Interactive Brokers To Sell Options Market-Making Division

Interactive Brokers Group, Inc. (NASDAQ:IBKR) signed a definitive agreement with Two Sigma Securities, LLC (“TSS”) to divest its U.S. options-market-making business of Timber Hill. Two Sigma is the market-making affiliate of Two Sigma Investments, LP.

The financial terms of the deal were not disclosed. The transaction, expected to close in September, is subject to regulatory approvals.

Upon closure, the deal will place TSS in the top tier among the options and equities market makers. The firm’s market making offerings will expand over 7,000 U.S. equities and options on 1,300 underlying securities. It intends to open an office in Connecticut to accommodate Timber Hill's present team, which would operate alongside TSS's prevailing operations in SoHo.

Reasons for Sale: Less Profitable

Earlier in March, Interactive Brokers announced its plan to discontinue its options market-making activities globally, which were conducted through Timber Hill. The primary reason for this move is that the market making business is not as profitable as it was before.

Also, as retail orders are now generally purchased by large-order internalizers, providing liquidity to such professional handlers of short-term instruments is not profitable. Therefore, Interactive Brokers now plans to shift focus on building its electronic brokerage platform.

Further, Interactive Brokers’ market making segment has been reporting disappointing results for the past several years. While the initiative is expected to lead to one-time expenses, overall this decision is expected to support the company’s financials going forward.

Interactive Brokers is not the only one moving away from options market making operations. Several other companies including UBS Group AG (NYSE:UBS) , Credit Suisse (SIX:CSGN) Group AG (TO:CS) and JPMorgan Chase & Co. (NYSE:JPM) have pulled out this business in the recent past.

Over the last six months, shares of Interactive Brokers have lost 3% as against the 7.6% increase for the Zacks categorized Investment Brokers industry.



Currently, Interactive Brokers carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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