Two Sigma to acquire Interactive Brokers’ US options arm

The acquisition completes Two Sigma's journey to expand into the US options market, as it looks to reinvigorate Timber Hill business.

The market making arm of Chicago hedge fund Two Sigma will buy the options trading unit from Interactive Brokers’ Timber Hill, in a bid to build out a position in derivatives.

Timber Hill, founded by billionaire Thomas Peterffy, was set to shut down by Interactive Brokers after 25 years of operation.

However Two Sigma Securities (TSS) believes it can reinvigorate the business, with the acquisition being the final piece to move into options trading after it purchased the technology from KCG’s options business in 2016.

 “Through this transaction, TSS will integrate Timber Hill’s highly complementary platform to form a full-service, large-scale market-maker across equities and options on exchanges and for wholesale retail clients,” stated Simon Yates, CEO of TTS.  

“We will also be actively engaging with the exchanges, other market participants and regulators to be part of the dialogue around growing a healthy options industry.”

The options market is currently dominated by a handful of large high-frequency trading firms, including Citadel Securities, Susquehanna and Wolverine Trading, according to a Bloomberg report.

Two Sigma, as one of the world’s biggest quantitative hedge funds, will look to join this exclusive club and use its arsenal of high powered computers to take market share in US options markets.

While terms of the purchase were not disclosed, the addition of Timber Hill’s options business will expand TSS’s market making offering to span over 7,000 US equity securities and options on 1,300 underlying securities, it stated.

Paul Brody, chief financial officer at Interactive Brokers, explained in its first quarter earnings call the unwinding of its options market making unit will involve a one-time cost of $25 million.

“As we are turning our entire attention to our brokerage business, we are gratified that under able management by Two Sigma our software modules will continue to provide liquidity in the U.S. options markets,” added Interactive Broker’s Peterffy.

Two Sigma expects the deal to close in September following regulatory approval, and plans to open a new office in Connecticut to include the Timber Hill team.