Interactive Brokers Reports Massive Quarter as Interest Rates Rise

Interactive Brokers has reported a blowout first quarter in 2018, as the company managed to register growth across multiple spectrums with interest and commissions income spiking higher. Net revenues for the US brokerage firm totaled $527 million in the first quarter of the year. The figure is higher by 40 percent when compared to the first quarter of 2017.

The electronic brokerage segment of Interactive Brokers accounted for the bulk of the growth, with revenues totaling $465 million, an increase of 48 percent year-on-year. Income before taxes was $340 million compared to $213 million for the same period in 2017.

Net Interest and Commissions Spike Higher

Interactive Brokers posted first-quarter results that were positively impacted by strong growth in net interest income. The figure increased $75 million, or 53 percent, while higher commissions, which increased $66 million, trended higher another 43 percent from the year-ago quarter.

The quarterly results also include a $38 million gain on the company’s currency diversification strategy, compared to a $49 million gain for the same period in 2017. The firm’s actively managed US government securities portfolio lost $3 million.

Interactive Brokers posted a 65 percent pretax profit margin for the quarter, up from 57 percent in the year-ago quarter. Client equity grew 33 percent year-on-year to $129.2 billion, as customer debits increased 40 percent to $29.3 billion.

The number of client accounts rose 27 percent year-on-year to 517 thousand, as volumes rose 43 percent 939 thousand DARTs. The market making segment income before income taxes increased to $9 million in the quarter compared to a $22 million loss a year ago. At the time the brokerage started to wind down its operations in the segment.

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During the earnings call, the CEO of Interactive Brokers, Thomas Petterfy shared that the company is looking at tighter volatility conditions in the first weeks of the second quarter. A broad-based decline in trading volumes accompanies the beginning of the second quarter, represents a decline in client activity.

While commissions are likely to be impacted by this development, continued increases in interest rates should maintain the income of the company from net interest. That said, traders had to substantially retract their positions and activity did not come back to the extent to which it was present in the first quarter, which could still impact interest margins.