Trader’s Narrative

Today, most financial companies are an endangered species. But other brokers and investment banks may be struggling and getting government bailout money to spend on bonuses, Interactive Brokers (IBKR) goes from strength to strength.

They recently reported earnings for 2008 and for the first time they broke the billion dollar mark for income (before taxes and minority interests). When you consider this was done on revenues of only $1.85 billion, you get an idea of how tight a ship they run.

I’ve mentioned before that they are one of my favorite brokers and arguably the best broker out there for the non-proprietary trader. As a customer, it’s good to know that your broker is on solid financial footing - one less thing to worry about.

If you trade with them you soon get to love their SMART routing which gets you better prices at surprising frequency. Based on independent analysis by the Transaction Auditing Group, IB’s SMART routing beats the competition. You can get the full details here.

As well, they are continuing to roll out new products and expand their already impressive market reach:

• Korean Kospi 200 Futures and Index Options (for US resident customers) soon
• National Stock Exchange of India (NSE) equity - initially to residents of India but eventually to others
• …to be then followed by NSE index futures trading
• addition of American Century no-load mutual funds

You could argue that IB is becoming a quasi-prime broker. They are a one stop shop for equities, derivatives (options, as well as futures) in more than a dozen international stock markets. And they have forex to boot. Add to that mutual funds marketplace they implemented in recent years and you’ve got a top-notch brokerage firm.

But that doesn’t mean they are the perfect fit for you. I think they are definitely worth a look if you are an active trader or have a large portfolio. But you should do your own due diligence to find a broker that you’re happy with.

Here’s a chart of Interactive Broker’s (IBKR) stock price since their IPO:

As you can see from the chart, fundamentals count… but not really

So after all that breathless preamble… this?

Interactive Brokers (IBKR) faltered right out of the gate and kept stumbling.

Oh well.

It’s easy to be neutral when you don’t have any vested interest - I didn’t get allocated any shares. And I didn’t like the market action so I stood aside. Disappointing.

On the plus side, I narrowly skirted becoming a crystal ball gazing, tarot-card slash palm reader. IBKR didn’t open at $32 as I had predicted. It opened at $33. And it didn’t hit $35. It didn’t even hit $34. It just petered out.

Today I was also keeping an eye on another security: TSX Group Inc. (TSE:X) - the holding company for the Toronto Stock Exchange. Yesterday their share price was pounded by news that a consortium made up of all six Canadian banks (BMO Capital Markets (TSE:BMO), CIBC World Markets (TSE:CM), National Bank Financial (TSE:NA), RBC Capital Markets (TSE:RY), Scotia Capital (TSE:BNS) and TD Securities (TSE:TD)) plus Cannacord Capital (TSE:CCI) would set up their own ECN to compete with it.

The announcement was just that, an announcement. And to show how early they are in the project, they don’t even have a name picked out for the ECN and are using the code-name, “Alpha”. So obviously yesterday’s panic selling was a tad overdone. Today it gapped up and recovered all morning.

I’ll continue to watch both IBKR and TSX Group.

The Interactive Brokers (IBKR) Dutch auction closed today at 4:00pm. The IPO was priced at $30.01 per share.

Dang! I was off by $0.01

Now all we have to do is wait for it to start trading tomorrow sometime (probably late morning). If it starts trading at $32.01 I’m going to retire to a life of tarot card reading and palmistry.

Keep the ticker symbol: IBKR on your watchlist. Things could get interesting.

For those keeping track, my bid wasn’t high enough, so I wasn’t allocated any shares.

For fun, we’re betting on the final price of the Interactive Brokers (IBKR) final IPO price as well as the opening day price.

If my search stats are any indication, this one is a scorcher. I’ve gotten thousands of people arriving at my trading blog from searches on google for “interactive brokers ipo” and similar search strings.

Also, take a look at the IPOhome.com’s poll:

Right now, IBKR is the hottest IPO on offer!

A reinforcing feedback loop could develop where people are attracted to this IPO simply because it is “hot”. If that is the case - and it seems it might be happening already - then we could see it pop. Especially if the general market continues to be as hot as it has for the past few weeks. People on Wall Street are already becoming desperate and afraid that they are missing out.

How do you think this will play out? will it be a dud? or will it run in spite of its high pricing?

It is difficult to gauge the demand supply dynamic in a Dutch auction until it is over but there is such a strong demand for Interactive Brokers IPO (IBKR) that they raised not only the price band (from $23-$27 per share) to $27 to $31 per share but also increased the number of shares offered from 20 million to 34.5 million.

That’s a huge increase! In light of this, I think there’s a good chance that this IPO will actually run when it opens. I’ve already put in my order but being the stingy bastard that I am, I’m not going to chase this right now. I prefer to sit and wait till it comes out to see its price action in the market.

I’m not sure exactly when IBKR will open but chances are good it will be later this week. The first day could actually be tradeable!