Interactive Brokers to end market-making as earnings slump
Interactive Brokers, one of the pioneers of automated options trading, is to shut down its market-making activities after a long-term slide in the unit's earnings, from profits of $720m in 2007 to $44m last year. The US company had been executing trades through its Timber Hill firms. CEO Thomas Peterffy said Interactive Brokers would concentrate on its e-brokerage business as market-making had become too costly. The company had been reviewing its operations for some time and analysts question how the pared-down company will fare at a time of swingeing price cuts in the financial industry.

Wells Fargo maintained its Market Perform rating on Interactive Brokers Group, Inc. IBKR, which announced its decision to close its market making operations and solely focus on e-brokerage business.

Analyst Christopher Harris says the move isn't a complete surprise as Interactive Brokers has been reviewing this business for a long time and the pre-tax profit of the unit also fell significantly from $720 million in 2007 to $44 million in 2016.

Harris, who has a valuation range of $35 to $39 on the shares, expects the move to be dilutive to EPS and he models a 5 percent impact.

Though the investors may now ascribe higher value to e-brokerage business, the analyst said the current price cutting environment across the industry is “somewhat uncertain” for the commission-heavy e-brokerage business models.

“IBKR possess industry leading growth supported by cost and technological advantages relative to peers. However, due to near-term cyclical pressures in Brokerage and secular declines in Market Making, we view the shares as fairly valued,” Harris wrote in a note.

At last check, shares of Interactive Brokers fell 1.36 percent to $36.98.

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