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

Interactive Brokers Group (IBKR) went public a few months ago with a lot of buzz. Most of the attention was on the Dutch auction process they had chosen to go with, instead of the regular Wall St. investment bank route.

I’m not sure whether it was due to the process they chose, or the fact that the market got lethargic right when they debuted but the IPO sputtered.

A lot of people, had high hopes for IB but it ended up a disappointment. I even put in an offer but it didn’t get accepted because I was too stingy.

I took another look and noticed that it has carved out a fair head and shoulders pattern on the daily chart:

With today’s rumour of Warren Buffet’s involvement in Bear Stearns (BSC) the whole financial sector got a shot in the arm. I’m not sure if the rumour is true or not. There have been quite a few floating about.

In any case, I wouldn’t be surprised. BSC has all the hallmarks of a classic Buffet investment: beaten down sector, temporary dislocation, high barriers to entry, valuable name brand, loads of value, and loads of cash flow.

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?