Quote from def:
nice try, the full context:
Affiliate Relationships: As specialist on various options exchanges, IBâs affiliate Timber Hill LLC may be responsible for allocating payment for order flow that is generated in its assigned options classes, depending on the design of the applicable exchangeâs SEC-approved payment for order flow plan. As much as consistent with these plans, Timber Hill pays such funds to Interactive Brokers. For Boston Options Exchange orders, Timber Hill pays IB $1.00 for eligible contracts executed against Timber Hill (excluding contracts that are executed at better than NBBO).
def, the statement you cite seems to contradict an assertion made in an article about IB in the WSJ.
http://online.wsj.com/article/BT-CO-20110408-710121.html
"Unlike other brokerage houses, Interactive Brokers makes a point of not routing customer orders to banks or high-speed trading firms that match up transactions internally or run private trading venues."
It appears that IB does route customer orders to its own ATS and to an exchange it co-founded in order that customer orders can be matched to IB's market-making affiliate.
Full text of the article is here:
By Jacob Bunge
Of DOW JONES NEWSWIRES
The chief executive of Interactive Brokers Group (IBKR) said his company has muscled into position alongside far larger rivals like TD Ameritrade Holdings (AMTD) and Charles Schwab Corp. (SCHW) by zeroing in on the industry's most active investors.
Interactive Brokers' overall level of trading now is on par with that of much-larger rivals, according to Chief Executive and founder Thomas Peterffy, though the Greenwich, Conn.-based brokerage counts far fewer customers.
"Our business has grown much faster than theirs," noted Peterffy, who said he has recruited sophisticated customers by ensuring their trades are handled more efficiently than at other brokerages.
Interactive Brokers, which estimated that it added 10,000 new accounts in the first quarter, is emphasizing growth in its brokerage segment as its core business of electronic market-making in stock-options has been challenged by more nimble competitors and dwindling market volatility.
The company last week reported 426,000 daily average revenue trades for the month of March. TD Ameritrade and Schwab, which will release March figures later this month alongside first-quarter earnings, reported February DARTs of 453,000 and 478,000, respectively, though Schwab also counts commission-free trades in its total.
Interactive Brokers' volumes are driven by a base of about 168,000 customer accounts, which include semi-professional traders and small hedge funds. Schwab counts about 10.2 million total accounts and TD Ameritrade about 8 million, including many more individual investors making only a few trades per day.
A representative of TD Ameritrade said the company has "a great offering for active traders and equally for people in their long-term money." A representative of Schwab declined immediate comment.
Peterffy said in an interview that his company has sought to offer cheaper commissions and lower financing costs than competitors, but the quality of trade execution is the issue that most resonates with his clientele. Unlike other brokerage houses, Interactive Brokers makes a point of not routing customer orders to banks or high-speed trading firms that match up transactions internally or run private trading venues.
All Interactive Brokers customer orders are executed on exchanges, which are sometimes avoided by brokers and traders that see alternative trading systems and internal trading as a way to avoid paying fees charged by exchanges. Firms also stand to collect revenue by selling order flow to the banks and trading shops that seek to trade against it.
"If you have very good routing software, you can get on the exchanges executions that are as good or better" than those offered by internalizing customer orders, where both the internalizing firm and the broker will make money on the execution of the trade, Peterffy said.
Firms that preside over such internal trading advocate that the process can produce better prices than carrying out each transaction on an exchange. Knight Capital Group (KCG) estimated the function saved customers $215 million in 2010. Peterffy argued that such estimates ignore instances where the off-exchange trade price ended up being worse than usual.
Interactive Brokers in recent months has taken steps to trim its electronic market-making business, which has struggled over the past year as its standing obligations to buy and sell a broad range of options on multiple exchanges has made it difficult to compete with smaller trading firms that aren't encumbered with the role.
Peterffy said Interactive Brokers has ceased its market-maker function in some lightly traded contracts and widened its price spreads in others, but the firm will stay in the business because the order-routing technology involved is critical to its separate brokerage unit.
"We think there's a chance the [Securities and Exchange Commission] will do some new rules that will reward liquidity providers in the course of this year," he said.
-By Jacob Bunge, Dow Jones Newswires; 312-750-4117;
jacob.bunge@dowjones.com
--Brett Philbin contributed to this article.
