Interactive Brokers Reports Mixed Q2 Figures as Market Making Phases Out

An increase in revenues and currency diversification gains were offset by lower trading volumes.

Interactive Brokers (NASDAQ:IBKR) has just reported its Q2 financial results, outlining its business statistics for the previous three months ending June 30, 2017. Despite gains in its currency diversification strategy, the group’s overall income saw a slight decline on a yearly basis as it continues to phase out its options market making.

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In terms of the brokerage’s net revenues, Q2 2017 saw a reading of $387.0 million, which was good for a jump of 3.5 percent on a quarterly basis from $374.0 million in Q1 2017. Over a yearly interval, this figure grew by a factor of 4.8 percent year-over-year from $369.0 million in Q2 2016.

Interactive Brokers’ income before taxes came in at $204.0 million in Q2 2017, falling quarter-over-quarter from $213.0 million in Q1 2017, or -4.2 percent. Relative to 2016 the group incurred the same change in its income, also corresponding to -4.2 percent on a yearly basis.

Earnings Per Share (EPS) on a diluted basis were reported at $0.32 in Q2 2017, which once again reflected a decline on a quarterly basis, this time relative to $0.34 in Q1 2017. Back in Q2 2017, the group’s diluted EPS had come in at $0.51, a full 37.2 percent lower year-over-year.

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Market making recalibration

The latest results were positively influenced by strong growth in net interest income in Q2 2017 – more specifically, this figure climbed by $29.0 million, following commissions that were higher by $8.0 million relative to Q2 2016. However, this advance was tempered by the group’s trading gains, which fell 62.0 percent year-over-year compared Q2 2016, due in large part to lower market making trading volumes.

Since March 2017, Interactive Brokers has been phasing out its options market making activities globally. Speaking at the time, the group’s CEO Thomas Peterffy said: “Today retail order-flow is purchased by large order internalizers and joining them would represent a conflict we do not wish to have.”

Furthermore, trading gains have been lower on a yearly basis due to a dearth of volatility that has afflicted markets in 2017. Markets have been largely devoid of sustained market drivers in Q2 outside of a few political scandals and monetary policy action in the US.

Per the latest financials, Interactive Brokers also continued to see strong gains in its currency diversification strategy. Earlier this year, the group reported that it would increase the share of the US dollar in its currency portfolio, that currently comprises a basket of 14 major currencies. The brokerage subsequently hiked the relative weight of the dollar against other currencies to about 70 percent from a prior weight of 47 percent.

In terms of Q2 2017, this correlated to a $66.0 million gain on Interactive Brokers’ currency diversification strategy, compared to a $2 million loss back in Q2 2016.

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