, Thomas Peterffy, comments on headwinds faced by Timber Hill and other market participants in the article, but adds that the company he founded more than thirty-five years ago is prepared for such challenges given the strength and growth of the brokerage business, Interactive Brokers.

To read the full article from October 14, 2012, please click here.



High-Speed Pioneer

Amanda Lang, anchor of the Lang & O’Leary Exchange, discusses trading and technology with Interactive Brokers founder, Thomas Peterffy, in an interview that covers the benefits and risks of automation. Peterffy points out that, “automation allows [IB] to charge $2.65 for the average trade […], which in an un-automated world would be completely unheard of.” Reduced trading costs, lower bid/offer differentials and the ability to trade global markets and move portfolios across continents, currencies or asset classes in seconds are some of the automation benefits highlighted by Mr. Peterffy. But he also notes that automation has created an environment where some market participants are now competing on time intervals within hundredths of a second, and that, according to Peterffy, is a “completely useless activity.” Recent events from the Flash Crash to the crisis at Knight Capital are clear indications that work needs to be done to prevent future problems. Peterffy puts forth several suggestions, including multiple safety shields in addition to existing circuit breakers to stop runaway markets.

To read the full article from October 12, 2012, please click here.



Calling All Middle Market Correspondents Recently Shown the Door

Interactive Brokers managing director, Bill McGowan, discusses the rise in middle market clients seeking “no-frills, basic clearing and custody” services with Gregory Bresiger, a reporter with Traders Magazine. Bresiger’s article “Calling All Middle Market Correspondents Recently Shown the Door” states that a number of middle market clients are being pushed out by their clearing broker as the largest clearers increase deposit requirements, capital requirements or required number of ticket charges. IB is pleased to be able to provide these clients with a low cost solution, argues McGowan; IB has no required security deposit or minimum capital requirements. Clearing clients at IB pay one rate that includes clearing and custody.

To read the full article from September 28, 2012, click here.



Seeking Alpha Contributor Saves by Switching to Interactive Brokers

J.D. Welch, a self-described do-it-yourself investor and contributor on Seeking Alpha, highlights low commissions realized by switching to Interactive Brokers from another brokerage firm in an article entitled, My Mad Method: Q3 2012 Recap. The article summarizes Welch’s third-quarter trading activities in an IRA account held at IB. Welch states that “While any trade will incur some commissions, I can assure you that the amounts I paid in commissions during Q2 and Q3 2012 pale in comparison to the commissions I was paying at my former brokerage house. To put things in perspective, I paid less in total commissions in Q3 2012 with Interactive Brokers than I would have on just two trades (one sell and one buy) at my former brokerage firm.”

To read this and other articles contributed by J.D. Welch, click here.



Meet the Father of High-Frequency Trading

In an interview with Rick Santelli on CNBC’s Squawk on the Street, Interactive Brokers Group founder, Chairman and CEO, Thomas Peterffy, highlights the benefits automation has brought to both individual and institutional customers, stating that “investing and trading [is] a great deal less expensive and easier to do”, noting that Interactive Brokers charges $2.65 in commission on the average trade excluding exchange and regulatory fees; an amount that would be unheard of in an un-automated market. Peterffy adds that today customers “can see the world’s markets on their desktop or mobile device and can move their entire portfolio across asset classes or continents or currencies.” Peterffy goes on to address the negatives associated with high-frequency trading and the damage “runaway” algorithms can cause to the markets and investor confidence. Potential solutions, according to Mr. Peterffy, include multiple software shields and more robust circuit breakers.

To view the September 20, 2012, interview please visit



Automate This: How Algorithms Came to Rule Our World

Interactive Brokers Group’s founder, Chairman and CEO Thomas Peterffy’s contributions to computerized trading are detailed in Christopher Steiner’s book, Automate This: How Algorithms Came to Rule Our World. Steiner points to computer programming skills, the ability to innovate and unflagging persistence to computerize trading as some of the driving forces behind Mr. Peterffy’s success. Learn more about Peterffy’s years as a trader on the floor of the American Stock Exchange and the triumphs and setbacks experienced on the path to revolutionizing an industry in Automate This.



A Father of High-Speed Trading Thinks We Should Slow Down

NPR’s Planet Money, a multimedia team that produces twice-weekly podcasts covering the global economy, devoted a recent episode to the story of Interactive Brokers Group founder, Chairman and CEO, Thomas Peterffy. The episode describes Peterffy’s upbringing in war-torn communist-controlled Hungary, highlighting Peterffy’s early experiences as an arbitrageur of Juicy Fruit gum at the age of 12. In this fascinating podcast about the history and future of automation in the markets, Mr. Peterffy details his drive to bring electronic trading to traditional open-outcry exchanges.

To listen to the August 21, 2012, podcast entitled please visit



With Knight Wounded, Traders Ask if Speed Kills

WSJ reporters Tom Lauricella and Scott Patterson cover the computer-trading malfunction that roiled equity markets and pushed Knight Capital Group to the brink in an article entitled, With Knight Wounded, Traders Ask if Speed Kills. IB’s founder, Chairman and CEO, Thomas Peterffy, weighs in on the risks rogue computer algorithms and ever-faster trading speeds pose to the marketplace, warning "problems will continue if we don’t slow things down."

Click here to read more



The Striking Price – A Gift From Interactive Brokers

Barron’s senior editor and columnist Steven M. Sears ponders the potential outlook for Interactive Brokers’ investors, in light of continually “too low” stock prices coupled with disappointing second-quarter earnings. While talk of paying a special dividend and taking the company private remain unsubstantiated rumors, the worst-case scenario for investors, according to Sears, would be that they “end up owning a well-run, out-of-favor stock that pays a decent regular dividend and has good management.”

Click here to read more.

Breakdown: A Glimpse Inside the ‘Flash Crash’

In this adaptation from his 2012 book “Dark Pools: High-Speed Traders, A.I. Bandits, and the Threat to the Global Financial System,” author Scott Patterson takes a look inside the “Flash Crash” of May 6, 2010, which Patterson calls “The root of retail investors’ end of the love affair with the stock market.” He considers how the move from a floor-based trading paradigm to one that is “digitized and decimalized” has resulted in the vexing of ordinary investors, and concludes that investors, who still have no answer on the mystery of the flash crash, have been left in the dark.

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Interview with Interactive Brokers’ CEO, Thomas Peterffy

Thomas Peterffy, Chairman, Chief Executive Officer and President of Interactive Brokers Group, Inc., comments on Interactive Brokers Group’s historical roots, competitive advantage, opportunities for growth and strategic goals in an interview conducted by The Wall Street Transcript. IB’s brokerage platform “differs from that of our competitors,” says Peterffy. “It was built for the professional floor trader who trades for a living and for whom low trading costs are vitally important.”

“What attracts them [Financial Professionals] to our platform,” Mr. Peterffy explains, “Is that we charge approximately 75% less for our services and margin loans than other brokers do and we place a huge emphasis on executing their trades at the most favorable prices possible. This, in addition to the fact that they can trade stocks, options, futures, bonds and foreign exchange on approximately 100 exchanges in 20 different currencies all from one account.”

The electronic platform today serves proprietary trading groups, hedge funds, financial advisors and individuals attracted by IB’s low costs, cutting-edge technology and breadth of product.

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FOW 30 Year Anniversary: Top 30 most influential people of the past 30 years

Thomas Peterffy, founder, Chairman and Chief Executive Officer of Interactive Brokers Group, was recognized in FOW’s 30 Year Anniversary Issue for his impact on the industry over the past three decades. FOW’s Top 30 most influential people of the past 30 years, honors “those whose effect on the industry has been the deepest and longest lasting.” Some of Peterffy’s contributions to the industry, including the development of handheld computers to aid floor trading and the use of computer models to value stock options, are highlighted in the article.

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Trading Technology 30: Masters of Market Magic

Interactive Brokers Group, Inc.’s founder, Chairman and CEO, Thomas Peterffy, ranked 15th out of the 30 “leading system designers, managers and innovators” highlighted by Institutional Investor in their inaugural Trading Technology 30. According to Jay Kutler, author of Trading Technology 30: Masters of Market Magic, criteria for inclusion in the Trading Tech 30 consists of: career accomplishments and contributions made at both individual companies and to the industry at large; scope and complexity of executive responsibilities; and pure technological innovation. Many of the individuals profiled are executives of exchange operators, buy- and sell-side firms and other ventures whose technological innovations help to shape modern financial markets. The article describes IB’s Chairman as “one of the fathers of electronic trade,” spotlighting Mr. Peterffy’s unique history and significant impact on trading technology.

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TRADING PACES: Interactive Brokers Segregating Customer Funds Daily

Securities Technology Monitor Editor-in-Chief Tom Steinert-Threlkeld highlights one of the many reasons Interactive Brokers is among the safest brokers in TRADING PACES: Interactive Brokers Segregating Customer Funds Daily. To further enhance protection of customers’ assets, Interactive Brokers sought and received approval from FINRA (Financial Industry Regulatory Authority) to perform and report reserve computation on a daily basis, rather than the once per week reconciliation of customer monies and securities required under current SEC regulations. Reconciling accounts and customer reserves daily instead of weekly is just another way that IB provides state-of-the-art protection for customers. Steinert-Threlkeld, drawing from IB’s January 19th earnings call, quotes Interactive Brokers Chairman and CEO Thomas Peterffy on the matter, this “should give our customers additional comfort and allows us to demonstrate to the industry that the firms who are well-automated do not need the extra time over the weekend to figure out their segregation requirements.”

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Electronic Investor

In her January 23rd article, Barron’s columnist Theresa W. Carey highlights several of IB’s latest product offerings, including the Interactive Brokers Information System (IBIS) and the PortfolioAnalyst with the new Attribution Report. Carey describes the range of powerful research tools available to active traders in IBIS and notes the Research Platform’s low cost of “$39 a month for the basic bundle of services.” IBIS users can access the platform from within TWS or purchase the stand-alone system, and will receive real-time quotes, stock scanners, risk analytics and charts and alerts, along with a suite of news, data feeds and third-party analyst research subscriptions from which to choose. Traders can use IB’s PortfolioAnalyst to analyze portfolio risk factors and assess net performance over a specified period, while the Attribution Report makes it easy to compare portfolio return to a selected benchmark index. Carey notes that the new customizable “reporting capabilities are extremely powerful, and very informative,” a particularly useful feature for advisors and brokers looking for a way to easily distribute performance reports to their clients. Full article titled E*Trade Expands E*Arsenal, published in Barron’s, January 23, 2012.

Click here to read more.



2011

Top 50 Brokers of 2011: This One Is On Us

Interactive Brokers jumped three spots to number 17 in Futures Magazine’s annual list of the top 50 brokers. In the article accompanying this year’s rankings, Top 50 Brokers of 2011: This One Is On Us, author Dan Collins of Futures Magazine describes “a strange year for the futures industry,” highlighting the good, the bad and the ugly events that shaped the futures industry in 2011. Thomas Peterffy, chairman and CEO of Interactive Brokers, spoke with Futures Magazine to discuss the state of the industry in a year marked by regulatory uncertainty and market volatility. A leader in the futures industry, Peterffy highlights the need for transparency in the market, recommending that trades should take place on exchange platforms and be reported to clearinghouses.

Click here to read more.



Interactive Brokers Debuts Low-Cost Terminal

Max Bowie, the editor of Inside Market Data, a weekly newsletter that provides breaking news on how buy-side and sell-side firms are using data services, highlighted the launch of Interactive Brokers Information System, or IBIS, a “data display terminal for equities traders and other consumers of US equities data that provides prices, charts, news and research, as well as portfolio and risk analytics at a lower price point that premium vendor terminals.” The introduction of IBIS as a stand-alone product for non-brokerage customers follows years of feedback from financial services industry participants frustrated by the monthly bill associated with their market data services. IBIS is an attractive alternative to more costly data services, particularly for small or new firms seeking to access market data sourced directly from exchanges, plus a range of real-time news, calendars of upcoming earnings reports and economic events, all wrapped into one easy-to-use platform.

Click here to read more.



'Cap Intro' Enters the Electronic Age

Interactive Brokers' new Hedge Fund Capital Introduction Program is a boon for hedge funds seeking a cost-effective way to meet potential investors. IB's automated capital-introduction service connects hedge funds with wealthy investors through a secure website, and is offered free-of-charge to qualified fund operators. Investors review information provided by participating funds and may choose to subscribe to one or more of those available. IB handles the transfer of funds from the investor's account to the manager's account. Hedge funds may bypass costly conferences and time-consuming meet-and-greets traditionally held to woo wealthy investors, and cut right to the chase using IB's new electronic cap intro program.

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Interactive Brokers Sees Active Trader Base Powering Volumes

Rapid account growth at Interactive Brokers means that its active customer-base which includes hedge funds and semi-professional traders have boosted a commonly-watched industry measure of activity close to those of its bigger rivals. Interactive Brokers reported record account openings during March lifting its number of clients to 168,000, adding that its customers performed 426,000 daily average revenue trades (DARTs). Its larger rivals with as many as 10 million accounts see DARTs of 478,000 according to latest company data. CEO and founder Thomas Peterffy says that traders flock to his low-commission house on account of the quality of execution for client orders that always go to an exchange. The secret to better execution according to Mr. Peterffy is solid order-routing capabilities that seek out the lowest overall cost for the customer’s order.

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Le trading ultrasophistiqué

Switzerland’s L’Agefi’ financial newspaper peers inside Interactive Brokers Trader Workstation to find not only a wealth of cutting-edge technology, but an array of satisfied clients and partners in the domestic market. One long-time customer noted, “Interactive Brokers is the only major U.S. broker not to be supported in the crisis. I’m more confident about them than about the large banks.” Local asset and investment managers have been attracted by the wide range of asset classes made available for trading through Interactive Brokers including its proprietary forex platform.

Click here to read more (Key words: Interactive Brokers).



Barron's Annual Online Broker Survey 2011

Interactive Brokers retained its crown as best venue for International Traders according to Barron’s 2011 Annual Online Broker Survey. Overall the online broker was awarded four-and-a-half stars and was also awarded four-and-a-half stars for its low-cost for the seventh consecutive year and commended for its range of offerings, trading technology and low costs. Not content with its already low fees, during 2010 the company lowered stock commissions in several international markets and made a serious dent in its futures commissions. Barron’s found the cost of trading with Interactive Brokers to be less than half the average across this year’s 24 entrants saying also that, “Margin costs are the lowest of the entire group.” Barron’s notes that independent auditing firm Transaction Auditing Group (TAG) found IB’s execution delivers quite a bit of price improvement on their trades. During the year Interactive Brokers provided customers with the ability to buy and sell U.S. corporate bonds while boosting its analytical offering with its PortfolioAnalyst tool to help customers analyze performance against a variety of global indices.

Click here to read more.



2010

Further Market Turbulence Likely

The May 2010 Flash Crash could happen all over again according to Thomas Peterffy CEO at Interactive Brokers because little has been done to address fragmented and illiquid financial markets around the world. A wave of sell orders from individual investors to their brokers was unleashed onto exchanges when they realized that they were no longer able to act as counterparty to a rising number of sell orders that they typically “internalize.” Customers’ orders that don’t reach the exchange fail to execute at the best price available when the order was placed. Interactive Brokers is winning professional accounts in Europe precisely because it finds better prices for its customers’ orders at lower commissions said Mr. Peterffy. Other banks and brokers take advantage of the lax rules at many exchanges.

Click here to read more (Key words: Peterffy, Interactive Brokers).



Interactive Brokers

CNBC junkies might recognize the ad: Central bank buildings sitting on top of piles of money continuously spitting out an endless supply as the voice asks you to consider its tight forex spreads and low margin rates. If the ad doesn’t strike a chord, you’re probably not Interactive Brokers’ target audience. For more than 30 years, Interactive Brokers’ founder, CEO and 90%-owner Thomas Peterffy has used cutting-edge technology and focused on strict risk-management to build a finely tuned market-making and brokerage machine. The company permits its customers the capability of trading from a single account stocks, options, currencies and derivatives on more than 100 venues worldwide. Global and multi-product access makes IB the first stop for the highly active professional traders that brokerage businesses covet most. With trades per account higher than most of its competitors its trading volumes compare to those of its biggest rivals.

Click here to read more.



Thomas Peterffy - Innovator of derivative trading

Tenacity and perseverance while he automated derivatives trading led the Hungarian-born Thomas Peterffy to earn the title of one of the most influential pioneers on Wall Street while creating a company with trading assets of $1.4 billion. From his humble beginning as a computer programmer and talented in mathematics, Peterffy was soon embraced as an advisor to German-born Mocatta Metals chief and legendary bullion trader, Henry Jarecki. He later stunned traders at the American Stock Exchange when he revealed the world’s first handheld computer used to calculate fair prices of options. Today Interactive Brokers headquartered in Greenwich, Connecticut is an 800-strong company worth in excess of $6 billion spearheaded by programmers and mathematicians and derives one-third of its business overseas outside of its Greenwich headquarters. Yet Mr. Peterffy insists there is still much work to do in the years ahead. His brokerage and market-making company differentiates itself by providing professional traders around-the-clock access to markets around the world.

Click here to read more (Key words: Peterffy, Interactive Brokers).



Living on the margin, at a discount

Wall Street’s lucrative margin-lending business is being shaken up by Interactive Brokers, which allows its customers large or small to take advantage of low margin rates typically reserved for institutions. The broker’s published tiered borrowing rates as low as 0.5% are, “way below the published rates of such large online brokers as Schwab, Fidelity and TD Ameritrade,” according to Barron’s Magazine.

Customers at the brokerage firm have taken advantage of the ability to borrow up to 50% of the value of their portfolios at low borrowing costs. Through the 12-month period ending March 2010 Interactive Brokers’ customers had almost tripled their outstanding borrowing from the company to $4.4 billion at a time when overall industry margin balances had grown by 35% to $234 billion. Thanks to real-time portfolio margin regulations, customers under some circumstances can borrow more than 50% of the value of their holdings. Unlike several online brokers and because of its automated real-time credit management system, customers won’t have a three-day window to post additional collateral to their accounts if positions move against them.

Margin borrowing is often favored by wealthy investors instead of personal loans or home-equity credit lines due to low rates of interest and frequently more favorable terms. An abundance of collateral can delay repayment indefinitely according to Barron’s. Other customers are posting collateral in order to buy high-dividend-paying stocks and ETFs to take advantage of the positive spread. Interactive Brokers has also highlighted its screening tool of more than 450 stocks paying dividends of 5% or more within the Wall Street Journal and Barron’s Magazine.

Click here to read more.



Barron's Annual Online Broker Survey 2010

Interactive Brokers ranked highest in the Barron’s 2010 Annual Online Broker Survey for its international offering. Barron’s noted that IB still leads the pack in its cost-conscious access to global markets across five continents. The Survey also notes that IB customers enjoy quite a bit of price improvement -- a 31-cent advantage per 100 shares and 21-cent advantage per options contract -- compared with the industry average over the second half of 2009. Additions to its 2009 offering include Risk Management and Portfolio Analysis tools along with streaming news. Barron’s calls IB’s mobile applications offering streaming data “very usable” and refers to its educational efforts as wide-ranging and well-written.

Click here to read more.



Alarming Decrease in NYSE Average Trade Size

The average trade size on the NYSE continues to shrink according to a study by Mondo Visione. These days orders sent to the exchange average $6,400 compared to $19,400 five years ago. The average order size of 200 shares today compares to 1,600 shares 15 years ago with the likely culprit being the advent of high-frequency trading programs that generate trades in 100 or 200 lots. But for retail investors wanting to split trades into more manageable orders this can come at quite a cost if their broker charges on a per order basis rather than a per share basis.

George Spritzer explains how investors might face commissions eight-times as high with many retail brokers compared to executing through Interactive Brokers. Mr. Spritzer says, “Suppose you want to acquire 4,000 shares of a closed-end fund using Fidelity, and submit 20 limit orders of 200 shares each in order to compete with the high frequency trading programs. The commission is $8 an order, or $160 total commission for the 20 orders which is quite costly. The same problem occurs if you use Ameritrade, Schwab, Scottrade or E-Trade. Interactive Brokers charges commissions on a per share basis (0.5 cents a share), so the 20 orders of 200 shares each would have a total cost of only $20.”

Online brokers will be under competitive pressure to offer per-share commissions in the event that the trend towards smaller trade size continues. Failure to do so will leave high-frequency trading algorithms picking off trades entered by larger accounts forcing them to incur higher costs because they have to continually pay the full bid/ask spread to complete their orders successfully. It’s not just the outright commission that’s important to busy investors. They must consider a “flat” versus “per share” fee structure and in addition to the bid/ask spread, the average order size is playing an increasingly important role in determining overall trading costs.

Click here to read more.



China Clears Stock Index Futures Trading

In January 2010 China’s State Council approved short selling and margin trading in China’s stock market in a move that will usher in an exciting new era of stock index futures trading in mainland China. Although Chinese rules still exclude Wall Street names from its capital markets Time Weekly asked Steve Kelsey, Managing Director at Interactive Brokers Asia Pacific operations in Hong Kong, why IB was well-suited to help steer local markets through the launch of this new era. In an effort to prepare for an eventual connection with Chinese investors IB recently established a Shanghai office to enhance cooperation with several institutions.

“IB has clients in more than 100 countries who are currently trading Hong Kong products,” said Mr. Kelsey, noting that IB’s presence permitted investors to access global markets. Many domestic brokers fail to provide clients with the ability or the opportunity to play globally and access the international markets. Having been the only electronic market maker in Hong Kong at the time Hang Seng futures were launched in 1997, Interactive Brokers gained valuable experience in providing access to associated and complex derivatives including index options and index futures options.

Time Weekly (click here for English version transcript of the full article)



2009

Essential Sipp Embraces IB Trading Technology

A recently launched investment vehicle from Britain’s Sipp operator, Stadia Trustees, seeks to promote the ‘treating customers fairly initiative’ and offer access to cost-efficient electronic trading methods. Stadia has teamed up with online trading provider, Interactive Brokers, to offer its “Essential” Sipp investment product. Stadia Trustees director Tony Hales says, “Through our affiliation with Interactive Brokers, investors will have access to the best electronic trading software which will deliver real benefits and provide peace of mind that we can provide access to the best and most cost-efficient online trading.” For investors well-versed in exchange traded funds and direct-share dealing, investors can access low-cost dealing at £6 a trade.

Click here to read more.



Margin Expands Regardless of Rate

Barron’s asked the same group of brokerage firms it covers in its annual survey for a recent update on margin rates they charge their customers along with attitudes to trading on margin. The study found a “huge gap” in those costs facing investors, which “can make a big difference to an investor’s trading costs.” Interactive Brokers maintained its position as the least expensive trading venue for investors with its 1.63% funding rate regardless of whether the margin balance was $10,000 or $50,000 according to data collected by Barron’s.

An investor carrying a $10,000 margin debt for a month would pay $13.58 at Interactive Brokers while the same-size trade at TD Ameritrade would cost $72.92 per month. The difference for a $50,000 balance would amount to $245 per month according to data compiled for the study.

Andrew Wilkinson at Interactive Brokers attributes “some of the growth in margin use by our clients to the low financing costs available at IB,” noting an increase of 81% in margin use by customers of the broker.

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Futures and Options - Trading Across The Two Markets Remains Riddled in Complexities

U.S. investors continue to face challenges of having different regulators in place to govern futures and options trading. Despite their complementary features, varying bankruptcy codes and customer protection rules mean trading of futures and options products has to be performed in separate accounts thus creating challenges for investors seeking to coordinate trading and hedging strategies.

Agreement in 2007 between the NYSE, Nasdaq and CBOE approved 12 broker-dealers to offer portfolio-margin accounts permitting certain customers to benefit from cross margining, which considered offsetting trades within an account, which in turn lowered collateral requirements. Greenwich, Conn.-based Interactive Brokers has opened several thousand portfolio margin accounts. Its real-time system automatically institutes margin calls when collateral falls below a certain point, so it requires only the regulatory minimum except for some illiquid securities, according to Steve Sanders, senior vice president of product development.

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Interactive Brokers Review and Company Profile

Interactive Brokers "Universal Account" is the thoroughbred of trading platforms allowing the user to trade in eighty markets around the world from one account – it’s the perfect trading platform for the professional or the committed amateur. Established in 1977 the company offers the most sophisticated trading platform technology for traders globally, both institutional and individual. Its trading platform gives direct access dealing to stock and bond markets, futures and currency exchanges. Interactive Brokers rates are the lowest around for thee professional trader and the trade implementation is instant and accurate. Certainly Interactive Brokers gets good feedback when reviewed online by their users. At EliteTrader.com IB has a 77% rating out of 348 votes.

Click here to read more.



The Long and the Short of It

Interactive Brokers is the latest company to announce a beta version of its iTWS trading application for the iPhone. Account holders can use iTWS to trade stocks, options, futures, futures options and warrants on over 80 global markets when they make use of the downloadable software available at the App Store on your iPhone.

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Brokers Enjoy a Productive Summer

Having started to offer futures and options trading on the National Stock Exchange of India in the spring, Interactive Brokers recently launched stock trading for local as well as non-resident Indians. Minimum commissions for stock trading runs at 75 Indian rupees or about $1.55 before securities transaction costs, exchange charges, stamp duty and service tax.

IB also rolled out its beta version of PortfolioAnalyst, allowing customers to slice and dice their portfolios and view over different time periods. “Essentially our plan is to create and give away for free the same functionality that is provided by third-party portfolio-management systems at a hefty price,” said Andrew Wilkinson at Interactive Brokers.

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Commodities: Best Inflation Hedges

For investors concerned by the tidal wave of government money aimed at bailing out the economy and what implications that might have on rising prices, Forbes Magazine suggests investors look to commodity producing companies with a significant amount of overseas sales. Agricultural and industrial commodities have performed well in periods of rising prices, while also having the potential to act as a hedge against the dollar. If your broker doesn’t handle foreign stocks or charges high commissions to do so, consider Interactive Brokers which executes trades on more than 80 exchanges across North America, Europe and Asia. European stock commissions run at 0.1% where investors face the same spreads as locals since IB connects directly to each exchange. For currency conversions on trades below $50,000 IB charges $2.50.

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2008

Interactive Brokers bets on brokerage model for growth

Thomas Peterffy’s Interactive Brokers is making a strong and conscious effort to position itself as a broker and increase market share in the brokerage business. “We are pushing very hard on growing our brokerage business and have been advertising. Brokerage business is certainly growing much faster than market making business,” Peterffy told Reuters news. Within his brokerage business he said “our clientele is steadily increasing,” since the broker’s relatively less expensive system suits professional traders who need to minimize their transaction costs. Companies like Interactive Brokers, dependent on transaction revenue, have avoided many of the problems faced by other financial firms. The company intends to raise headcount by about 100 employees from its current 730 as it braces to take on more business. “We want to hire more software people, computer programmers and expand [our] sales force,” said Peterffy. He also noted the firm’s plans to expand its Asian presence, where it recently acquired a small brokerage firm in Japan, while it was also opening a Chinese office.

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Interactive Brokers plans Push Into International CFD Market

Interactive Brokers Group CEO and founder, Thomas Peterffy said he was making plans to enter the fast-growing international market for contract-for-differences, or CFDs, sometime during the next few months. The move could be an important revenue driver for Interactive Brokers, which specializes in serving professional traders. Mr. Peterffy pointed to the U.K. and Autralia as potential entry points for its launch of the equity derivatives.

‘We are working on getting into the CFD market in a few months,’ Mr. Peterffy said. The CFD market has grown strongly on account of preferential tax treatment that undercuts the cost of trading equivalent futures contracts. The products are available in Germany, Switzerland, Italy, Singapore, Hong Kong, South Africa and New Zealand. CFD’s are contracts where buyers pay or receive from the seller a difference in a company share price over time, giving the holder the benefit but not ownership in the stock. While popular in company’s shares CFD’s are also traded on currencies and some commodity products.



Interactive Brokers Scores in TAG Study

Transaction Audit Group, a third party analytics provider, awarded high marks to one of the world’s largest options brokers, Interactive Brokers, for both price improvement and speed of execution. The independent study looked at market orders below 10,000 shares where IB improved executions in the second half of 2007 by 0.35 cents per share better than the industry average. The broker also executed orders at six times the speed of the industry average at 0.9 seconds compared to the average of 5.6 seconds.

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Hedge Fund Technology

It used to be the case that hedge funds would turn to their prime brokers for add-on services such as capital introduction. Today the needs of hedge funds have become more critical as they seek to understand the precise impact of a single asset movement and how it impacts an entire portfolio when markets unexpectedly move, more so these days when funds employ multiple asset classes. Interactive Brokers, a global leader in electronic market-making and brokerage services, launched the IB Risk Navigator earlier in 2008, prompted by demands from institutional customers. The company translated the same risk management tools used by its market-making Timber Hill affiliate. IB provides customers with value-at-risk (VAR) tools to monitor actual and forecast hypothetical portfolio impact on exchange traded products. “If it’s possible to create the same type of position using exchange-traded products, you’re much better off,” said Steve Sanders SVP marketing and product development at the brokerage company.

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Win A Job!

Interactive Brokers, a global leader in electronic market-making and brokerage services, recently announced the winners of its 2008 College Trading Olympiad in which students design programming code and apply it to a mock $1 million trading account. In return the company lures hundreds of resumes from entrants, many of whom are keen to join the programming staff in Greenwich, Connecticut, where the company has its headquarters. Since there is a shortage of top-notch technologists, IBG created the Olympiad to highlight the growing need for engineers and computer science professionals in the financial services industry. The company will pay out close to $400,000 in prize money this year.

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Getting Active on Interactive Brokers

The core market-making business unit of Interactive Brokers is not only one of the largest in the options industry, but also demonstrates its strength by trading in markets that scare other people. A recent challenge to the entire risk-management industry has intimidated investors, who prefer to “shoot first and ask questions later.” Yet IB is a firm that takes pride in its strong risk-management focus and especially the automated systems designed to avoid or control that risk. “Our real-time margin system prevents the execution of orders for customer accounts with insufficient margin by continuously valuing positions and enforcing limits for each account, and it automatically liquidates positions if any account violates its limits at anytime,” explained spokesman, Andrew Wilkinson. One analyst that follows the company, Rich Repetto at Sandler O’Neill noted that Interactive Brokers stands out from the crowd and that the company, “uses complicated computer programs to help price derivatives.”

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Go East Futures Traders, Go East!

By the time fund manager-turned-investment-biker Jimmy Rogers sold his New York apartment two years ago and moved to China, a growing number of American retail futures traders have joined his lead and found white hot investment opportunities awaiting them. Kelsey thinks that the launch of index futures on the Shanghai Futures Exchange will increase demand for equity index futures in the region. “While overseas investors will not be able to access this market immediately due to Chinese regulations, they can trade the Hang Seng China Enterprise Index futures (H share futures) listed in Hong Kong,” he says. This index tracks the major Chinese companies that are listed on HKEx.

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Trader Monthly Magazine Ranks Interactive Brokers in Best Prime Broker and Best Equity Execution Awards

Seemingly out of nowhere, Greenwich-based Interactive Brokers unexpectedly emerged as a hot contender to Goldman Sachs in the Trader Monthly magazine Best Prime Broker category. Best known for its superior technology as a leading electronic market-maker in options, one buy-sider hailed the firm’s “deep liquidity and broad coverage.” The quiet rise of IB as a prime broker in this year’s voting sends a strong message to Wall Street: Thomas Peterffy’s gang in Greenwich is eating your lunch.

Interactive Brokers has extended its reach into prime brokerage over the last year according to Steve Sanders, SVP of Marketing and Product Development. He notes that IB’s built a portfolio margin system described as “one of the only real-time options on the Street.”

Interactive Brokers came a very close second to Goldman in the Best Execution (Equities) category in the 2007 awards. One voter noted IB’s “low cost and good fills” as rationale for siding with the broker. Another added: “Broad range of market interfaces seem to get the best possible price, whether buying or selling.” For the first half of 2007, an independent audit taken by TAG Audit found IB was able to achieve 14.85 percent price improvement on customers’ marketable option orders versus an industry average of 0.57 percent according to Sanders.

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Interactive Brokers, one of the largest online options brokerages, added a real-time risk management platform as it boosts its portfolio analysis capabilities. Dubbed the IB Risk NavigatorSM traders can weigh the risk of their derivatives positions in real-time across all asset classes.

According to chairman, Thomas Peterffy, the real-time component is valuable since the trader can view exposure immediately and can adjust the position accordingly. “What-if scenarios let the user hypothetically modify positions to see how changes in the portfolio will affect the risk summary,” he said.

IB is offering the risk function for free, while similar analytics can cost up to $500,000 said Peterffy.

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Having made a foray into the prime brokerage space in April of 2007, Interactive Brokers made a bigger push in November to service the needs of its hedge fund customers when it agreed to acquire one of only a handful of remaining independent direct-market-access providers, FutureTrade for an undisclosed sum.

The agreement helps IB augment its prime brokerage services to hedge funds and other clients. FutureTrade brings a client base of 200 institutions and 40 software developers.

SVP of marketing and product development, Steve Sanders notes, “Given our mission of providing our customers with the best technology at the lowest possible cost we felt the prime broker business was a natural extension of our current business.”

Some of FutureTrade’s client base includes existing prime brokerage companies such as Bear Stearns and Credit Suisse, as well as companies who already deal with those prime brokers. According to FutureTrade’s president and chief executive, Murray Finebaum, the union should provide those customers with more prime broker service options. “Customers can continue to route to their current prime brokers, or they now have an alternative prime broker in IB that will provide a real-time portfolio margin system and low costs,” Sanders said.

IB’s founder and CEO, Thomas Peterffy expects to integrate the FutureTrade platform with the IB platform within several months.

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With just weeks remaining before Barron’s traditional annual review of electronic dealers, updates and improvements are popping up on many brokers’ websites. Among those featuring upgrades is Interactive Brokers, which has made serious strides in upgrading its offering in 2008.

One cool new tool is the IB Risk NavigatorSM, which lets customers dissect their portfolio and determine value at risk, profit-and-loss potential as well as various Greek calculations. Clients can look at those risk measurements by underlying holdings as well as by industry and includes profit-and-loss graph and table showing how changes in the market affect individual positions as well as an entire portfolio. The IB Risk Navigator is both intriguing and free to customers.

IB has also improved the look and feel of its Trader Work Station. The new Order Wizard categorizes order types and explains why a customer would use them. TWS now integrates over 40 such order types to include icebergs, basket trades and market-if-touched. Other new features include a revamp of the account window, which customers can now customize while the Contract and Securities Search feature is available from within the IB website and not just inside the platform. Overall the IB website has become easier to navigate. Such changes are exactly what Barron’s makes its awards for when the online review is published in the spring.

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2007

By STEVEN M. SEARS

THOMAS PETERFFY, FOUNDER AND CHIEF executive of Interactive Brokers Group, is considered by many on Wall Street to be a genius trader. He is also recognized as a key architect of the equity derivatives industry, which is enjoying 30% annual growth rates.

Yet, Peterffy and Interactive Brokers, whose pre-tax profit margin in the recently ended third quarter was almost 70%, are practically unknown to investors.

Herein lies an opportunity for investors interested in an electronic brokerage and derivatives market-making firm that each day hosts more than 90,000 traders who execute more than 700,000 trades on 70 exchanges, in 24 countries, and in 13 currencies.

"As we become better known as the preferred broker for financial professionals, our customer base and trading volume keeps on growing beyond growth in the market," said Peterffy, who has gone from rags to riches since emigrating from Communist-controlled Hungary in 1965.

Peterffy will not offer earnings guidance for his company, but he unabashedly contends Interactive Brokers is taking business from competitors, and that no competitor has taken more accounts from Interactive Brokers than it from them.

Account transfer records prove the point, and over five years Peterffy said his market making business has nearly doubled while the brokerage business has grown seven fold.

Still, the stock price is not reflective of this success, though it has held up well this year. Year-to-date, the stock is flat, compared to a decline of 17% for the Dow Jones Investment Services sector. During the last three months, the stock has gained 5%.

Some of the stock's stability is attributable to growing investor recognition that Interactive Brokers benefits from volatile trading.

The company has two businesses: an online brokerage firm and a market-making firm in options trading.

The online brokerage competes against companies like Charles Schwab, Fidelity Investments, Ameritrade and optionsXpress.

Interactive Brokers is a tough competitor, especially for sought after professional traders who demand sophisticated analytical abilities and in return trade heavily.

The company's other division is the market making firm, Timber Hill. The unit executes orders for its sister division and otherwise makes money maintaining fair and orderly markets in thousands of different options. In the third quarter, the market-making unit generated 74% of total revenue, compared to 18.2% for the brokerage business.

When the markets behave violently, Interactive Brokers makes money because panicked investors generally trade more, and other market makers with less trading capital and less sophisticated pricing models tend to trade less. This means Interactive Brokers' market making unit, Timber Hill, trades with more orders at better prices.

The risk to buying Interactive Brokers is that it is essentially a trading firm, albeit a very good one, and earnings can be volatile. Moreover, Peterffy still owns about 85% of the company and there are always concerns that shareholders would be diluted if such a big shareholder decides to sell more stock.

The company's initial public offering was in May. If the economy enters a recession, the combination of marketing making and online brokerage businesses should give Interactive Brokers an edge against other brokerage and exchange stocks simply because of is business mixture and model.

The true benefit Interactive Broker's offers investors -- and this is more nuanced than fundamental analysis of a stock -- is the business model. The company is built on a technology platform that generates operating leverage, which is rare among online brokerage firms because inevitably staffing at many firms grows to support the system.

Consider this: during the recently-ended third quarter, Interactive Brokers third-quarter revenues rose 35% over the second quarter, yet expenses only increased 5.4%.

That's operating leverage in action, and it's a magic elixir to corporations and for investors. If properly constituted, as at Interactive Brokers, operating leverage maximizes the benefits of increased revenues without significantly increasing expenses.

High degrees of operating leverage are possible at Interactive Brokers because the business relies on a very sophisticated, large computer system that is operated by a small group of people.

Consider that the firm's third quarter incremental margin was 94% on a quarter-over-quarter basis and 83% year-over-year as high trading volumes "literally fell to the bottom line," said Rich Repetto, a Sandler O'Neil analyst.

Sandler's Repetto recently raised Interactive Brokers' 2007 and 2008 earnings estimates for the company to $1.58 and $1.63, up from $1.32 and $1.58, respectively. He also raised the price target by 21% to $34 from $28. In the recently ended third quarter, Interactive Brokers' net revenues totaled $445.1 million and income before income taxes was $307.9 million for the quarter, compared to net revenues of $339.8 million and income before income taxes of $220.1 million in the same year-ago period.

"We believe a higher multiple is justified based on the significant operating leverage demonstrated in 3Q07," Repetto said.

With Interactive Brokers, investors have a highly-profitable business model with international reach. When the cloud lifts on the financial sector, the company should shine.

Full Disclosure
• Sandler O'Neill was a manager of a securities offering for Interactive Brokers in the past 12 months, and has received investment banking compensation.


Having timed its entry to the prime brokerage business to coincide with the SEC’s official launch of portfolio margining accounts in April, Greenwich-based electronic broker announced the acquisition of FutureTrade Technologies along with FutureTrade Securities. Its client base of around 200 institutions includes hedge funds with an average account size of $200 million in assets under management.

Thomas Peterffy, chairman and CEO at Interactive Brokers hopes to integrate both trading platforms within four-to-six months. “We expect to be able to provide Interactive Brokers’ routing and execution technology to FutureTrade customers, including our options executions,” said Peterffy.

FutureTrade’s existing clients will soon be able to trade a far broader range of assets and markets than at present thanks to IB’s provision of direct electronic access to non-U.S. options markets, futures, forex and fixed income on more than 70 exchanges and trading venues around the world from a single account.

Only 12 self-clearing broker-dealers were initially approved to open portfolio margining accounts in April. Interactive Brokers was one and of the 2,000 accounts opened through September 2007, IB had opened 1,300.

FutureTrade does not provide prime brokerage services to its clients, some of which manage billions of dollars of assets according to Murray Finebaum, president and CEO at the company. The acquisition aims to provide clients integrated execution and clearing services attractive enough to switch over to IB for prime brokerage.

“We do a number of things that are uniquely suited to hedge funds’ workflow in terms of capturing trades, downloading them to prime brokers, and marking positions to market in real time,” said Finebaum. “Interactive Brokers also does a number of those things, but we do it specifically for hedge funds.” Finebaum will help integrate the firms’ trading platforms and build the prime brokerage business.

“The FutureTrade platform complements IB’s facilities and accordingly, when the two platforms are fully integrated, all facilities of both platforms will be available to all customers,” Peterffy said.

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Thirty years after he bought a set on the American Stock Exchange, Thomas Peterffy sold 40 million shares through an IPO in the 500-person firm he created. In that period the company has grown in stature and now executes 14 percent of the world’s equity option volume and 19 percent of U.S. option execution.

The Timber Hill market-making arm was a pioneer in providing global market access, while Interactive’s brokerage arm, now fourteen years old, leveraged that infrastructure to both retail and institutions alike. Today the company offers clients direct market access and advanced trading tools to trade in more than 70 markets where they can trade options, equities, futures, forex, commodities and bonds – all from a single universal account.

Interactive Broker’s in-house platform supports the execution and clearing of both market-maker and brokerage customer trades. The company has steadily advanced to allow different asset class trading for its growing customer base.

The increase in the popularity of online trading around the globe and the increase in the desire to trade ever-more fashionable instruments has tailored the companies ambitions delivering superior technology and low trading costs to users wishing to trade crude oil futures to stocks and futures in the Pacific Rim.

In this question-and-answer session John Hintze asks senior vice president of marketing at Interactive Brokers, Steven J. Sanders a wide-ranging variety of strategic questions to find out where customer trading and volume growth is taking place at the company. As Mr. Sanders explains, growth is occurring everywhere with a specific thrust in overseas business, futures markets and especially vigorous growth in customer interest in currency trading.

Over the years the company has listened to the needs of its customer base and has furnished its superior trading technology with tools to make trading more efficient. Those range from the option trader, basket trader and spread trader, which allow customers to execute and view customized combination orders using the Smart Routing technology to find the most advantageous bid and ask for the customers’ orders.

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Interactive Brokers, the electronic brokerage company that built up a near 15 percent slice of options market-making around the globe each day, recently launched a further initiative to pass along exchange rebates to customers. Managing Director Steve Sanders notes that, "the options exchanges are experimenting with different pricing structures, and we want to pass through the costs, as well as the rebates, that are now being passed back to brokers."

The move allows its clients to trade equity options at commissions between $0.15 and $0.70 cents plus exchange fees. In addition, Interactive Brokers promises to pass on to customers rebates and cost reductions where they exist as a result of qualifying trades.

Thanks to initiatives by several options exchange regarding the “make or take” model, the benefits from changes to this pricing structure will be handed down to Interactive Broker’s clients through unbundling of individual option prices. By employing quoting strategies that improves exchange liquidity, traders can benefit from receiving rebates from the exchange.

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One January morning in 2007, electrical engineering student, Brian Eckerly booted up his laptop before heading out of his apartment for college. For the next eight weeks it remained undisturbed as it received streaming quote data to a brokerage account containing $100,000. From time-to-time during that time, the computer would automatically transact trades in the account that Eckerly had himself programmed. By the end of the period that account was worth $394,190.

Although the account contained only phantom money, Eckerly was taking part in Interactive Brokers second annual college trading Olympiad and walked away with a first-prize $100,000, the fruits of his programming success.

For Interactive Brokers, the motivation is not financial. Rather the tech-savvy market-making and brokerage firm based in Greenwich, CT, is constantly hunting fresh talent from within the technology arena.

“The old trading world required big, aggressive, street-smart folks – now it’s technology skills that count,” explained Steven J. Sanders, senior vice president at Interactive Brokers. “We just don’t ever get good technologists.”

The $100,000 play-money is the end game for tech-students once they have built their own trading strategy, coded the software and implemented it to their trading account at the brokerage firm. Each student can trade whatever asset class they choose within this account, ranging from equities, options, currencies bonds and futures.

Second place winner in 2007, Konstantinos Tsahas, a master’s degree candidate in Baruch’s program said the competition was like “an eight-week internship from your home.” For him that internship paid a handsome $6,250 per week.

Thomas Peterffy, CEO and founder at Interactive Brokers is the industry’s leading proponent of electronic trading and has spent 30 years building his company. Today the company employs an army of software engineers and system administrators, whose aim is to continually improve the firm’s vast trading technology.

With $400,000 at stake in prize money, it’s far from an inexpensive way to lure talent, but according to Sanders, “the contest works as a filter that gives us much more than a resume to look at.” The 2006 contest resulted in two programming hires.

Sanders expects a bigger turnout each year after the 2007 contest attracted some 204 contestants who used C, C++, Java, Visual Basic and Excel scripts to submit their trading software. By communicating via an application program interface with Interactive Broker’s Trader Workstation software, the trading program was able to retrieve market data and execute trades in the same way that professional traders use the platform to trade complex algorithms.

Brain Eckerly took his $100,000 prize money to his new job in Dallas, TX and intends to invest it, noting that this time around, real-money might require a more serious approach to his investment decisions.

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During the last decade or so changes to the regulatory environment have forced multiple-exchange listing of options and created a much more liquid arena for institutional investors to hedge portfolios. Some ten years ago around 80 percent of options trading stemmed from retail clients, while a recent industry study indicates more than half of all options trading comes from institutions and notably hedge funds. Add in the advent of rapid-fire electronic trading and investors’ ability to execute more complex options strategies without pushing market prices away from them and you have an ideal situation for explosive volume growth in what has become a key investing class.

Options positions allow investors to manage the risk of owning stocks. Put options allow investors to equally offset such positions in the event portfolio managers need to hedge against a perceived adverse outcome. The number one use of options during this growth explosion has been for precisely this reason. Hedge funds are especially key users of the options market since they tend to trade both long and short positions simultaneously.

Senior market analyst at Interactive Brokers Group, Andrew Wilkinson, notes the explosion in the popularity of index exchange traded funds. The options volume on these funds is enormous each day and clearly it’s skewed towards the put side. “Spreads are narrow, trading costs are down and trading volumes are through the roof. There is a tremendous amount of liquidity in options. These options are efficient hedging tools for long-only money managers to protect their portfolios from downside risk.”

While other well known trades have boosted traded options volume, such as dividend capture and put-interest plays, one industry report from financial services consultant, the Aite Group, shows that volatility strategies are increasingly popular with hedge funds and other investors. Such trades tend to care less about the direction of the market in general and tend to play on a break from the prevailing range – either up or down. Traders can capitalize by banking on movements in options market volatility by positioning accordingly to take advantage. Investors have set aside increasing amounts of capital to play market volatility over the past three years as more traders aim to capitalize on the troughs and peaks of volatile trading.

The introduction of portfolio margining for customers may also allow them to put more capital to work than under older margining rules. By careful use of hedging techniques, investors can offset some portfolio risk and use less capital at the same time under certain circumstances. This has encouraged investors to trade more with less of their wealth at risk.

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Having built a hugely successful brokerage company based upon easy automated access to trading venues, Interactive Brokers chairman Thomas Peterffy was adamant he wouldn’t sell shares to investors in the traditional Wall Street manner when he recently launched an IPO in stock at the company. Instead he chose to use the Dutch auction process to allocate shares efficiently allowing investors large and small to get in on the act.

The Dutch auction process was popularized by Google founders when they floated part of the company. Dutch auctions aren’t so popular on Wall Street where powerful investment houses get to allocate shares at a price they set. During that process they have to satisfy the often conflicting interests of the company coming to the market, investors, clients and themselves. Meanwhile the Dutch auction process ensures that supply and demand is in balance from the outset. The initial rise in shares at Interactive Brokers could be said to confirm that the process it used to establish its share price is more efficient than that of the traditional Wall Street method.

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Options-trading specialist firm Interactive Brokers Group Inc. gained the spotlight recently as it raised $1.2 billion in its stock market debut – marking the richest IPO to-date for 2007, as movie theater chain AMC dropped its own IPO in the face of weak pricing pressures. Following a successful online auction for its shares, handled by W.R. Hambrecht, Interactive Brokers sold 40 million shares at $30.01. On its trading debut just over half of the shares traded in the open market with shares at one point rising 10 percent above the auction price. Interest in companies that provide market access has surged recently as cross-border consolidation sweeps the industry as technology replaces the outdated open-outcry system of trading.

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It may have taken 30 years for the world’s investment community to hear the message that Interactive Brokers founder and Chief Executive has been sending, but they heard it loud and clear when the company sold 10 percent of its shares in the largest IPO year-to-date.

The IPO saw heavy demand when trading began as investors bid for almost four times as many shares than were available as the Greenwich, CT. brokerage company raised $1.2 billion. Interactive Brokers handles 20 percent of the trading volume in North America and offers customers the facility to trade equities, commodity, bonds and currencies all in the same account. The stock debuted with an initial 10 percent jump before settling with a near-5 percent gain at the end of its first day trading.

Both options and electronic trading are hot topics these days. Options trading volumes are increasing rapidly with exchange volume at or near record levels. Germany’s Deutsche Boerse bid $2.8 billion for the International Securities Exchange recently while the NYSE Group and the Nasdaq exchanges also began options trading operations.

In an interview with reporters immediately after Mr. Peterffy rang the Nasdaq opening bell at the company offices, he note the intense opposition there had been across the industry to adopt electronic trading. He compared the situation to that in pre-industrial England when laborers opposed the introduction of the loom, which became a key technological development in history.

Shares in the company were offered via a Dutch auction process rather than the usual investment bank led sale. Mr. Peterffy noted that 80 percent of the successful bidders at the IPO were institutional buyers. He noted that the auction "gives everybody an equal chance to participate."

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E-Brokers: Separating The Wheat From The Chaff

(Matthew Rand with AAII)

Despite what seemed like a wave of commission cuts, a study by the American Association of Individual Investors (AAII) found that in the past year, average discount brokerage commissions as a percentage of trade-size held steady. A $5,000 broker-assisted trade costs $33.50 on average, and a $25,000 trade costs $52.50 on average. For a $25,000 online trade without broker assistance, the average commission is $19.50, according to AAII. The study looked at 56 discount brokers.

AAII surveyed its members and found that the most popular 10 brokerages were used by nearly 90% of respondents. The top two brokerages in that survey were Interactive Brokers and USAA Brokerage Services . Interactive was No. 1 for price of a trade, execution speed and the reliability of electronic trades. Commissions at Interactive Brokers run a half a penny per share, or 50 cents for a 100 share trade, and account minimums are $5,000. USAA was No. 1 for overall satisfaction and No. 2 in price of a trade, execution speed and reliability of electronic trades.

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Programmers rewrite traders' winning formulas

(John Dizard)

The continuing democratisation of the market-making function is one of the most powerful, and intriguing, forces in finance. The knowledge of how securities are priced had been the province of tight-knit bands in the City of London, Lower Manhattan and a handful of satellite centres, who collected monopoly profits from getting ahead of the customers.

The gradual disintegration of those mobs is one consequence of the rise of electronic trading. I think this will accelerate rapidly in the next bear market in risk, over which liquidity will increasingly be provided by a horde of small market makers, each with the computation and communications power of a mid-size brokerage in the last decade.

While the pieces are largely in place for this in the equity markets, the next fat-margined oligopoly to fall will be that of the credit traders. For now, they're concentrated in the big banks, insulated from competition by the moat of counterparty risk. When credit trading is based on central clearing houses rather than dealer-customer trading lines, and every customer has to put up the same risk-adjusted collateral, then that business will also have to be shared with the small professional trader.

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Which is why the results from a recent trading competition run by Interactive Brokers, LLC are so interesting. For eight weeks, from January 15 to March 9, the electronic brokerage ran a simulated trading competition, called the Collegiate Trading Olympiad, open to university students, starting with a notional $100,000 (€75,000, £51,000) in capital for each competitor.

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Interactive Brokers Runs Annual Olympiad Trading Program to Recruit Technologists for Electronic Trading

Interactive Brokers Conducted its second annual Olympiad Trading Program to find technology savvy college students who can create a computerized trading program.

(Ivy Schmerken)

Interactive Brokers (IB) held its second annual IB Olympiad Trading Program to attract qualified college graduates to the trading profession. This year's contest, which began Jan. 15 and ended March 9, attracted 260 participants, up from 125 in 2006, according to the global broker and market-maker, which publicized the contest through college admissions offices as well as with e-mails to candidates and signage displayed at college placement offices.

IB runs the contest as a way to recruit technology-savvy computer science and engineering students into its business. Each contestant starts with $100,000 in phantom money and develops a workstation application program interface. Students must create a computerized trading program that generates at least 25 trades. They can trade stocks, bonds, options, futures and foreign exchange -- all the products in IB's universe, according to Steve Sanders, managing director at Interactive Brokers.

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In the 12th annual Barron’s Magazine online broker survey Interactive Brokers held its own earning the highest number of stars awarded to any of the participants.

The company performed best in two categories. Interactive Brokers scored highest in the cost category earning 4.8 out of a maximum score of 5.0 thanks to its low-cost commissions. The company also ranked as the best trading venue for investors who want to trade internationally.

“Today, it’s possible to buy Swiss stocks or sell Japanese shares from your desktop; you can also go long oil, short a silver contract, trade a butterfly on the S&P 500 or employ computer-generated algorithms to jump from stock-to-stock,” says Barron’s.

Interactive Brokers swept aside other brokers with its international offerings, its array of futures products and low fees. Over the past 12 months the company has added access to Swedish, Japanese and Hong Kong stocks. It added floor-traded CME and CBOT futures, NYMEX physical energy futures and soft commodity futures along with CBOT electronic agricultural futures.

The company has industry renowned proprietary technology that allows clients to trade options in penny increments. Recently a pilot scheme was launched to test the performance of 13 stocks whose options could be traded in pennies rather than nickels and dimes. Interactive Brokers allows its own customers to trade all equity offerings using penny pricing.

Fees at Interactive Brokers are low as are fees charged on margined instruments. Barron’s calls these fees “the lowest among the brokers surveyed this year.” In addition the rates paid on cash are among the highest, which makes the software an obvious choice for the cost-conscious. It also has a new Web-based platform.

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Techniques accessible to hedge funds are becoming readily available, creating an unprecedented democratisation of investment management.

For all the articles, speeches, television stories and cocktail party chatter about the threats to and from the hedge fund world, the business is still taking in a lot of money, more than Dollars 126bn (Euros 97m, Pounds 64bn) in the US last year, according to Hedge Fund Research of Chicago.

What is less talked about is a set of developments in technology and regulations that is taking away the competitive edges the funds have. The techniques available to the hedge funds are becoming available to the investing public, or at least its more technically skilled members. This is part of a democratisation of financial management that will, sooner rather than later, cost the hedge fund community its claim on the 2 per cent fees and 20 per cent profit shares that it believes are its right.

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Steve Sanders of Interactive Brokers LLC, says the proposed changes in portfolio margining rules are even more important to the democratisation of investment management. "If you were a hedge fund you could go to your prime broker and use techniques such as offshore accounts, or 'joint back offices' to get the benefit of 15-20 per cent margins," a big advantage over the 50 per cent rule that has applied to individuals.

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