InteractiveBrokers' Peterffy: No Negative Balance Losses from Chinese Stocks

Starting off his conference call with analysts yesterday, Thomas Peterffy, CEO of InteractiveBrokers (IB), addressed market rumors of negative account losses due to client exposure in volatile Chinese and Hong Kong stocks. The rumors of losses were based on 25% of IB's account holders emanating from Asia, rapid declines in China’s stock indexes, and overall over leveraging that had taken place in the market as Chinese stocks rose higher. In addition, following a greater than $100 million loss suffered by the broker from client exposure to the volatile Swiss franc in January, negative account balances on margin trading has become a reality that financial firms and stock investors need to factor in.

In relation to the rumors, Peterffy stated “none of that is true." He explained that the firm’s overall margin loans did contract by $2 billion due to “substantial liquidations." But, Peterffy added that despite the liquidation, “no account has ever gotten into a negative equity position."

The comments followed the release of IB’s Q2 financial results, where revenues were reported at $387 million, and net income of $221 million. Interestingly, the rumors didn’t appear to have had much of an effect on prices shares of InteractiveBrokers, with them trading at all-time highs this month. As such, investors appear to have been more focused on the broker's success in winning business from weaker rivals as growing trading volumes.

B2B Services

The expansion of servicing financial firms such as money managers, brokers and portfolio advisors was a topic of discussion during the firm’s Q1 conference call. That theme continued yesterday, with Peterffy stating that the firm is positioning itself between bulge bracket prime brokers and retail shops. Peterffy reiterated that as regulatory and technology costs of business increased, it has caused both the larger and smaller players to contract their operations.

I think as time goes on, more and more of them will realize that they save a great deal of money by coming onto our platform: Thomas Peterffy

On the future of the brokerage sector, Petterfy summed up his beliefs by stating, “I’ll tell you, frankly, I do not understand how it is possible that many of these folks are still in business. The only way its possible is that they are charging very high commissions and very high financing rates because, their technology is very, very poor. And it's expensive for them to run it and they have huge regulatory issues.”

On this he concluded, “I think as time goes on, more and more of them will realize that they save a great deal of money by coming onto our platform and dispensing with their own as soon as they realize that we are not going after their customers.”

Advisory White Labels White Labels White Labeling or white labels are an extremely common practice in the forex market, which implies one buying another firm’s product and then marketing it as its own. This is routinely done in the retail space, as white labeling is helpful in utilizing trading software, platforms, and other additional services that brokerages may offer.What Are the Benefits of White Labels?White labeling is very popular in the forex market given the benefits it bestows to all parties. This includes both the buye White Labeling or white labels are an extremely common practice in the forex market, which implies one buying another firm’s product and then marketing it as its own. This is routinely done in the retail space, as white labeling is helpful in utilizing trading software, platforms, and other additional services that brokerages may offer.What Are the Benefits of White Labels?White labeling is very popular in the forex market given the benefits it bestows to all parties. This includes both the buye Read this Term

In regards to their own business, Peterffy cited that “extensive automation” allows them to offer services more cheaply, as well on a more organized basis.

One area Peterffy specifically noted where they are providing value to business clients is with their newly established Investors Marketplace where advisors are able to list market their services. Providing a white label approach to financial advisory, Peterffy mentioned that advisor clients are offered solutions for the creation of customized websites and marketing of their services.

Foreign Exchange Business

Unlike the last two conference calls which addressed January’s Swiss franc Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad Read this Term, this time around there were very little details about foreign exchange volumes. The only specific details were from CFO Paul Brody who stated, “Foreign exchange volume also increased from the year-ago quarter.”

From an operational sense, their FX growth makes sense due to their international expansion. Unlike in the US, where FX trading is a ‘foreign’ asset class to most traders and investors, it is more familiar to international customers. As such, as IB increases their non-US customers, trading of international assets like FX are expected to also experience a boost.