Interactive Brokers’ Commission Revenue Rises despite Free Trades

Despite headwinds from a push to no-fee trading, Interactive Brokers’ commission revenue jumped 71 percent to $120 million.

Interactive Brokers today reported fourth-quarter earnings that beat analysts’ expectations as an increase in daily average revenue trades and customer accounts primarily supported the results, despite dropping commission fees.

Ranked as the largest US electronic broker by some measures, Interactive Brokers’ fourth-quarter revenues rose 20 percent year-over-year, to $599 million compared to $500 million in Q4 of 2019. Further, the figure was 9 percent higher from $548 million in the third quarter.

Income before tax totaled $392 million, which is up 26 percent year-over-year from $312 million and was 17 percent higher Q-o-Q from $334 million in the prior quarter.

On an adjusted basis, the longtime leader in low-cost trading made gains in a couple of key areas despite a continued revenue fallout from low interest rates. The discount brokerage earned adjusted profits of $375 million this quarter, or 69 cents per share, which is up 19 percent from $315 million and 58 cents for the last quarter of 2019. According to FactSet, analysts were expecting 58 cents a share.

Additionally, adjusted net revenues rose to $582 million, about 16 percent higher than the $503 million it booked in the same period a year ago. Analysts were expecting $560 million.

Commission Revenue Rose despite the Race to Bottom

Despite headwinds from a push to no-fee trading and historically low interest, Interactive Brokers’ commission revenue jumped 71 percent, to $120 million, from the year-ago quarter. The upbeat figure was attributed to higher customer trading volumes within an active trading environment worldwide.

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However, this was offset by lower net interest income, which decreased $62 million, or 22 percent year-over-year, as the impact of the Fed’s dramatic monetary easing extended across the yield curve.

Specifically, the average interest rate decreased to 0.09% from 1.65% in Q4 of 2019, which reflects that compression in asset returns outweighed growth in client cash balances.

Aside from its core electronic-brokerage business, the IB earnings for the third quarter included a mark-to-market gain of $39 million from its 7.7 percent stake in Tiger Brokers. This reflects an improvement from the company’s $7 million float loss, which was tied to the Chinese brokerage in Q4 of 2019.

Furthermore, under the other income section, Interactive Brokers booked a $13 million loss related to currency diversification strategy, which gained $12 million in the same period in 2019.

Interactive Brokers holds its cash reserves in different currencies to reflect its global operations, which include significant overseas segments.

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