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.

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This price was the basis for determining the settlement 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 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.

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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 of Interactive Brokers
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.

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