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Interactive Brokers

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Interactive Brokers Group, Inc.
Company typePublic
IndustryFinancial services
Founded1978; 46 years ago (1978), in New York City, U.S.
FounderThomas Peterffy
Headquarters
One Pickwick Plaza
Greenwich, CT 06830
U.S.
Number of locations
27 (2023)
Area served
Worldwide
Key people
  • Thomas Peterffy (chairman)
  • Milan Galik (President & CEO)
ProductsDirect market access to stocks, options, futures, forex, bonds, and ETFs
ServicesOnline brokerage, direct-access trading
RevenueIncrease US$4.340 billion (2023)
Increase US$3.069 billion (2023)
Increase US$2.812 billion (2023)
Total assetsIncrease US$128.4 billion (2023)
Total equityIncrease US$3.584 billion (2023)
Number of employees
2,932 (2023)
Websitewww.interactivebrokers.com
Footnotes / references
[1]
A dark office filled with computers; screens of financial data fill one wall
IB Technical Operations

Interactive Brokers, Inc. (IB), headquartered in Greenwich, Connecticut, is an American multinational brokerage firm which operates the largest electronic trading platform in the United States by number of daily average revenue trades. In 2023, the platform processed an average of 3 million trades per trading day.[1] Interactive Brokers is the largest foreign exchange market broker[2] and is one of the largest prime brokers servicing commodity brokers. The company brokers stocks, options, futures contracts, exchange of futures for physicals, options on futures, bonds, mutual funds, currency, cryptocurrency, contracts for difference, derivatives, and event-based trading contracts on election and other outcomes. Interactive Brokers offers direct market access, omnibus and non-disclosed broker accounts, and provides clearing services. The firm has operations in 34 countries and 27 currencies and has 2.6 million institutional and individual brokerage customers, with total customer equity of US$426 billion as of December 31, 2023.[1] In addition to its headquarters in Greenwich, on the Gold Coast of Connecticut, the company has offices in major financial centers worldwide. More than half of the company's customers reside outside the United States, in approximately 200 countries.[1]: 15 

The broker was founded by and is indirectly 74.6% owned by and chaired by Thomas Peterffy, an early innovator in computer-assisted trading. Approximately 23.5% of the company is publicly held.[1] Interactive Brokers is ranked 473rd on the Fortune 500.[3]

The company traces its roots to T.P. & Co., a market maker founded in 1977 and renamed Timber Hill Inc. in 1982. In 1979, it became the first to use fair value pricing sheets on a stock exchange trading floor. In 1983, it became the first to use handheld computers for trading. In 1987, Peterffy also created the first fully automated algorithmic trading system, to automatically create and submit orders to a market. Between 1993 and 1994, the corporate group Interactive Brokers Group was created, and the subsidiary Interactive Brokers LLC was created to control its electronic brokerage, and to keep it separate from Timber Hill, which conducts market making. In 2014, Interactive Brokers became the first online broker to offer direct access to IEX, a private forum for trading securities. In 2021, the company launched trading in cryptocurrencies, including Bitcoin and Ethereum.

History

Peterffy holding his computer in an interview
Peterffy talking about his handheld computers in a CNBC interview, 2016

In 1977, Thomas Peterffy left his job designing commodity trading software for Mocatta Metals, and bought a seat on the American Stock Exchange (AMEX) as an individual market maker. The following year, he formed his first company, named T.P. & Co., to expand trading activities to several members under badge number 549. At the time, trading used an open outcry system; Peterffy developed algorithms to determine the best prices for options and used those on the trading floor,[4] and thus the firm became the first to use daily printed fair value pricing sheets. In 1979, the company expanded to employ four traders, three of whom were AMEX members. In 1982, Peterffy renamed T.P. & Co. to Timber Hill Inc.; he named it after a road to a favorite retreat,[5][6] : 30–31  one of his properties on Hutchin Hill Road in Woodstock, New York. By 1983, Peterffy was sending orders to the floor from his upstairs office; he devised a system to read the data from a Quotron machine by measuring the electric pulses in the wire and decoding them. The data would be then sent through Peterffy's trading algorithms, and then Peterffy would call down the trades.[6]: 33  After pressure to become a true market maker and keep constant bids and offers, Peterffy knew that he would need his employees to closely pay attention to market movements, and that handheld computers would help. At the time, the AMEX didn't permit computers on the trading floor. Because of this, Peterffy had an assistant deliver market information from his office in the World Trade Center.[6]: 11  In November 1983, he convinced the exchange to allow computer use on the floor.[5]

In 1983, Peterffy sought to computerize the options market, and he first targeted the Chicago Board Options Exchange (CBOE).[5] At the time, brokers still used fair value pricing sheets, which were by then updated once or twice a day. In 1983, Timber Hill created the first handheld computers used for trading. As Peterffy explained in a 2016 interview, the battery-powered units had touch screens for the user to input a stock price and it would produce the recommended option prices,[7][8][9] and it also tracked positions and continually repriced options on stocks.[9] However, he immediately encountered opposition from the heads of the exchange. When he first brought a 12-inch-long (30 cm) by 9-inch-wide (23 cm) device to the exchange floor, a committee in the exchange told him it was too big. When he made the device smaller, the committee stated that no analytic devices were allowed to be used on the exchange floor. Effectively blocked from using the CBOE, he sought to use his devices in other exchanges.[5]

Colored computer screens used for stock trading
Images of the displays used at the New York Stock Exchange to direct traders

Also in 1983, Timber Hill expanded to 12 employees and began trading on the Philadelphia Stock Exchange. In 1984, Timber Hill began coding a computerized stock index futures and options trading system and, in February 1985, Timber Hill's system and network was brought online. The system was designed to centrally price and manage risk on a portfolio of equity derivatives traded in multiple locations around the country.[9] In 1985, Peterffy introduced his computer system to the New York Stock Exchange (NYSE), which allowed it. However, the stock exchange only allowed it to be used at trading booths several yards away from where transactions were executed. Peterffy responded by designing a code system for his traders to read colored bars emitted in patterns from the video displays of computers in the booths. This caused the exchange and other members to be suspicious of insider trading, which convinced Timber Hill to distribute instructions throughout the exchange, describing how to read the displays.[5] In response, the exchange required the company to turn the screens away from the trading floor, which prompted Peterffy to hire a clerk to communicate with the traders via hand signals. Eventually computers were allowed on the trading floor.[10]

The 1973–2001 World Trade Center seen from the Hudson River
In the 1980s, the company was located in the original World Trade Center.

Timber Hill joined the Options Clearing Corporation in 1984, the New York Futures Exchange in 1985, and the Pacific Stock Exchange and the options division of the NYSE the following year. Also in 1985, the firm joined and began trading on the Chicago Mercantile Exchange, the Chicago Board of Trade and the Chicago Board Options Exchange. In 1986, the company moved its headquarters to the World Trade Center to control activity at multiple exchanges. Peterffy again hired workers to sprint from his offices to the exchanges with updated handheld devices, which he later superseded with phone lines carrying data to computers at the exchanges. Peterffy later built miniature radio transmitters into the handhelds and the exchange computers to allow data to automatically flow to them.[6]: 39 

In 1987, Timber Hill joined the National Securities Clearing Corporation and the Depository Trust Company (now merged as the Depository Trust & Clearing Corporation). By 1987, Timber Hill had 67 employees and had become self-clearing in equities.[9] In 1987, the CBOE was about to close down its S&P 500 options market due to the options not attracting sufficient trader interest. Because of this, Peterffy pledged that Timber Hill would make tight markets in the product for a year if the exchange would allow the traders to use handheld computers on the trading floor. The exchange agreed, and more traders were attracted by the change in pricing; today S&P 500 options are the most actively traded stock market index options in the U.S.[5] In 1990, Timber Hill Deutschland GmbH was incorporated in Germany, and shortly thereafter began trading equity derivatives at the Deutsche Terminbörse (DTB), marking the first time that Timber Hill used one of its trading systems on a fully automated exchange. In 1992, Timber Hill began trading at the Swiss Options and Financial Futures Exchange, which merged with DTB in 1998 to become Eurex. At that time, Timber Hill had 142 employees.[9]

While Peterffy was trading on the Nasdaq in 1987,[11] he created the first fully automated algorithmic trading system. It consisted of an IBM computer that would pull data from a Nasdaq terminal connected to it and carry out trades on a fully automated basis. The machine, for which Peterffy wrote the software, worked faster than a trader could.[6]: 12–14  Upon inspection, the Nasdaq banned direct interface with the terminal, and required trades to be typed in manually. Peterffy and his team designed a system with a camera to read the terminal, a computer to decode the visual data, and mechanical fingers to type in the trade orders, which was then accepted by the Nasdaq.[6]: 17 

1993 to 2000

Interactive Brokers Inc. was incorporated in 1993 as a U.S. broker-dealer, to provide technology developed by Timber Hill for electronic network and trade execution services to customers.

In 1994, Timber Hill Europe began trading at the European Options Exchange, the OM Exchange and the London International Financial Futures and Options Exchange. Also in 1994, Timber Hill Deutschland became a member of the Belgium Futures and Options Exchange, IB became a member of the New York Stock Exchange, and the Timber Hill Group LLC was formed as a holding company of Timber Hill and IB's operations.

In 1995, Timber Hill France S.A. was incorporated and began making markets at the Marché des Options Négociables de Paris (a subsidiary of Euronext Paris) and the Marché à Terme International de France futures exchange. Also in 1995, Timber Hill Hong Kong began market making at the Hong Kong Futures Exchange and IB created its primary trading platform Trader Workstation and executed its first trades for public customers.[9]

In 1996, Timber Hill Securities Hong Kong Limited was incorporated and began trading at the Hong Kong Stock Exchange.[9]

In 1997, Timber Hill Australia Pty Limited was incorporated in Australia, and Timber Hill Europe began trading in Norway and became a member of the Austrian Derivatives Exchange. By 1997, Timber Hill had 284 employees.[9]

In 1998, Timber Hill Canada Company was formed, and IB began to clear online trades for retail customers connected directly to Globex to trade S&P 500 futures.[9]

In 1999, IB introduced a smart order routing linkage for multiple-listed equity options and began to clear trades for its customer stocks and equity derivatives trades.[9] Also in 1999, Goldman Sachs attempted to purchase the company and was turned away.[5]

In 2000, Interactive Brokers (U.K.) Limited was formed and Timber Hill became a primary market maker on the International Securities Exchange (ISE).[9]

2001 to present

An office room with computers, monitors, and desks
Company trading floor

In 2001, the corporate name of the Timber Hill Group LLC was changed to Interactive Brokers Group LLC, which at the time handled 200,000 trades per day.

In 2002, Interactive Brokers, along with the Bourse de Montréal and the Boston Stock Exchange, created the Boston Options Exchange.[12]

Also in 2002, the company introduced Mobile Trader and an application programming interface for customers and developers to integrate their mobile phone systems with the IB trading system.[13] Also in 2002, Timber Hill became the major market maker for the newly introduced U.S. single-stock futures.[9]

In 2003, the company expanded its trade execution and clearing services to include Belgian index options and futures, Canadian stocks, equity/index options and futures, Dutch index options and futures, German equity options, Italian index options and futures, Japanese index options and futures, and U.K. equity options.[9]

In 2004, the company introduced direct market access to its customers on the Frankfurt Stock Exchange and the Börse Stuttgart. In the same year, IB upgraded its account management system and Trader Workstation, adding real-time data including charts, scanners, fundamental analytics, and tools to the platform.[9]

In 2005, the company launched its forex trading platform IdealPro (now Ideal FX).[9]

In 2006, the IB Options Intelligence Report was launched to report on unusual concentrations of trading interests and changing levels of uncertainty in the option markets.[9] Also that year, IBG took stakes in OneChicago, the ISE Stock Exchange, and the CBOE Stock Exchange.[9]

In 2006, Interactive Brokers began offering penny-priced options.[9][14][15]

On May 3, 2007, the company became a public company via an initial public offering (IPO) on the Nasdaq, selling 40 million shares, or 10% of the company, at $30.01 per share via a Dutch auction in the largest brokerage IPO since 2005.[8][9][16][17]

In December 2007, the company acquired FutureTrade Technologies, an integrated electronic equity and option trading service provider.[18]

In 2008, the company launched Risk Navigator, a real-time market risk management platform. Also in 2008, several trading algorithms were introduced to the Trader Workstation. Among these is the Accumulate-Distribute Algo, which allows traders to divide large orders into small non-uniform increments and release them at random intervals over time to achieve better prices for large volume orders.[9]

In 2009, the company launched a mobile app for iOS.[9]

In March 2009, the company launched brokerage services in India.[19]

In 2011, the company introduced several new services, including the Interactive Brokers Information System, Hedge Fund Capital Introduction Program, and the Stock Yield Enhancement Program. Interactive Brokers also became in 2011 the largest online U.S. broker as measured by daily average revenue trades.[9]

During the Occupy Wall Street protests of 2011–2012, IB ran a series of television commercials with the catchphrase "Join the 1%", which were seen as a controversial criticism of the protests.[20][21][22][23]

In 2012, the company began offering money manager accounts and opened the fully electronic Money Manager Marketplace. IB also released the TWS Mosaic trading interface and the Tax Optimizer for managing capital gains and capital losses.[9]

In 2013, the company released the Probability Lab tool and Traders' Insight, a service that provides daily commentary by Interactive Brokers traders and third party contributors.[9] Also in 2013, IB integrated its trading notification tool (called IB FYI) into the TWS.[9] The tool keeps customers informed of upcoming announcements that could impact their account, and a customer can set it to automatically act to exercise options early if the action is projected to be beneficial for the customer. An IB FYI also can act to automatically suspend a customer's orders before the announcement of major economic events that influence the market.[24]

On April 3, 2014, the company became the first online broker to offer direct access to IEX, a private electronic communication network for trading securities, which was subsequently registered as an exchange.[25]

In May 2015, the company acquired investment management platform Covestor.[26][27]

In 2015, the company launched Investors' Marketplace, which allows customers to find investors and other service providers in the financial industry.[28]

In March 2016, the company released a mobile app for the Apple Watch.[29]

In October 2017, the company sold its market maker business, Timber Hill, to Two Sigma Investments.[30][31][32]

Milan Galik was appointed chief executive officer of the company in 2019, succeeding founder Thomas Peterffy, who remained as chairman.[33][34]

In September 2019, the company launched commission-free trades via "IBKR Lite".[35][36][37]

In November 2019, the company began offering fractional share trading.[38][39]

In 2020, the customer base grew to one million users.[40]

In December 2020, the company acquired the retail operations of Folio Investments, including 70,000 accounts, from Goldman Sachs.[41]

In May 2021, the company launched trading in spot gold for U.S. clients.[42]

In September 2021, the company launched trading in cryptocurrencies, including Bitcoin and Ethereum.[43][44] In May 2024, the platform was expanded to clients in the United Kingdom.[45]

In July 2023, the company launched trading on the Taiwan Stock Exchange.[46]

In August 2023, the company launched fractional share trading in Canadian securities.[47]

In August 2024, the company launched trading on Bursa Malaysia.[48]

In October 2024, the company launched trading in forecast contracts on the 2024 United States presidential election.[49][50][51]

In August 2018, the company was fined $5.5 million over allegations that it broke federal rules on naked short selling.[52]

In August 2020, the company was fined $38 million for failing to maintain an adequate anti-money laundering program and alleged compliance lapses, including failure to report suspicious trades.[53]

Further reading

  • Dark Pools: The Rise of the Machine Traders and the Rigging of the U.S. Stock Market by Scott Patterson (2013)[54]

See also

Notes

References

  1. ^ a b c d e "2023 Form 10-K". U.S. Securities and Exchange Commission. February 27, 2024.
  2. ^ Golovtchenko, Victor (April 19, 2016). "Exclusive: Q1 US Retail Traders Profitability Falls, Accounts on the Rise". Finance Magnates.
  3. ^ "Interactive Brokers Group". Fortune.
  4. ^ Brown, Abram (November 5, 2014). "Billionaire Thomas Peterffy Practically Invented Digital Trading. Now He Wants To Be Your Broker". Forbes.
  5. ^ a b c d e f g McGee, Susan (November 10, 2005). "A Breed Apart". Institutional Investor. No. November 2005.
  6. ^ a b c d e f g Steiner, Christopher (2012). Automate This: How Algorithms Came to Rule Our World. New York, New York: The Penguin Group. ISBN 978-1-59184-492-1. OCLC 757470260.
  7. ^ Peterffy, Thomas (April 25, 2016). "Pro Talks: Billionaire Wall Street Pioneer Peterffy". CNBC (Interview). Interviewed by Mike Santoli.
  8. ^ a b Moyer, Liz (May 4, 2007). "He Told You So". Forbes.
  9. ^ a b c d e f g h i j k l m n o p q r s t u v w x y "About the Interactive Brokers Group". Interactive Brokers Group.
  10. ^ Story, Louise (November 11, 2005). "See! The Street Was Paved With Gold". The New York Times.
  11. ^ Peterffy, Thomas (April 23, 2015). "'We Built A Robot That Types': The Man Behind Computerized Stock Trading". All Things Considered (Interview). Interviewed by David Kestenbaum. National Public Radio.
  12. ^ Fontanills, George A.; Gentile, Tom (2006). The Index Training Course. John Wiley & Sons. p. 49. ISBN 9780470047361.
  13. ^ Fontanella-Khan, James (September 10, 2010). "India moves into mobile phone shares trading". Financial Times.
  14. ^ Schmerken, Ivy (October 25, 2006). "Interactive Brokers Offers Penny Priced Options". Wall Street & Technology. UBM plc.
  15. ^ Moyer, Liz (March 21, 2006). "The Wallendas Hit Wall Street". Forbes.
  16. ^ Cameron, Doug (May 4, 2007). "IPO values Interactive Brokers at $12bn". Financial Times.
  17. ^ Bunge, Jacob (April 19, 2012). "Interactive Brokers Founder, CEO To 'Gradually' Retire". The Wall Street Journal.
  18. ^ "Interactive Brokers buys FutureTrade Technologies". Finextra. November 20, 2007.
  19. ^ "Interactive Brokers announces launch of Online Indian Brokerage Unit". Oneindia. March 13, 2009.
  20. ^ Dicker, Ron (March 26, 2012). "Interactive Brokers Ad Mocks Occupy Movement: 'Join The 1%'". HuffPost.
  21. ^ Roose, Kevin (March 26, 2012). "Is It O.K. to Joke About Occupy Now?". The New York Times.
  22. ^ Mucha, Thomas (March 26, 2012). "Open season on Occupy Wall Street?". Public Radio International.
  23. ^ Cossu-Beaumont, Laurence; Coste, Jacques-Henri; Velut, Jean-Baptiste (2016). The Crisis and Renewal of U.S. Capitalism. Routledge. pp. 257–8. ISBN 978-1-138-90875-8.
  24. ^ Nikolova, Maria (October 8, 2015). "Interactive Brokers beefs up FYI notifications feature in TWS platform". Leap Rate.
  25. ^ "Interactive Brokers Adds IEX as an Electronic Trading Venue" (Press release). Business Wire. April 3, 2014.
  26. ^ Carey, Theresa W. (May 1, 2015). "Interactive Brokers Offers New Take on Robo Advisors". Barron's.
  27. ^ "Covestor To Be Acquired by Interactive Brokers" (Press release). PR Newswire. April 23, 2015.
  28. ^ Carrel, Lawrence (January 22, 2016). "Interactive Brokers Aims For Best Platform, Lowest Price". Investor's Business Daily.
  29. ^ Wells, Juana (March 9, 2016). "Interactive Brokers Adds Apple Watch Support to IB TWS Mobile Trading App". SMN Weekly.
  30. ^ "Interactive Brokers (IBKR) Completes Sale of Timber Hill". Nasdaq. October 3, 2017.
  31. ^ Louis, Brian; Kishan, Saijel (May 9, 2017). "Two Sigma to Buy Interactive Brokers' Options Trading Unit". Bloomberg News.
  32. ^ Banerji, Gunjan; Osipovitch, Alexander (May 9, 2017). "Two Sigma Agrees to Buy Interactive Brokers' Options Market-Making Arm". The Wall Street Journal.
  33. ^ Schott, Paul (January 1, 2019). "Greenwich-based Interactive Brokers' CEO to step down". Greenwich Time.
  34. ^ "Interactive Brokers Group Will Appoint Milan Galik as CEO; Thomas Peterffy, Founder, Will Step Down in Third Quarter of 2019 and Remain as Chairman of the Board" (Press release). Business Wire. January 7, 2019.
  35. ^ "Interactive Brokers to Launch IBKR Lite" (Press release). Business Wire. September 26, 2019.
  36. ^ Osipovich, Alexander; Beilfuss, Lisa (October 1, 2019). "Schwab Cuts Fees on Online Stock Trades to Zero, Rattling Rivals". The Wall Street Journal.
  37. ^ "There Is a Commission-Free Lunch". The Wall Street Journal. October 1, 2019.
  38. ^ Fitzgerald, Maggie (September 26, 2019). "TD Ameritrade and other brokerages' shares tank after Interactive Brokers unveils service offering commission-free stock trades". CNBC.
  39. ^ Heath, Thomans (July 10, 2020). "Shares by the slice: Fractional investing sparks a stock market stampede". The Washington Post. ISSN 0190-8286.
  40. ^ "Trading platforms enjoy record growth of customers". Budapest Business Journal. February 5, 2021.
  41. ^ "Interactive Brokers Acquiring Folio Investments Retail Brokerage Business from Goldman Sachs" (Press release). Business Wire. December 4, 2020.
  42. ^ "Interactive Brokers Launches US Spot Gold Trading" (Press release). Business Wire. May 10, 2021.
  43. ^ Graffeo, Emily (September 13, 2021). "Interactive Brokers launches cryptocurrency trading for clients". Business Insider.
  44. ^ McCrank, John (September 13, 2021). "Interactive Brokers launches cryptocurrency trading". Reuters.
  45. ^ "Interactive Brokers Launches Cryptocurrency Trading for UK Clients" (Press release). Business Wire. May 15, 2024.
  46. ^ "Interactive Brokers Offers Trading on the Taiwan Stock Exchange" (Press release). Business Wire. July 19, 2023.
  47. ^ "Interactive Brokers Launches Fractional Shares Trading in Canada" (Press release). August 3, 2023.
  48. ^ "Interactive Brokers Introduces Access to Stocks on Bursa Malaysia". Business Wire. August 27, 2024.
  49. ^ Ballentine, Claire (October 3, 2024). "Interactive Brokers Gets Into Politics With Yes/No Bets on Races". Bloomberg News.
  50. ^ "Interactive Brokers Introduces Forecast Contracts on Election Outcomes" (Press release). Business Wire. October 3, 2024.
  51. ^ Osipovich, Alexander (October 3, 2024). "Betting Markets on the Presidential Race Set to Go Live". The Wall Street Journal.
  52. ^ Osipovich, Alexander (August 20, 2018). "Interactive Brokers Fined $5.5 Million for Naked Short Selling Violations". The Wall Street Journal.
  53. ^ Tokar, Dylan (August 10, 2020). "Interactive Brokers to Pay $38 Million Over Anti-Money Laundering Claims". The Wall Street Journal.
  54. ^ Patterson, Scott (2013). Dark Pools: The Rise of the Machine Traders and the Rigging of the U.S. Stock Market. Crown Business. pp. 178–81, 260–61, 292–94, 316. ISBN 978-0-307-88718-4. OCLC 849740364.
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