Is Interactive Brokers selling Timber Hill?
- Thread starter Zzzz1
- Start date
If you check out the last earnings call, their market making unit is definitely for sale and/or on the chopping block. Their profits were way down and they aren't competitive these days without more expertise / HFT infrastructure on the equity side which they lack (they do ok on the options, but need to trade stocks to hedge that).
It is probably a distraction at this point to the core IB customer brokerage business, and drag on their stock's valuation since you never know if a trading company's systems might blow up and lose ton ala Knight.
http://seekingalpha.com/article/401...-results-earnings-call-transcript?part=single
The market making business had a very hard time covering expenses for the quarter. As I indicated in our last earnings call, we are examining in what form to continue this business or possibly to sell it. We have begun some conversations with potential partners or acquirers. That is all I have to say about this at this time...
I mean we are open to both alternatives. We would slightly prefer sales because we are being – folks believe – some people believe that our proprietary trading interferes with the pristine nature of our brokerage business. And so we think that if we had nothing to do with prop trading, we will get more brokerage clients. And given the extremely poor performance of market making, it really doesn’t – it doesn’t look like it’s going to improve. So we have certain disadvantages that other folks have been successful in overcoming in market making. And so I think that coming together with one of these firms where – who have succeeded in overcoming the disadvantage we have but do not have all the advantages that we have, maybe putting two things together would be a good idea.
It is probably a distraction at this point to the core IB customer brokerage business, and drag on their stock's valuation since you never know if a trading company's systems might blow up and lose ton ala Knight.
http://seekingalpha.com/article/401...-results-earnings-call-transcript?part=single
The market making business had a very hard time covering expenses for the quarter. As I indicated in our last earnings call, we are examining in what form to continue this business or possibly to sell it. We have begun some conversations with potential partners or acquirers. That is all I have to say about this at this time...
I mean we are open to both alternatives. We would slightly prefer sales because we are being – folks believe – some people believe that our proprietary trading interferes with the pristine nature of our brokerage business. And so we think that if we had nothing to do with prop trading, we will get more brokerage clients. And given the extremely poor performance of market making, it really doesn’t – it doesn’t look like it’s going to improve. So we have certain disadvantages that other folks have been successful in overcoming in market making. And so I think that coming together with one of these firms where – who have succeeded in overcoming the disadvantage we have but do not have all the advantages that we have, maybe putting two things together would be a good idea.
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Peterffy has been explicitly saying for years that IB's growth would come on the brokerage, not the mm side.
VIRT's mm business hasn't set the world on fire either since its IPO.
VIRT's mm business hasn't set the world on fire either since its IPO.
When you direct order flow to your wholly owned subsidiary you're benefiting from order flow! Perhaps pedantically you're not getting "paid" unless TH makes internal transfer payments to IB, but whatever conflicts of interest arise from directed order flow happen with the IB/TH combination the same as any other broker who's getting paid for order flow. In some cases you could say it's worse, for example guess who's on the other side of all the wide market orders when IB auto-liquidates customer's positions?
So maybe the auto-liquidation part is a bit tinfoilish, but the conflicts of interest are identical if you're paid for order flow or you direct it to a wholly owned subsidiary, so it's disingenuous at best to claim IB doesn't get paid for order flow and by extension is somehow better than other brokers who are.
I think the previous posts pointed out that TH is a distraction for a company that can barely manage to answer a customer's question without stating something that is either blatantly false or completely useless. It also has a different volatility and risk profile from the brokerage, and generally investors reward companies that split when this is the case. And maybe, just maybe, IB understands that the inherent conflict of interest with TH is losing them business on the brokerage side and TH could also be losing business on the market side being associated with IB since working with them is helping the competition for other brokers. Or it could just be that Peterffy is as clueless as the people he hires and he's making a poor decision.
Im always hopeful that the people behind the scenes are smarter than the customer service reps.
They must be.
They must be.