Cutting-Edge Software Drives Interactive Brokers' Growth
Indian online brokerage launches amid steady expansion
March 30, 2009
Interactive Brokers Group, with the launch this month of an online brokerage in India, is continuing its global expansion even as some of its competitors scale back. A strong focus on technology will be integral to the Greenwich, Conn.-based firm's growth.
Indian clients of Interactive Brokers will have access to the 80 markets in 17 countries where its affiliates have memberships. "It has been our mission to create a global platform and provide liquidity to exchanges and brokerage services to sophisticated clients," says IB's founder and CEO, Thomas Peterffy.
But is India ready to embrace online brokerage, particularly in the middle of a global downturn? "There is an emerging middle class there," says Peterffy. "There are several places that are developing electronic exchanges. India had the most potential."
Gerald Perez, the London-based managing director who is leading the initiative, says that IB's leading-edge software--specifically its Trader Work Station (TWS)--is a major factor in the firm's global appeal, perhaps more so in India. "International investors have to jump through hoops to trade in India, [and] go through a lot of regulatory speed bumps," says Perez. India has many "tech-savvy" investors, he says, "who have always wanted to trade internationally but needed to find credibility in the marketplace."
Until recently, most business in India has been done via the phone, according to Perez, because India's electronic systems are not very sophisticated. IB's TWS offers stock and option algorithms, real-time risk management, market data on over 46,000 listings across more than 100 exchanges, and order management tools. "Embedded in there are a lot of choices and applications," says Perez. "We give you 40-plus order types. That is a big differentiating point."
An Indian client will pay 60 rupees--about $1--to trade one options contract, plus additional costs, says Perez. "The more you trade, the less you pay," he adds. Currently, customers have access to futures and options; IB India plans to begin offering stocks within the next 45 days.
Rising Revenues
IB has been holding up well in the financial crisis. In 2008, the first full year following its May 2007 initial public offering, net revenues rose 25 percent, to $1.85 billion from $1.47 billion. Earnings per share increased 41 percent, to $2.24 from $1.59. "It is not easy to report record profits in a year that has been generally difficult for our industry," notes Peterffy. He attributes the results to IB's focus on long-term growth, controlling risk and building technology.
Peterffy, 64, started life on Wall Street as an options trader with a self-described fascination with computers. At Timber Hill, the market-making firm he founded in 1977, Peterffy built a system that could route orders to the destination offering the best prices, permitting traders to improve execution while hedging their risk. As the firm grew, he continued to invest in his trading network, introducing the capability to split big orders into smaller pieces and send them to different exchanges as prices moved.
In 1993, he started a new discount brokerage operation, Interactive Brokers, for institutions and individuals. IB now has over $4 billion in equity capital, 650 employees, and offices in Switzerland, Canada, Hong Kong, the U.K., Australia, Hungary, Russia and Estonia.
Advanced Technology
"Their reputation has been built around their superior technology," says Richard Repetto, a principal in Sandler O'Neill & Partners in New York. "They cater to the highly active trader and they are global. They are a market maker and a broker. The key differentiators are automation and their global footprint. ... In options, they are up there with Citadel."
