Interactive Brokers Posts Provisional $88m Loss from Negative Oil Prices
- The broker believes the anticipated losses will not have a material effect on its financial condition.
With US oil prices plunging into negative territory for the first time in history on Monday, and again on Tuesday, Interactive Brokers has suffered an aggregate provisionary loss of approximately $88 million, the company announced on Tuesday.
As Finance Magnates reported, on Monday, WTI futures (West Texas Intermediate) for May, which expired on Tuesday, settled at USD -37.63 on Monday this week, falling USD 55.90, and even sinking as low as USD -40.32. For the second time in the week on Tuesday, WTI futures fell back below zero.
This price was the basis for determining the Settlement Settlement Settlement in finance refers to the process when a buyer makes payment and receives the agreed-upon services or goods. The term is used on exchanges such as New York Stock Exchange (NYSE) when security changes hands. When the asset is transferred and placed in the new buyer's name, it is considered settled. This process could take a few hours or several days after a trade is made. It depends on the clearance process. In the United States, the settlement date for marketable stocks is usually 2 business days or T+2 after the trade is executed, and for listed options and government securities it is usually 1 day after the execution. Conversely in Europe, settlement date has also been adopted as 2 business days settlement cycles T+2.Settlement ExplainedA settlement is also the process of the payment of an outstanding account balance, an open invoice or charge. The electronic settlement system is a relatively new construct that has only become a standard in the past thirty years.For example, in real estate finance, you have settlement when the funds are accepted, and the deed to the property is traders to the new owner. Settlement can also mean an adjustment or agreement reached in matters of finance or business. For example, we have settled with the bank or the credit card company. A number of risks arise for the parties during the settlement process. These are effectively managed by the process of clearing, which follows trading and precedes settlement. By extension, clearing involves modifying those contractual obligations so as to facilitate settlement, often by netting and novation. Settlement in finance refers to the process when a buyer makes payment and receives the agreed-upon services or goods. The term is used on exchanges such as New York Stock Exchange (NYSE) when security changes hands. When the asset is transferred and placed in the new buyer's name, it is considered settled. This process could take a few hours or several days after a trade is made. It depends on the clearance process. In the United States, the settlement date for marketable stocks is usually 2 business days or T+2 after the trade is executed, and for listed options and government securities it is usually 1 day after the execution. Conversely in Europe, settlement date has also been adopted as 2 business days settlement cycles T+2.Settlement ExplainedA settlement is also the process of the payment of an outstanding account balance, an open invoice or charge. The electronic settlement system is a relatively new construct that has only become a standard in the past thirty years.For example, in real estate finance, you have settlement when the funds are accepted, and the deed to the property is traders to the new owner. Settlement can also mean an adjustment or agreement reached in matters of finance or business. For example, we have settled with the bank or the credit card company. A number of risks arise for the parties during the settlement process. These are effectively managed by the process of clearing, which follows trading and precedes settlement. By extension, clearing involves modifying those contractual obligations so as to facilitate settlement, often by netting and novation. Read this Term price for cash-settled contracts traded on the CME Globex and also on a separate expiring cash-settled futures contract which was listed on the Intercontinental Exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectively relevant with real-time pricing.Depending upon where you reside, an exchange may be referred to as a bourse or a share exchange while, as a whole, exchanges are present within the majority of countries. Who is Listed on an Exchange?As trading continues to transition more to electronic exchanges, transactions become more dispersed through varying exchanges. This in turn has caused a surge in the implementation of trading algorithms and high-frequency trading applications. In order for a company to be listed on a stock exchange for example, a company must divulge information such as minimum capital requirements, audited earnings reports, and financial reports.Not all exchanges are created equally, with some outperforming other exchanges significantly. The most high-profile exchanges to date include the New York Stock Exchange (NYSE), the Tokyo Stock Exchange (TSE), the London Stock Exchange (LSE), and the Nasdaq. Outside of trading, a stock exchange may be used by companies aiming to raise capital, this is most commonly seen in the form of initial public offerings (IPOs).Exchanges can now handle other asset classes, given the rise of cryptocurrencies as a more popularized form of trading. An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectively relevant with real-time pricing.Depending upon where you reside, an exchange may be referred to as a bourse or a share exchange while, as a whole, exchanges are present within the majority of countries. Who is Listed on an Exchange?As trading continues to transition more to electronic exchanges, transactions become more dispersed through varying exchanges. This in turn has caused a surge in the implementation of trading algorithms and high-frequency trading applications. In order for a company to be listed on a stock exchange for example, a company must divulge information such as minimum capital requirements, audited earnings reports, and financial reports.Not all exchanges are created equally, with some outperforming other exchanges significantly. The most high-profile exchanges to date include the New York Stock Exchange (NYSE), the Tokyo Stock Exchange (TSE), the London Stock Exchange (LSE), and the Nasdaq. Outside of trading, a stock exchange may be used by companies aiming to raise capital, this is most commonly seen in the form of initial public offerings (IPOs).Exchanges can now handle other asset classes, given the rise of cryptocurrencies as a more popularized form of trading. Read this Term Europe (ICE Europe)
According to a statement published by Interactive Brokers Group, Inc, several of its customers held long positions in these CME and ICE Europe contracts, and following the historical price drop, they incurred losses in excess of the equity in their accounts.
Following this, the US-based brokerage firm fulfilled its required variation margin settlements with the respective clearinghouses on behalf of its customers, which has put the company out of pocket around $88 million.
However, the US company has said in its statement yesterday that it believes the anticipated losses will not have a material effect on its financial condition.
Interactive Brokers: there’s another $500bln in losses out there
Thomas Peterffy, Founder of Interactive Brokers
Source: Bloomberg
In an interview with CNBC, Thomas Peterffy, founder and chairman of Interactive Brokers said: "we had around 15% of the open interest in the May oil contract.” This indicates that other brokers have suffered even more dramatic losses than Interactive Brokers, as the rest of the open interest faces losses, adding "we are going to have to learn to cope with negative futures prices."
Furthermore, when asked by CNBC whether there is going to be some serious pain across the industry regarding the oil futures, Peterffy replied: "There is about another half a billion dollars of losses that somebody is sitting on... and I do not know who those folks are."
Revenues miss forecasts
On Tuesday, the brokerage firm also published its financial results for the first quarter of 2020 ended March 31, 2020. During the three-month period, the company recorded adjusting earnings per share of 69 cents, which is higher than market forecasts of 68 cents and is higher year-on-year from the 55 cents reported in Q1 2019.
Adjusted revenue, however, did not look as strong for the firm, coming in at $581 million. Although this represents an increase of 24.1 per cent year-on-year, up from $468 million from the prior-year period, nonetheless, it is lower than the $582.4 million consensus.
With US oil prices plunging into negative territory for the first time in history on Monday, and again on Tuesday, Interactive Brokers has suffered an aggregate provisionary loss of approximately $88 million, the company announced on Tuesday.
As Finance Magnates reported, on Monday, WTI futures (West Texas Intermediate) for May, which expired on Tuesday, settled at USD -37.63 on Monday this week, falling USD 55.90, and even sinking as low as USD -40.32. For the second time in the week on Tuesday, WTI futures fell back below zero.
This price was the basis for determining the Settlement Settlement Settlement in finance refers to the process when a buyer makes payment and receives the agreed-upon services or goods. The term is used on exchanges such as New York Stock Exchange (NYSE) when security changes hands. When the asset is transferred and placed in the new buyer's name, it is considered settled. This process could take a few hours or several days after a trade is made. It depends on the clearance process. In the United States, the settlement date for marketable stocks is usually 2 business days or T+2 after the trade is executed, and for listed options and government securities it is usually 1 day after the execution. Conversely in Europe, settlement date has also been adopted as 2 business days settlement cycles T+2.Settlement ExplainedA settlement is also the process of the payment of an outstanding account balance, an open invoice or charge. The electronic settlement system is a relatively new construct that has only become a standard in the past thirty years.For example, in real estate finance, you have settlement when the funds are accepted, and the deed to the property is traders to the new owner. Settlement can also mean an adjustment or agreement reached in matters of finance or business. For example, we have settled with the bank or the credit card company. A number of risks arise for the parties during the settlement process. These are effectively managed by the process of clearing, which follows trading and precedes settlement. By extension, clearing involves modifying those contractual obligations so as to facilitate settlement, often by netting and novation. Settlement in finance refers to the process when a buyer makes payment and receives the agreed-upon services or goods. The term is used on exchanges such as New York Stock Exchange (NYSE) when security changes hands. When the asset is transferred and placed in the new buyer's name, it is considered settled. This process could take a few hours or several days after a trade is made. It depends on the clearance process. In the United States, the settlement date for marketable stocks is usually 2 business days or T+2 after the trade is executed, and for listed options and government securities it is usually 1 day after the execution. Conversely in Europe, settlement date has also been adopted as 2 business days settlement cycles T+2.Settlement ExplainedA settlement is also the process of the payment of an outstanding account balance, an open invoice or charge. The electronic settlement system is a relatively new construct that has only become a standard in the past thirty years.For example, in real estate finance, you have settlement when the funds are accepted, and the deed to the property is traders to the new owner. Settlement can also mean an adjustment or agreement reached in matters of finance or business. For example, we have settled with the bank or the credit card company. A number of risks arise for the parties during the settlement process. These are effectively managed by the process of clearing, which follows trading and precedes settlement. By extension, clearing involves modifying those contractual obligations so as to facilitate settlement, often by netting and novation. Read this Term price for cash-settled contracts traded on the CME Globex and also on a separate expiring cash-settled futures contract which was listed on the Intercontinental Exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectively relevant with real-time pricing.Depending upon where you reside, an exchange may be referred to as a bourse or a share exchange while, as a whole, exchanges are present within the majority of countries. Who is Listed on an Exchange?As trading continues to transition more to electronic exchanges, transactions become more dispersed through varying exchanges. This in turn has caused a surge in the implementation of trading algorithms and high-frequency trading applications. In order for a company to be listed on a stock exchange for example, a company must divulge information such as minimum capital requirements, audited earnings reports, and financial reports.Not all exchanges are created equally, with some outperforming other exchanges significantly. The most high-profile exchanges to date include the New York Stock Exchange (NYSE), the Tokyo Stock Exchange (TSE), the London Stock Exchange (LSE), and the Nasdaq. Outside of trading, a stock exchange may be used by companies aiming to raise capital, this is most commonly seen in the form of initial public offerings (IPOs).Exchanges can now handle other asset classes, given the rise of cryptocurrencies as a more popularized form of trading. An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectively relevant with real-time pricing.Depending upon where you reside, an exchange may be referred to as a bourse or a share exchange while, as a whole, exchanges are present within the majority of countries. Who is Listed on an Exchange?As trading continues to transition more to electronic exchanges, transactions become more dispersed through varying exchanges. This in turn has caused a surge in the implementation of trading algorithms and high-frequency trading applications. In order for a company to be listed on a stock exchange for example, a company must divulge information such as minimum capital requirements, audited earnings reports, and financial reports.Not all exchanges are created equally, with some outperforming other exchanges significantly. The most high-profile exchanges to date include the New York Stock Exchange (NYSE), the Tokyo Stock Exchange (TSE), the London Stock Exchange (LSE), and the Nasdaq. Outside of trading, a stock exchange may be used by companies aiming to raise capital, this is most commonly seen in the form of initial public offerings (IPOs).Exchanges can now handle other asset classes, given the rise of cryptocurrencies as a more popularized form of trading. Read this Term Europe (ICE Europe)
According to a statement published by Interactive Brokers Group, Inc, several of its customers held long positions in these CME and ICE Europe contracts, and following the historical price drop, they incurred losses in excess of the equity in their accounts.
Following this, the US-based brokerage firm fulfilled its required variation margin settlements with the respective clearinghouses on behalf of its customers, which has put the company out of pocket around $88 million.
However, the US company has said in its statement yesterday that it believes the anticipated losses will not have a material effect on its financial condition.
Interactive Brokers: there’s another $500bln in losses out there
Thomas Peterffy, Founder of Interactive Brokers
Source: Bloomberg
In an interview with CNBC, Thomas Peterffy, founder and chairman of Interactive Brokers said: "we had around 15% of the open interest in the May oil contract.” This indicates that other brokers have suffered even more dramatic losses than Interactive Brokers, as the rest of the open interest faces losses, adding "we are going to have to learn to cope with negative futures prices."
Furthermore, when asked by CNBC whether there is going to be some serious pain across the industry regarding the oil futures, Peterffy replied: "There is about another half a billion dollars of losses that somebody is sitting on... and I do not know who those folks are."
Revenues miss forecasts
On Tuesday, the brokerage firm also published its financial results for the first quarter of 2020 ended March 31, 2020. During the three-month period, the company recorded adjusting earnings per share of 69 cents, which is higher than market forecasts of 68 cents and is higher year-on-year from the 55 cents reported in Q1 2019.
Adjusted revenue, however, did not look as strong for the firm, coming in at $581 million. Although this represents an increase of 24.1 per cent year-on-year, up from $468 million from the prior-year period, nonetheless, it is lower than the $582.4 million consensus.