Trader’s Narrative

I use Interactive Brokers as my primary broker because of their price and offering but also because they consistently improve and add new features. They put the Japanese companies to shame when it comes to kaizen.

Usually they follow the requests made by their clients - I’ve been with them long enough to remember a time they grudgingly gave in to demands for trailing stop losses because Thomas Peterffy believed they weren’t good for the health of markets (I am not kidding!!). But they also innovate and surprise their fans with new features.

They recently announced a raft of new features, products and markets. If you are a serious trader and looking for a broker, check them out.

Here are the recent additions:

New Products & Markets

• US Treasury Bonds and Notes
• Vanguard No-load Mutual Funds
• Mexican stocks, futures, and options
• Spanish stocks

The first two are huge news because as far as I can remember, we’ve been pestering IB for it. The even better news is that fixed income will be expanded soon to include T-Bills and that other mutual fund families will be added as well. IB was at one time proud that they stuck to just derivatives and equity markets. Finally, they are branching out to other financial products.

The expansion to Mexico and Spain are also welcomed. Especially since I have familiarity and interest in the Spanish equity market. IB has offered Spanish derivatives for some time but now the lineup is complete.

IB Block Desk
The biggest news is this! Interactive Brokers is opening up their institution block desk to retail customers. Now if your orders are big enough (100+ contracts), you can call them up and get a tighter spread or more liquidity than electronic markets. The desk also offers you access to the Spoos (the S&P 500 open outcry market or pit), OEX, NDX (and their options).

Answering calls will be experienced, knowledgeable traders who can tackle anything you throw at them, including complex derivative trades. But this is a very surprising development since Interactive Brokers has adamantly refused to do anything but push deeper into electronic markets through sophisticated trade matching computer algorithms.

IB Risk Navigator
This is a relatively new built in quantitative tool that will monitor and manage your risk exposure across countries, markets, currencies and securities. Think of it as your very own risk manager. IB has added a few extra capabilities to it but unless you trade a gamut of securities spanning markets or dabble in options heavily, then you probably don’t need it. In case you’re interested, IB is offering two Webinars to explain it in more detail: March 26th and April 23rd.

Trader Work Station
The TWS is the trading platform from IB and most people fall into two camps: they either love its simplicity or hate its clunky look (and Java-ness). In any case, IB isn’t going to chuck it any time soon so if you’re thinking of opening an account with IB this may be the only deal breaker. You can always use their web based interface but it has very limited functionality compared to the TWS. IB has finally tried to mollify its critics by adding skinning, so you can customize the look of the TWS.

I can’t help but think that a lot of these uncharacteristic new features and markets are a result of Interactive Brokers becoming a public entity last year.

If you’re shopping for a broker, click to see last year’s best broker ratings from Barron’s.

Speak of the devil! Interactive Brokers released a message just yesterday (thanks to Kryslon for the heads up in my previous post about the Interactive Brokers IPO). I’m glad to see that IB clients can bid on the initial public offering!

[Letterhead of Interactive Brokers]

Dear Friends of Interactive Brokers:

After 30 years of building our closely held company, we are ready for the next phase of our development. We believe that a public offering of our shares will provide us with greater name recognition and accelerate our growth. Accordingly, we are now launching the Initial Public Offering of 20 million shares of Interactive Brokers Group, Inc. (“IBKR”), and we expect the public offering price to be between $23 and $27 per share.

Throughout our history, we have dedicated ourselves to building technology to provide liquidity and direct market access for our customers at very low costs. It is in this spirit that we are offering our shares in a Dutch auction through WR Hambrecht + Co.’s Open IPOTM system.

IB Account Holders can participate in the IPO through our fully electronic IBIPO Dutch Auction System, or along with others may buy shares in the IPO through the participating broker of their choice. Enclosed you will find a copy of IBKR’s preliminary prospectus as filed with the Securities and Exchange Commission. Complete details on the mechanics of the IBKR IPO are contained in the prospectus’ Plan of Distribution section.

IB Customers will find instructions on how to enter and cancel bids in the IBIPO Auction system at www.interactivebrokers.com/IBIPO. The IBIPO Auction system may be launched in Account Management under the Trading Access/IBIPO Auction tab.

For the latest information on the IBKR IPO, including updates on the list of participating brokers, offering dates and an electronic copy of the prospectus you may visit our dedicated web site IPO.Interactivebrokers.com.

An IBIPO auction is typically open for bids for one to two weeks prior to the closing date of the offering. Once the bidding concludes, WR Hambrecht + Co. will assemble the bids and, working from highest to lowest, it will identify the first bid price that will sell all the offering’s shares. This is the clearing price and will be the maximum price at which the issuing company will offer its shares. The issuing company and placement agents will then decide the price at which the issuing company will offer the shares, taking a number of economic and business factors into account in addition to the clearing price.

As always we greatly value your business and look forward to continuing to serve you with our premier technology and low trading costs.

Sincerely,

Thomas Peterffy

And here is the amended S-1 with the changes in participating dealers.

Interactive Brokers announced their plans to go public on November 27th, 2006 with the filing of an S-1. But since that announcement we’ve heard not a peep out of them.

The founder, Thomas Peterffy, continues to thumb his nose at the sell side firms by planning to use a ‘Dutch auction’ to distribute the shares. This is the same method used by Google and Lazard. Only two firms will place the offering: WR Hambrecht and E*Trade Securities. And they have already picked out a good symbol: IBKR.

There is a lot of great information about Interactive Brokers in their S-1. For example, did you know that IB makes 7 times more from market making as from their brokerage services? And most impressive, IB’s growth rate is still phenomenal. Their consistent growth is what sets apart IB from the rest of the brokers and makes their IPO very attractive. By early estimates the firm will probably be valued at around the $10 billion range. Which means that with an 85% ownership stake, Thomas Peterffy can afford a few more horses

The only disadvantage is that Peterffy has organized the IB Group in a very complex way and through a dual share structure has ensured that even with the firm in public hands, he will continue to maintain control. This isn’t a totally bad thing when you consider how IB has grown under his stewardship.

I’ve asked my contacts inside IB for more info, so when I hear back, I’ll update this.