Interactive Brokers

American multinational brokerage firm

Categories

Financial and Banking  
Technology  

#514

Rank

$35.49B

MarketCap US

US United States

Country

Summary

Interactive Brokers LLC (IBKR) is a global online brokerage firm that offers trading services in multiple asset classes, including stocks, options, futures, currencies, bonds, and funds. The company was founded in 1977 and is headquartered in Greenwich, Connecticut, USA.

Interactive Brokers provides its clients with direct market access to a wide range of global financial markets and exchanges, allowing them to execute trades quickly and efficiently. The company's trading platform is known for its advanced trading tools and features, including real-time market data, customizable charting and analysis tools, and automated trading algorithms.

In addition to its trading services, Interactive Brokers offers a range of other financial products and services, including margin lending, cash management, and custody services. The company also provides institutional clients with prime brokerage services and other specialized solutions.

Interactive Brokers is regulated by several financial regulatory authorities, including the US Securities and Exchange Commission (SEC) and the UK Financial Conduct Authority (FCA). The company is publicly traded on the Nasdaq Stock Market under the ticker symbol "IBKR".

Overall, Interactive Brokers is known for its advanced trading platform and direct market access, as well as its low commissions and fees. It is popular among active traders and institutional clients who require fast and reliable execution of trades.


History

In 1977, Thomas Peterffy left his job designing commodity trading software for Mocatta Metals and bought a seat on the American Stock Exchange 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, 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 favourite retreat, 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. 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 those 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. In November 1983 he convinced the exchange to allow computer use on the floor. This year as well, Peterffy sought to computerize the options market, and he first targeted the Chicago Board Options Exchange. At the time, brokers still used fair value pricing sheets, which were by then updated once or twice a day. 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, and it also tracked positions and continually repriced options on stocks. However, he immediately encountered opposition from the heads of the exchange. When he first brought a 12-inch-long by the 9-inch-wide 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.

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 the network were 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. Later that year Peterffy introduced his computer system to the New York Stock Exchange, 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 coloured 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. 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.

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. 

In 1987, Timber Hill joined the National Securities Clearing Corporation and the Depository Trust Company. Timber Hill had 67 employees and had become self-clearing in equities. 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 index options in the U.S. In 1990, Timber Hill Deutschland GmbH was incorporated in Germany and shortly thereafter began trading equity derivatives at the Deutsche Terminbörse, 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. While Peterffy was trading on the Nasdaq in 1987, 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. 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.

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

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. 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 futures.

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. Also in 1999, Goldman Sachs attempted to purchase the company and was turned away. In 2000, Interactive Brokers Limited was formed and Timber Hill became a Primary Market Maker on the International Securities Exchange . In 2001, the corporate name of 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. Also in 2002, IB introduced Mobile Trader and an application programming interface for customers and developers to integrate their mobile phone systems with the IB trading system. Also in 2002, Timber Hill became the major market maker for the newly introduced U.S. single-stock futures.

In 2003, Interactive Brokers 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. In 2004, IB introduced direct market access to its customers on the Frankfurt and Stuttgart exchanges. In the same year, IB upgraded its account management system and Trader Workstation, adding real-time charts, scanners, fundamental analytics, and tools BookTrader and OptionTrader to the platform.

In 2006, the IB Options Intelligence Report was launched to report on unusual concentrations of trading interests and changing levels of uncertainty in the options markets. Also in that year, IBG took stakes in OneChicago, the ISE Stock Exchange, and the CBOE Stock Exchange. In 2006, Interactive Brokers started offering penny-priced options. On May 3, 2007, IBG held its initial public offering through the Nasdaq and sold 40 million shares at $30.01 per share. It was run as a Dutch auction handled by WR Hambrecht and HSBC; it was the second-largest U.S. IPO that year and the largest brokerage IPO since 2005. The shares sold represented approximately 10 percent of the interest in IBG LLC. Also in 2007, a real-time Portfolio Margin platform was introduced for customers trading multiple asset classes, providing increased leverage with real-time risk management; as well, the company introduced exchanges for physicals for customers to exchange stocks and futures with a market-determined rate.

In 2008, the company released 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. In 2009, IB launched iTWS, a mobile trading app based on IB's Trader Workstation; it also released the Portfolio Analyst tool.

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 2011 the largest online U.S. broker as measured by daily average revenue trades. During the Occupy Wall Street protests of 2011–2012, IB ran a series of television commercials with the catchphrase "Join the 1%", which was seen as a controversial criticism of the protests. In 2012, IB 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 losses.

In 2013, IB released the Probability Lab tool and Traders' Insight, a service that provides daily commentary by Interactive Brokers traders and third-party contributors. Also in 2013, IB integrated its trading notification tool into the TWS. 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. On April 3, 2014, Interactive Brokers 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. 

In 2015, IB created the service Investors' Marketplace, which allows customers to find investors and other service providers in the financial industry. IB also gained clients through Scottrade that year; Scottrade had previously offered complex options trading through its platform OptionsFirst and began offering trading through IB's platform. In March 2016, IB released a companion app to iTWS for the Apple Watch. In May 2017, IB announced the sale of the market-making business conducted by its Timber Hill subsidiary, including its market-making software, to New York-based Two Sigma Securities. In 2020, the customer base grew to one million users. During the GameStop short squeeze, Interactive Brokers briefly restricted the trading of several stocks, along with other brokerages. 

Since September 2021, IB's clients were able to trade and custody Bitcoin, Ethereum, Litecoin and Bitcoin Cash alongside the already tradable stocks, options, futures, bonds, mutual funds and exchange-traded funds. The company charges commissions of 0.12 to 0.18% of the traded amount.


Mission

"Create technology to provide liquidity on better terms. Compete on price, speed, size, diversity of global products and advanced trading tools."


Vision

“Provide trade execution and clearing services to institutional and professional traders for a wide variety of electronically traded products including stocks, options, futures, currencies, bonds, gold, crypto* and funds worldwide.”


Key Team

Mr. Denis Mendonca (Chief Accounting Officer)

Ms. Nancy Enslein Stuebe (Director of Investor Relations)

Mr. David Eric Friedland (Managing Director of Asia Pacific Operations)


Recognition and Awards
Barron's Best Online Brokers: Interactive Brokers has consistently been recognized by Barron's as one of the best online brokers, most recently receiving the #1 ranking in the 2021 survey. Best Online Brokerages: Interactive Brokers has been recognized by Investor's Business Daily as the #1 Online Brokerage in 2021 for the second year in a row. Best Options Trading Platform: Interactive Brokers has received the Best Options Trading Platform award by Investopedia for the past five years. Best for Low Costs: Interactive Brokers was named Best for Low Costs by NerdWallet in 2021. Best Broker for International Trading: Interactive Brokers has been recognized by StockBrokers.com as the Best Broker for International Trading for the past five years.

References
Interactive Brokers
Leadership team

Mr. Paul Jonathan Brody (CFO, Treasurer, Sec. & Director)

Dr. Thomas A. J. Frank Ph.D. (Exec. VP & Chief Information Officer)

Industries

Financial and Banking

Technology

Products/ Services
E-Commerce, Finance, Financial Services
Number of Employees
1,000 - 20,000
Headquarters
Greenwich, Connecticut, United States
Established
1978
Company Type
Public Limited Company
Company Registration
SEC CIK number: 0000922792
Net Income
1B - 20B
Revenue
Above - 1B
Traded as
IBKR
Social Media

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Fri Feb 23 2024
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