Interactive Brokers LLC (NASDAQ:IBKR) said on Monday it has been forced to cover $104 million worth of its customers’ losses on April 20, the day when prices plunged below zero for the first time ever. The Greenwich, Connecticut-based broker reported earlier that it had suffered an aggregate provisionary loss of $88 million, but the figure swelled after IBKR made its final calculations for the first quarter.
Thomas Peterffy, the chairman and founder of Interactive Brokers, said earlier that his firm revised its maximum loss estimate to $109.3 million.
“While the Company originally recognized an aggregate provisionary loss of approximately $88 million, the Company has since determined to compensate certain affected customers in connection with their losses resulting from the contracts settling at a price below zero. As a result, the Company will recognize a revised aggregate loss of approximately $104 million,” the company said in a quarterly earnings report.
Interactive said several customers had been caught on the wrong side of April plunge, having held long positions on cash-settled WTI futures at both CME and ICE Futures Europe. The negative settlement price meant customers incurred losses in excess of the equity in their accounts, forcing the broker to step in and pay the margin calls owed to clearing houses. However, it said the $104 million mistake on their part would not have a material effect on its financial condition.
The huge losses came on the heels of Monday’s price crash, which took U.S. oil futures into negative territory for the first time. Desperate traders at one point paid potential buyers up to $40 a barrel to take oil that they can’t accept for delivery on May’s expiring futures contract.
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The Caixin financial news outlet also reported that total losses from a crude oil product marketed to retail investors by the Bank of China could be more than $1.3 billion. The incident promoted the bank to ask US regulators to probe whether market manipulation, failed systems or computer programming failures was behind the unprecedented plunge in West Texas Intermediate, the U.S. crude benchmark.
Loss from its stake in Tiger Brokers
Elsewhere, Interactive Brokers reported a drop in revenues for the three months through March 2020. The listed company posted net revenues for Q1 2020 at $532 million, down from $558 million in the same period last year. Income before tax totaled $308 million relative to $339 million in the prior year quarter.
Adjusted net revenues were $581 million and adjusted income before income taxes was $357 million, compared to adjusted net revenues of $468 million and adjusted income before income taxes of $291 million in the prior year quarter.
Aside from its core electronic-brokerage business, the IB earnings for the first quarter captured an $8 million float loss from its 7.7 percent stake in the Chinese brokerage Tiger Brokers. This was compared to a $103 million mark-to-market gain in the prior year quarter.
In addition, the company’s fortunes were hit by negative impact of its currency diversification strategy which decreased its earnings by $49 million compared to a $19 million loss in Q1 2019.
Interactive Brokers holds its cash reserves in different currencies to reflect its global operations which include significant overseas segments.