DERIVATIVES

Interactive Brokers suffers $22m market making loss

Firm said the shutdown of its options market making business is expected to cost $25 million.

By Hayley McDowell editors@thetradenews.com April 19, 2017 11:04 AM GMT

The market making business at Interactive Brokers made a $22 million loss in the first quarter this year, as the firm moves forward with winding down its options market making services.

Interactive Brokers explained the rate of continuing losses within market making had been ‘substantially reduced’ by the decision to shutdown options market making. 

The wind down is expected to cost the company an estimated one-time cost of $25 million, which includes severance and other closure costs.

Paul Brody, chief financial officer at Interactive Brokers, explained on the quarterly earnings call the expense is expected to be incurred in the second and third quarters this year.

“We also expect that continuing certain market making operations outside the US for some period of time during the wind down will significantly defray the costs,” he added.

Interactive Brokers confirmed last month it would discontinue its options market making business globally after 25 years of operation.

Chairman and CEO, Thomas Peterffy, explained at the time, “it’s been painful for me to see it deteriorating in the last few years.

“But we do not have a choice in this matter. Today, retail order-flow is purchased by large order internalisers and joining them would represent a conflict we do not wish to have.”

The firm added it will instead focus on building out its brokerage platform to provide clients with execution and management services at low costs.

Growing competition for derivatives market making activity has seen slow take-up of services for several firms, including Virtu Financial and KCG.

KCG announced in January it had decided to shut its options market making business following a drop in revenues.

Virtu Financial similarly struggled to expand its market making services to the interest rate swaps market following its launch in 2013.

Brody concluded Interactive Brokers intends “to continue conducting certain trading activities in stocks and related instruments that will facilitate customer trading in products like ETS, ADRs and CFDs.”